Small and Medium Enterprises (SME) sector's outstanding credit stood at Rs. 334 billion constituting about 9.6 percent of total outstanding banking portfolio which comprise Corporate, SME, Agriculture, Consumer, Commodity and Staff Loans, recording an decline of 4 percent at the end of December 2010.

According to State Bank of Pakistan this sector, like other priority sectors of the economy, has been experiencing difficulties due to prevailing economic challenges in the country.

The decline may be attributed to many factors such as energy shortages, high interest rates and overall shyness of the industry towards the sector in the face of rising NPLs. Furthermore, another reason might be the diversion of banking funds towards investments in T-Bills as well as providing credit to the Government of Pakistan to meet the financing needs for Commodity Operations and Public Sector Enterprises.

Enterprise wise analysis revealed that Manufacturing SMEs share formed 40.5 percent, Trading SMEs 44.7 percent, and Services SMEs a share of 14.8 percent at the end of the quarter under review. Moreover, their share in total SME outstanding borrowers was 17.9 percent, 50.9 percent and 31.1 percent respectively.

When, there has been a consistent increase in the NPLs of the whole Banking Industry during the last four years and quarter end December 2010 too saw a rise of about 3.1 percent, QoQ basis. In this regard, SME Sector was not an exception as its NPLs too rose by 5.4 percent, on QoQ basis.

Further, the total number of borrowers saw a decline of 6.1 percent and SME sector again was not an exception as it too recorded a quarterly decline of about 6.1 percent.