We need to rethink the entire lending model across the emerging markets. Most originations begin with collateral valuation. Liquidation of security as a primary way out gets more weightage than cashflows from operations. Credit due diligence starts with inherent lack of faith in full financial disclosures. In default, Lenders have no easy way to replace the management or take control of the Board. Sectors that drive most of these economies, like SMEs and Agri, lack access to capital. Unless they get growth capital, these entities will continue to stifle and never reach their full potential.
Muhammad Ramzan
2mo
Tariq Masaud SB Respected sir I have been dealing with SMEs and Agri lending for the last 17 years and your analysis is RIGHT . Most of our lending decisions are driven by collateral value rather than financials.The reason is lack of authenticity in financial statements.It is an open secret that businessmen make 2 financial statements one for bank and other for FBR .The income tax paid in fbr returns don't match with financial statements presented to bank .Even our Finance minister who has been a professional banker himself declared FBR as a corrupt institution.Even SME promotional organizations never attempt to make SME economies documentary or discourage tax evasion.
Yusuf Ali Khan
2mo
Agreed and what we have seen is that where the regulator has played an active role in spearheading policies that enable sustainable lending that is where SMEs have thrived.
Syed Shakeel Zia
2mo
Key Considerations in Lending Decisions: Sponsors – Evaluating the credibility and experience of the promoters or owners. Business Model – Assessing the sustainability and scalability of the business. Industry Dynamics – Understanding sector-specific risks and growth potential. Trends – Monitoring market trends and economic conditions. Repayment History – Reviewing past financial discipline and repayment behavior. While financial records are generally well-maintained, especially in established corporations, and engineering aspects are thoroughly addressed, our approach as Risk and Credit professionals often gravitates towards established brands and blue-chip companies. It raises a critical question—when did we last make a conscious effort to support SMEs or explore untapped sectors? This highlights the need to reconsider our risk appetite and lending strategies to foster broader economic growth.
Syed Asad Ali
2mo
Very informative. The heavy reliance on collateral and skepticism toward financial disclosures underscore key barriers in lending within emerging markets. To genuinely support SMEs and the Agri sector, the focus must shift toward evaluating cash flow potential, operational strength, and growth opportunities. Embracing innovative solutions like data-driven credit assessments, collaborative due diligence, and governance-oriented strategies could unlock more inclusive financing models. Reimagining access to capital is essential for driving sustainable growth in these economies.
Khurrum Nadeem
2mo
The Banking Industry of Pakistan has historically shyed away from SME lending. We owe it to the SME sector to initially lend to them and improve their operational / financial disclosures. Defaults are a part of the lending business. Banks have always been seennto bend over backwards to support the Big Names but shy away from lensing to SMEs; fearing bad debt. Lets bring about this change (its already late) Lets start lending to SME, this is how growth at the grass root level will be initiated.
Omer Iqbal
2mo
Since we are an agro based country and being a developing economy and our youth is leaning away from conventional jobs. Therefore we have opportunities to develop SMEs as the backbone driving our economy. This requires economies to develop credit unions and venture capital firms offering partnership opportunities. Our capital markets did not develop nor our banking system has hausbank facilities for small businesses. Therefore credit unions and capital firms are a good way to start with and meanwhile banks can establish subsidiaries on this model.
Asif k. Durrani
2mo
Capacity building through Financial Advisory along with Financial Literacy training for SME’s will allow borrowers to prepare & present actual financial statements which will eventually lead to a credit culture wherein FIs will be taking view on business model, cash conversion cycle, UBO’s - representing SMEs, actual risk inherent with the industry / trade will be mitigated appropriately allowing SMEs to reap the true benefits associated with cash flow base lending.
Naveed Khawaja
2mo
There is a need of collaborative efforts between financial institutions, governments, and development agencies, which is essential to create an enabling environment. For SMEs and Agri venture capital, private equity, and impact investing, can play a pivotal role in bridging this gap.
In the SME sector, the authenticity of audited financial statements remains a significant challenge. Despite SECP's SRO mandating UDIN-based auditor reports and ICAP's directive 4.27, many audit firms continue to issue non-compliant reports, constituting professional misconduct. SBP, as the regulator, has yet to enforce UDIN compliance. Relying on fabricated accounts for financial analysis leads to misleading decisions, undermining the credibility of the process. I think we're the leading bank in the banking industry for ensuring UDIN based auditor reports.
M&A/Privatisation/Corporate Finance
2moWhat is stopping us?