History exposure limit In small enterprise loan of

History of SME bankAs a part offinancial sector reorganization program of government of Pakistan  in 1st January 2002 SME Bank Ltdstarted its activities as a public limited company under the companies ordinance1984 by combining Regional Development Finance Corporation (RDFC) and smallBusiness Finance Corporation (SBFC). The prime shareholder of SME bank is theGovernment of Pakistan. Reason behind the formation of SME Bank Ltd was toprovide growth to Small and Medium enterprises sector in the country.

And thegrowth of the sector is possible only with specialized financial products andservices.SMALL ENERTPRISE Following is the criteria for smallenterprises.Number of employees Number of employees in small enterprise shouldbe maximum 50 employees.Turnover Turnover of small enterprise should be Rs150million.

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Per party exposurelimit In small enterprise loan of Rs 25 million canbe taken by single party.Requirement of audited accountsWhile giving loan tosmall enterprise there is no condition of audit the financial statements if theamount of loan is less than Rs15 million. If the amount of loan is more than Rs15 million than it should be get audited by the practising chartered accountantor Cost and management accountant.Repayment capacity of borrowerSmall enterprise usually have sale/purchasebooks and records of cash received/paid through which bank can estimate their income to check repayment capacity ofborrower.

Collateral ValuationDetermination of value of security forgranting loan upto Rs5 million is either done by bank own evaluating staff orby the evaluator approved by PBA and determination of  value of security for loan more than 5million Rs is done by evaluator which is approved by PBARecovery of outstandingduesBank can recover the outstanding dues from theplace rather than places at which they have authority.General reserveagainst Small enterprise finance1% general reserve can be keep by bank against secured portfolio of small enterprise and 2 %against unsecured portfolio of small enterprise. Classification of loansFor performing andnonperforming loans assessment can be done subjectively whereas for programbase lending objective classification is done.If borrower is paying interest on time in runningfinance and bank is positive about him than it is not attract by subjectiveclassification rather it is attracted by objective classification.Bank can take thebenefit of forced sale value of asset(FSV) of security which is taken whileproviding loan according to the set guidelines.Bank should check onquarterly basis the amount of loan which is recovered.

External auditor willverify the requirements for classification.Rescheduling of loanThe bank reschedule the loan according totheir policy approved by the board of directors.To avoidclassification rescheduling should not be done.Rescheduling cannotcause to make improvements in existing limits and ineligibility of borrowerform the fresh credit facilities.The loan has been declassified by the bank ifthe borrower eventually defaults MEDIUM ENTERPRISEFollowing is the criteria for mediumenterpriseNumber of employees Number of employees in case of mediumenterprise should be minimum 51 and maximum 250 employees.Turnover Turnover for medium enterprise should be Rs800millionRepayment capacity ofborrowerOn the basis of asset conversion cycle andestimated future cash flows bank can check the repayment capacity of borrowerPer party exposurelimitIn medium enterprise loan of Rs 200 millioncan be taken by a single partyRequirement of auditedaccountsWhile giving loan to medium enterprise thereis no condition of audit the financial statements if the amount of loan is lessthan Rs10 million. If the amount of loan is more than Rs 10 million than itshould be get audited by the practising cost and management accountant.


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