KARACHI – The State Bank of Pakistan Deputy Governor Kazi Abdul Muktadir has stressed upon the banks to promote Small & Medium Enterprises (SMEs) through prudent banking solutions.‘I would stress the financial industry to break-out of the tendency of lending to conventionally profitable and relatively safer sectors, and move towards promoting SMEs through prudent banking solutions, he said in his address on ‘“Engaging the SMEs to Stabilise Economy” at the 6th SME Banking Conference at a local hotel in Karachi on Wednesday.Abdul Muktadir said that banks need to shift from traditional banking approach towards SMEs by developing and implementing appropriate credit evaluation techniques, used globally, such as credit scoring, cash flow & programme based lending, ’ he added. He said that SMEs would greatly benefit the financial institutions themselves as SMEs will grow into larger corporations, resulting in increased business opportunities for them. ‘Banks need to remember that their industry is only as strong as the underlying economy,’ he emphasised.SBP Deputy Governor said there exists strong evidence that SMEs expansion boosts employment more than large firm growth due to the fact that SMEs are normally more labour intensive. ‘In Pakistan, the SME sector contributes 30 percent towards the country’s GDP, employ more than 70 percent of the non-agricultural workforce, accounts for 35 percent of the value added in the manufacturing industry and generates 25 percent in the export earnings. The sector has huge potential in generating employment and alleviation of poverty in the country,’ he added.Keeping in view the specific business dynamics of the sector, SBP issued specific Prudential Regulations (PRs) for SMEs in 2003 that greatly helped banks to focus on SME financing and accordingly align their business strategies, he said and added that these Prudential Regulations for SMEs do not make it mandatory for banks to require collateral but allow them to take cash flow generation as the basis for loan approval. ‘We have always been open to any suggestion from the sector for further improvement and strengthening of these regulations, he added.