Today, Karandaaz Pakistan and Meezan Bank signed the Corporate Vendor and Distributor Finance Program agreement, a first-of-its-kind initiative aimed at providing growth capital for small businesses.
Through this agreement, up to PKR 9 Billion in program-based term funding for capital investment and expansion working capital will be made available to small and mid-size vendors and distributors operating in organized economic supply chains in Pakistan.
The program has been developed in response to the sharp decline in SME finance in Pakistan, from ~17% of total commercial bank lending in FY2008-9 to ~6% by FY2014-15. Access to term funding (long term cap-ex financing) is even more scarce for SMEs in Pakistan.
Mr. Asad Azfar, Chief Investment Officer of Karandaaz Pakistan, said:
It is critical for broad based economic and employment growth in Pakistan that this credit contraction is reversed and brought in line with comparable international benchmarks (20-30% of banking assets). It is also crucial for commercial banks to develop viable credit models to lend to this vital agent of the economy.
The partnership with Meezan Bank is a first step in this direction and will enable apex Corporates to direct credit to vendors and distributors that are well-positioned for growth without assuming credit risk.
Mr. Irfan Siddiqui, President and CEO of Meezan Bank, expressed the Bank’s utmost commitment to this partnership with Karandaaz Pakistan. He stated:
I am both delighted and humbled by the fact that Meezan Bank has been chosen by Karandaaz, a company that is sponsored by United Kingdom’s Department for International Development (DFID) and Bill & Melinda Gates Foundation, to partner with it to provide finance to the small and medium sized sector of the economy.
We are committed to promoting this very important segment of the economy and our role is to provide risk capital and infrastructure to implement the Program successfully.
The program has the potential to generate important strategic value for participating corporates by strengthening supply chains and distribution channels by providing access to finance; generating efficiency through greater economies of scale in supply chains and distribution channels; increasing corporate value by facilitating access to finance and banking relationships and reducing corporate balance sheet exposure.
The keynote address was delivered by Dr. Ishrat Husain, Chairman of the Board of Directors at Karandaaz Pakistan. While addressing the audience, he said:
Pakistan’s economy is highly dependable on the pace and productivity of SMEs. Ensuring access to finance by SMEs will allow them to modernize their production techniques, hire skilled human resources and invest in new equipment. They will be able to reposition themselves to earn more profits and expand their businesses.
Furthermore, since SMEs are labor intensive and provide large scale employment, the rise in productivity and efficiency will make a significant contribution in accelerating employment generation, GDP growth and poverty reduction.
The United Kingdom’s Department for International Development (DFID) also stressed its commitment to financial inclusion in Pakistan.
Mr. Waqas ul Hasan, Senior Private Sector Development Adviser at DFID Pakistan, said:
Enhancing SME lending will make it easier for individuals including women and youth to expand their businesses and create more employment opportunities.
Speaking at the occasion, Dr. Louise Walker, Head of DFID’s Economic Growth Group said:
We strongly believe that the obstacles preventing businesses from growing and creating jobs need to be tackled urgently. I am therefore delighted that Meezan Bank and Karandaaz Pakistan have embarked on this important venture and look forward to seeing the outcomes of this partnership.