Discrimination against SMEs

SMEDA chief executive officer Shahid Rashid has said in an interview with Business Recorder that discriminatory attitude of ministries, banks and other government organisations towards small and medium enterprises (SMEs) has become a major obstacle in the development and progress of this crucial sector of the economy.
He claimed that larger industrial units and business concerns could acquire loans at considerably lower mark-up rate through bargaining, as banks prefer to oblige them, while the SMEs have to pay mark-up at the market rate. Further, SMEs have to deal with the bureaucracy at the State Bank, the Finance Ministry, Ministry of Industries, FBR etc, while big entrepreneurs who have to easy access to top echelons face no such difficulties.
Liquidity crunch is the foremost problem every SME entrepreneur has to face, and the government should ensure availability of low mark-up loans to this vital sector, which is considered the backbone of any country's economy. He disclosed that at present SMEDA is working on 16 projects in the country worth Rs 1.6 billion.
One of the projects, Women Business Incubation Centre in Lahore has been completed, while another centre at Gujranwala will be ready in a couple of months. Similarly, an agri-food processing facility is being established at Multan. Other SMEDA projects, mentioned by him, include establishment of a product design and manufacturing centre, product development centre for composite materials, a foundry service centre, etc.
The importance of SMEs lies in their pervasive presence in the country's economy with varying density, ie wholesale, and retail trade, restaurants and hotel business (53 percent) has the lion's share, followed by other services (27 percent) and manufacturing sector (20 percent). The share of SMEs is said to stand at 30 percent of our GDP, which is much higher than the share of agriculture.
Most of the projects Shahid Rashid has mentioned in the interview are in various stages of completion, which means that they are incomplete, and cannot yet play their role in the country's economy. SMEDA should expedite completion of these projects on fast-track basis. The SME sector's failure to realise its full growth potential has been attributed to bureaucratic bottlenecks, which Rashid has mentioned, and lack of a clear policy direction. Both these flaws need to be removed expeditiously.
A new SME Policy was launched in the fiscal year 2007-08 wherein an attempt was made to define small and medium enterprises in manufacturing, trade and services sectors for all the stakeholders, and to furnish a broad framework for the promotion of SMEs by improving regulatory, fiscal and business environment. However, the policy is believed to contain semantic lacunae.
As a result different government departments and agencies such as SBP, FBS, and provincial labour departments are said to have improvised their own "definitions." The policy attempts to provide a broad framework for promotion and development of SME sector through institutionalisation of the support structure and outlines a strategy for SME-led private sector growth for poverty alleviation and employment generation.
It cannot be denied that the concept of micro enterprises all over the world is the real force behind promotion of cottage and small-sized industries at the domestic level, which has served to augment the income of people at grassroots level.
The size of SMEs has been variously defined on the basis of staff strength, fixed assets and whether or not a firm is registered. According to the revised definition, enterprises with employment size of up to 250, paid-up capital of Rs 25 million and annual sales of up to Rs 250 million will fall into the category of SMEs.
The problems Shahid Rashid said, SME entrepreneurs have to encounter such as getting bank loans etc is a genuine issue that needs to be resolved, as a broad-based and thriving SME sector is the hallmark of a growing economy. Poverty reduction, one of the foremost goals of the present government, is closely linked to improved productivity of the informal sector, which is seriously handicapped by a number of factors, including financial constraints.
Pakistan's SMEs sector is currently operating at a disadvantage mainly because a majority of the manufacturing processes are either unautomated, or if automated, are not being used to their full potential. Further, the SMEs sector is labour intensive, and accounts for a majority of self-employed workers in the country, which underpins its role as a poverty alleviator.
The broad objectives, which should be achieved by the SMEs Policy, include recognition of all such units as constituting a separate sector and defining the financial requirements for the SMEs to qualify for government support. Credit access difficulties normally stem from cumbersome procedures and excessive requirements of collateral. The government should sympathetically consider the points raised by Shahid Rashid in the interview and initiative corrective measures.