1st International Conference on Business Management (ICOBM)

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Welcome SME Pakistan

• 1st International Conference on Business
  Management (ICOBM)

EYF
By Rehmatullah Javed Chairman FPCCI SME
Regional Committee
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Personal Profile

• Mr. Rehmatullah Javed is presently the Chairman
  of GRAND GROUP of COMPANIES and SME Expert for
  which he has lifetime experience with grassroots
  information for the establishment and promotion
  of SMEs.
• Mr. Rehmatullah Javed is the only member of the
  Federal Task Force to formulate the SME policy
  from the private sector.
• Mr. Rehmatullah Javed is also Chairman of the SME
  Committee of FPCCI LCCI.
• Mr. Rehmatullah Javed has attended several
  international forums and seminars on SME in
  Pakistan and abroad.
• Mr. Rehmatullah Javed has also organized about
  500 similar programs in Pakistan and abroad.
• Mr. Rehmatullah Javed also led the Pakistan SME
  Delegations to attend the SME Conference
  organized by APO in Pakistan, India, Taiwan
  Malaysia
• He further attended several international
  conferences held by UNIDO, UNDP, European Union,
  WIPO, USAID and WTO.

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Togetherness

• GET TOGETHER GROW FOREVER

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INTRODUCTION

• Small and Medium Enterprises (SMEs) are one of
  the largest and the most important sector of
  Pakistan's economy.
• Approximately 3.2 million business enterprises in
  Pakistan.
• Enterprises employing up to 99 persons constitute
  over 90 of all private enterprises in the
  industrial sector and employ nearly 78 of the
  non-agriculture labor force.
• Contribute over 30 to the GDP
• 25 of exports of manufactured goods besides
  sharing 35 in manufacturing value added.

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ISSUES

• There is a dire need to create a favorable
  business environment for SMEs by eliminating
  unnecessary obstacles to reduce cost of doing
  business.
• Access to Finance is another major issue that
  requires thorough consideration of concerned
  counterparts.
• Lending money to SME is still a problem SME
  Policy cannot be successful or properly
  implemented without cheap and readily/easily
  available financing
• Banks shy away from lending to SME and as result
  have put in place strict credit criteria
  requiring a lot of detail and documentation.
• Loaning criteria is very strict besides having a
  condition of provision of collateral. Banks also
  demand accounting financial statement before
  considering application for loan.

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Areas like business development services

• Qualified human resources,
• Marketing and technology require special
  attention to improve SMEs competitiveness,
• Productivity and capacity for Employment
  generation.

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RECOMMENDATIONS

• The FPCCI Regional Standing Committee on SME
  Sector for the year 2009-2010 has made efforts
  through identifying the problems Suggesting
  Workable solutions recommendations Some of
  them are listed the next.

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RECOMMENDATIONS

• Separate Definition For Cottage/Micro Industries
• There is a need to separate the cottage industry
  From SMEs. The Government of Pakistan should
  Clearly define the minimum number of employees,
  which small and medium size businesses should
  have. In this respect, the house recommended the
  minimum limit from 51 up to 250 employees.

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Financing policy of Banks for SME

• The banks should facilitate businesses through
  lending money on easy terms conditions. This
  aspect required much more attention because
  businessmen having small setup deserve
  facilitation in this respect to run their
  business operations. The State Bank of Pakistan
  should formulate a prudential regulation to
  facilitate the SME sector rather then issuing an
  advice to banks for providing loans to SME sector
  without clear instructions.
• There is a need to make suitable monitory
  regulatory policy for SME sector. It is suggested
  that Banks should provide good financial
  assistance according to the business requirements
  besides providing following facilitation to the
  SME sector.

