Government to provide cash flow assistance to MSMEs in three areas

The federal government is planning to provide cash flow assistance to Micro, Small & Medium Enterprises (MSMEs) in three types of areas - loss of investment, fixed assets and clearance of pending payments to restart businesses.

According to a survey of the Ministry of Industries, the MSMEs are facing three types of losses. First of all, they have suffered a loss due to cancellation of orders, and the products have either become useless or have lost their value. As a result, their investments on goods or services have suffered heavy losses.

The second area of consideration relates to the losses of fixed assets, including the rented premises against whom they have to pay rent, burden of the wages of permanent employees to whom they would have to pay in any case and the burden of utility bills on monthly basis.

The third area relates to the payment of old credits once they start their businesses as they would have to make payments to the piece-rate workers, vendors and other suppliers.

Chief Executive Officer Small & Medium Enterprises Development Authority Hashim Raza said the authority had conducted an online survey with 920 respondents. The outcome of the survey was that the smaller enterprise suffered heavily due to the lockdown. If no immediate support is extended to them, they would be eliminated as they either vacate their rented premises, sell their machinery or lay off their workers due to the cash flow problem, he added.

He said the research suggests that if no timely support is extended, they might be out of business permanently. Therefore, the government has immediately launched payment of Rs 12000 per head to low-waged labour.

He said the loan size for micro enterprises would range in between Rs50,000 to Rs150,000. It would be too expensive for a bank to handle such a small loan. The second option is to approach for micro finance bank but their cost of distribution is too high. Secondly, they are extensively available in rural areas but the SMEs are located in urban or semi-urban areas. On the other hand, it is quite easy in the case of big loans starting from Rs 250,000 to Rs 500,000 or more than it as banks can be involved in such cases.

"The SBP's wage subsidy scheme has no such hurdle that SMEs can't benefit. But we know banks would not accommodate them because they have no interest. We have to solve the issue as to how we can keep the cost of whole exercise minimum for the government. One way could to make it attractive for banks by offering a spread of six percent which carries a cost and the government would actually be subscribing the profits of banks instead of helping the small businesses."

He said the SMEDA was looking for innovative ideas to deal with the issue of collateral against loans and the utility connections, registration of property or vehicle and personal guarantee of some influential of the locality where the SME locates will be utilised.