Analyst Ateeq Ur Rehman Wednesday said that SMEs are still under credit constraints due to challenges and unavailable opportunities for access to finance.
Further, the risk mitigation policy reveals that SME non- performing loans (NPLs) have been reduced to less than 4 percent and their role has been vibrant as "engine of growth", still the preference is missing under the financing policies of the authorities.
While thanking the State Bank of Pakistan, Ateeq said that refinancing facility for modernization of SMEs mark-up rate under the SBP scheme is up to 6.0 percent (2 percent SBP refinance rate and 4 percent banks' spread) but the commercial banks are reluctant to lend to SMEs that is why the financial management or supply chain financing of SMEs are totally neglected despite the central bank's effort to redirect the focus of SME development to a greater extent.
He said the SME sector which contributes 40 percent to the GDP, constitutes 90 percent of the enterprises, employs 80 percent non- agricultural worker and contributes 25 percent to exports has been ignored by successive governments. SMEs are the backbone of our economy and are facing major challenges, especially the high utility charges, interest rate and complicated and higher rate of taxation, collateral, etc. In such high interest rate environment it is unlikely that SMEs sector could trigger expansion or increase investment.
The lackluster performance in overall economic sector reflects the overall economic slowdown in the ongoing fiscal year.
It is so difficult to understand as to why, this sector is missing from the financial infra structure of Pakistan only on supplication of doubtful finances including non performing loans in the past and has resulted in erosion of equity. Pakistan's economic downturn has indeed exacerbated these problems.
Growing cost of doing business and high cost of production has attributed to Pakistani SME difficulties.
Due to hike in cost of imported raw material and Rupee depreciation against USD coupled with additional custom duty from 4 percent to 11 percent and additional sales tax , all these extra cost are being alone born by SMEs and they are continuously absorbing these losses on their balance sheets.
Absence of finance has frustrated the development of this vital segment of the economy. It still remains financially excluded. Ateeq said support to SME is needed for the job growth, poverty reduction and bolstering economic growth.
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