Lending to small and medium enterprises of both conventional and Islamic banks has begun to rise due to higher credit demand.

Conventional banks’ lending to SMEs saw a sudden rise of 9.2pc or Rs27.40bn, during July-September. And, SMEs borrowing from Islamic banks, and from Islamic banking windows, also recorded a modest increase of 0.4pc or Rs2.73bn.

The sharp increase in SME lending by conventional banks is partly due to redefined category-wise advances in the light of the revised prudential regulations. But partly, it is also due to efforts by some banks to chase, and in some cases, exceed targets set by the SBP at the beginning of this year; set keeping in view the size of the banks, their branch networks and existing SME lending portfolio.

Financing of Islamic banks is also attributable to SMEs’ appetite for Shariah-based borrowing.

They also boast of the recent increase in overall funding of Islamic banks (but not Islamic banking branches of conventional banks) that has boosted their financing-to-deposit ratio to 52.8pc (as of September 2016), against 45.5pc advances-to-deposit ratio of conventional banks.

“This alone shows that Islamic banks as such are lending more freely than conventional banks. And the SME sector, of course, offers the best lending opportunity to those Islamic banks that have convenient financing products,” says a senior executive of Meezan Bank.