Speakers at an interactive session on 'Draft National SME Policy' thrashed out its contents and suggested that government should provide business conducive environment with simplification of registration process and favourable trade and tax policy.
Research and Policy Division of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) organised the session at Karachi, Islamabad and Lahore through video link. The participants urged the government to have safeguards during post-privatisation of SME bank in order to have due role of the bank.
The FPCCI president Engr Daroo Khan Achakzai highlighted the issues of SMEs such as access to finance, high cost of doing business, low value addition, technological advancement, complicated tax system, etc. He also shared the success experience of SMEs of Japan, Korea, Taiwan, China, etc.
He suggested easy and favourable discounted rate access of finance to SMEs, establishment of SMEs zones and clusters, etc. Convener of Federation of FPCCI Standing Committee on R&D, Engr M.A Jabbar said that Draft National SME Policy needs to be thoroughly analysed with its working implementation tools in view of current difficult coordination amongst federal ministries and even between federation and provinces.
He made detailed presentation on draft National SME Policy and also expressed views on the circumstances surrounding the whole issue from the inception of the policy and its support by public sector since 2007. He said that broad domain of support is available since 18th amendment and now the advocacy and implementation may involve dual support from federation and provinces. He said that some of the issues relate to exclusivity of federal government, while some have been devolved.
Therefore, he said there exists strong base for advocacy to improve the business environment for SMEs to reduce some of the adverse impacts on the economy by increasing share in the economy through increased participation supported by public sector.
The participants also expressed their reservations on various definitions of SME being proposed and discussed. They suggested that a single definition requires to be notified and preferably with higher business turnovers in order to keep accommodating the SMEs in proportion to their business growth in terms of growing sales turnovers with passage of time. Moreover, the SBP should include all sectors in SMEs financing instead of present one restricted to 8-9 sectors and all the banks should consider financing on cash flow basis instead of collateral basis.
The participants also emphasised preferring financing for local production units and SBP may give some guidelines to commercial bank for setting the targets for their regions and zones in financing SMEs.
They also indicated that the financing from Non-Bank Financial Institutions and Modarbas also be included in SBP Policy of SMEs Financing. They proposed establishment of business centres in all cities and organisation for capacity building program for SMEs entrepreneurships. They also called for establishment of SMEs cluster in Pakistan as presently there are only 25 clusters in Pakistan while in Bangladesh, there are 200 clusters and 3000 more clusters exist in India.
The participants noted that SMEDA is the only organisation working for SMEs and over burdened to take care of many issues, therefore the increase in capacity and capability of SMEDA can help in managing and proposing a workable SME policy.
They said that the SME Policy 2007 was neither implemented properly and nor the data of SMEs was available for further research and strategy analysis. They proposed formulating the policy according to current economic environment for increasing manufacturing GDP. The policy should also have practical approach of implementation with the linkage of the SME with vendor industry for buy back arrangements.
The participants indicated that in Pakistan, banks generally remain reluctant to give loans to SMEs sector due to elevated risk. Most of the loans are given on collateral basis to SMEs and commercial banks lack due interest in developing required effective credit models to finance SMEs.
They called for involvement of academia in SMEs promotion and establishment of incubation centres, holding of awareness sessions with the involvement of SBP and SME banks and market facilitation to SMEs for domestic manufacturing and exports.