KARACHI: State Bank of Pakistan (SBP) Deputy Governor Dr Inayat Hussain said on Wednesday the share of small and medium-size enterprises (SMEs) in total financing to the private sector is going down partly because of their preference for the informal sector that lets them avoid taxes.

Speaking at the Cashless Supply Chain Conference, Dr Hussain said lending to the SMEs based on either cash flows or collateral in the traditional manner isn’t suitable anymore as it’s getting increasingly time-consuming and costly.

SMEs had a share of only 7.96 per cent in the total outstanding loans of Rs7.1 trillion to private-sector businesses at the end of August.

“The only way forward is (using) technology,” he said while recognising the effort of Haball Ltd, a business-to-business fin-tech that’s targeting supply chain digitisation.

Along with Meezan Bank Ltd, Haball was the organiser of the half-day conference that marked the launch of its Wisaaq portal, which is the country’s first end-to-end digital supply chain financing platform that allows distributors of fast-moving consumer goods (FMCG) to receive loans backed by assets (inventory) and improve cash flows to expand business volumes.

One of the chronic issues faced by distributors — which are the middle link in the FMCG supply chain — is a shortage of cash. These are SMEs with receivables as delayed payments from retailers force them to borrow heavily from banks as well as private lenders.

Banks shy away from financing SMEs because the sector exposes the lenders to a disproportionately high non-performing loans. Moreover, SME lending involves higher operating expenses than a segment like corporate because of their smaller ticket size. The requirement of tangible collateral also complicates the SMEs’ relationship with banks. As a result, many distributors end up compromising their growth since private lenders charge an interest rate of “30-40pc”.

Wisaaq connects the distributor with the manufacturer while engaging a bank for instant financing backed by inventory, which is “visible” to the bank through the fin-tech’s portal.

It carried out its maiden transaction a day earlier. CCI Pakistan, producer of Coca-Cola, despatched an order to one of its distributors based on inventory-backed financing from Meezan Bank.

Traditionally, the whole process would take between two to three days. That’s because asset-backed financing — a condition under Islamic banking rules — requires that a bank’s representative must visit the warehouse of the borrower to confirm the existence of inventory.

“Now the process is down to 15 seconds,” said a Haball official while explaining the nature of the transaction. The bank gains real-time access to inventory levels while credit offer and acceptance take place on the portal, he said.

Speaking to Dawn on the sidelines of the conference, Haball CEO Omer Bin Ahsan said the onboarding of CCI Pakistan will likely help the beverage maker grow its turnover by 30-40pc. The multinational has got a network of 500-plus distributors who, in turn, serve 3,000-plus retailers across the country.

The fin-tech has onboarded a total of 22 clients, including Unilever, Tapal, Dawlance, National Foods, Reckitt and Pakistan Cables, he said. In addition to Meezan Bank, it’s also onboarded Bank Alfalah as a provider of inventory-backed, Sharia-compliant financing, he added.

Published in Dawn, October 6th, 2022