Development Finance Quarterly Review

In the wake of the unprecedented floods and the slow economic recovery, the disbursements in loans and advances of the Development Finance (DF) Portfolio of the banking sector remained sluggish. The total outstanding amount financed to the Sector as of the end of September 2010 was Rs. 822 Billion which shows a marginal decline of 0.2% QoQ basis; whereas, the decline recorded YoY basis was 3.3 percent. Of the total DF outstanding amount, the SME segment gets the largest share of 37.4% followed by the Infrastructure, Agriculture, and Micro Finance sectors with 32.5%, 20.4%, and 1.3% respectively.

The stagnancy in the Development Finance Portfolio is more likely the outcome of the overall recessionary trend in various sectors of the economy and deterioration in other important factors such as energy shortages, domestic law & order situation, and continuing high interest rates which have resulted in the over-cautious approach of the banking industry to meet financing needs of the DF Sectors. Another major contributory factor to the declining DF portfolio is 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.

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