ISLAMABAD: Small and medium-sized enterprises (SMEs) are the largest business establishments and essential component of Pakistan’s economy as they contribute 40% to the country’s GDP and are critical for economic growth.
However, the SME industry is currently the second largest polluting sector in the world. These industries often employ production processes like dying, bleaching and finishing in an unsustainable way, which result in large amounts of carbon emissions.
To put brakes on the environmentally hazardous practices, the State Bank of Pakistan has come up with guidance and financing models to assist SMEs to transition towards sustainable production methods.
The central bank has asked the national and commercial banks to focus on financing that promotes the use of renewable energy for production.
In this regard, Syed Mohsin Zaidi, Vice-President of SME Bank, told WealthPK that climate and other environmental risks had increasingly become important topics for government and financial regulators. He added that the State Bank of Pakistan (SBP) had introduced green banking guidelines to promote green financing in the country. “In October 2017, the SBP launched green banking guidelines (GBGs) to promote environmental risk management within banks and encourage climate finance, which aims at reducing environmental vulnerabilities. Since its launch, banks have been working on several initiatives to facilitate access to green finance for SMEs.”
Mohsin Zaidi acknowledged that the SBP’s policies had pushed SMEs to approach financial institutions to meet their financing needs. “Banks usually give out large loans to the environmentally-hazardous industries such as textile, leather and chemicals SMEs. However, our primary goal is to make green financing available to SMEs so they may have a positive influence on the economy, the environment, and society,” he told WealthPK.
He added: “Our bank aims to give funding for environmental initiatives that use green technology and minimise pollutants in order to lower carbon emissions. Priority is given to those company ventures that practice eco-friendly activities such as waste management and renewable energy projects.”
He said the SME Bank had evolved a transparent process to support actual accomplishments of environmental objectives. “When the banks give loan to any individual or institution, they ensure that the borrowers do not practice such activity which is against the rules like child labour or any other illegal work.”
He informed that SBP had introduced an exclusion list, according to which, companies involved in any illegal practices such as making illegal weapons and tobacco alcoholic beverages are not facilitated with loans.
According to WealthPK, the green financing landscape in Pakistan is evolving. Green finance aims to ensure that economic processes safeguard the environment and maintain environmental integrity. The green banking concept will not only ensure the ‘greening’ of industries but will also facilitate improving the asset quality of banks in the future.
