KARACHI: Banks need to extend loans to businesses against their annual turnover in addition to the existing collateral-based lending, Kazi Abdul Muqtadir, the central bank’s ex-deputy governor said on Thursday. 

“This will help businesses mobilise liquidity and improve their access to funds,” Muqtadir said, speaking at a conference, titled ‘Financial System at Strategic Crossroads – managing the new regulatory and reputational risks’. UK-based Hansuke Consulting organised the conference.

Muqtadir said banks currently offer asset-based lending (against tangible collateral), “which has limited the flow of funds to established businesses.”

“All over the world, banks grant cash-flow lending and have negligible default rate,” he said. “A mechanism needs to be established by the regulator to increase financial inclusion, which is the key to economic growth.”

Private sector credit offtake more than doubled in the previous fiscal year. But, banks still park more than half their investments into the government securities, according to the central bank.

Muqtadir further criticised the government’s step of imposing withholding tax on the banking transactions. “With taxes on banking transactions, no one will be interested in keeping their money with the banks,” he said. “The revenue body needs to look into the matter.” The Federal Board of Revenue (FBR) slapped 0.4 percent withholding tax on banking transaction, exceeding Rs50,000/day by the non-filer of tax returns.   The State Bank of Pakistan (SBP) also advised the FBR to shed its reliance on regressive withholding tax and rather take steps to encourage tax returns filing.

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