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Some Suggestions

• Loan application processing time should be 15
  days.
• SME sector should be offered 5 interest rate
  with one-year grace period.
• Loan limit up to Rs. 5 million without any
  collateral/guarantee should be provided to SME
  sector for the period of one year. The loans may
  be granted up to Rs. 3 million to those, running
  a business for at least three years.
• Govt. of Pakistan and Bank of Punjab should
  establish a equity fund, for which at least Rs.50
  million should be allocated.
• There is a need to create a guarantee fund for
  SME Sector.
• In loan sanctioning process, banks should put
  private sector preventatives/stakeholders on
  board before making any decision.

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Infrastructure for Industrial Estate

• The Government should establish SME
• industrial estate having an area not less than
  200 Kanals. It is suggested that land for SME
  industrial area should be allocated near the city
  area, enabling SME sector to run their businesses
  effectively and contribute their due role in
  employment generation.

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Skill Development Center/Cluster

• Technology parks may be established near the SME
  industrial estates so that the small industry may
  be benefited with the facility.

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SME FINANCE FOCUS POINTS

1. Commercial banks have to make concerted efforts
   to explore new avenues of business, especially
   financing to small medium-sized enterprises
   (SMEs), which play a critical role in employment
   generation and poverty alleviation.
2. SMEs finance play an important role in the
   creation of employment opportunities with
   relatively lower investment levels, it would help
   in reduce poverty and boost economic growth which
   remains one of the prime objectives of Government
   of Pakistan. 3.2 million Economic establishments
   in the country around 99 percent of them employ
   1-10 persons, clearly indicating that they fall
   under the definition of SMEs, more specifically
   lower-end SMEs.

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SME FINANCE FOCUS POINTS

1. Separate prudential regulations should be
   developed for small enterprises as these small
   businesses have a huge potential for growth
   compared with medium-sized enterprises.
2. The focus of financial institutions should be on
   medium entities. The reason for this skewed
   distribution is the unorganized way of doing
   business of small entities. Major issues faced by
   SMEs are lack of skilled labor, outdated
   technology, weak governance, lack of management
   hierarchy, absence of book keeping, taxation
   issues coupled with limited access to formal
   sources of finance.

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SME FINANCE FOCUS POINTS

1. Capacity-building of banks through launch of SME
   Finance Grass Root Cluster Training Program for
   credit officers based in SME Clusters in Lahore,
   Sialkot, Gujranwala, Rawalpindi, Peshawar, Quetta
   and Karachi.
2. SMEs could help to achieve diversified economic
   growth, employment generation, reduction in
   income inequalities and poverty alleviation in
   developed and the emerging economies like USA,
   Japan, Malaysia, Thailand and South Korea.

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Challenges Faced by SME in Pakistan

1. Lack of proper infra-structure.
2. Regulatory complexities relaxation in
   prudential rules and easy access to loan.
3. Shortage of skilled manpower.
4. Quality control problems.
5. Lack of entrepreneurial expertise.
6. Shortage / irregular availability of financing
   facilities.
7. Shortage of equity sources.
8. Inability to meet credit criteria / credit
   conditions.
9. Inadequate bargaining skills / options.
10. Lengthy documentation procedure.

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Challenges Faced by SME in Pakistan

1. Why should banks promote SME Financing.
2. Diversification of the loan portfolio.
3. Boosting the industrialization process.
4. Reducing unemployment.
5. Growth of the export sector.
6. Improving the balance of payment situation.
7. Low loan loss ratio on SME bank deposits /
   banking services.

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Preferred sectors for SME financing

• Export oriented goods and services
  establishments.
• Largely using indigenous technology and
  resources.
• Choices of sub-sectors within each industry.
• Up stream/ down stream serving to medium /
  larger, cottage / heritage industry.

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Specialized Institutions for SME in Pakistan

• SMEDA
• SME Bank
• Business Support Fund (BSF)
• Provincial Small Industries Corporation (PSIC)
• NGOs.

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Sub-contracting for SMEs

• Special considerations to evaluate finance
  proposal of sub-contractor.
• Measures to promote sub-contracting system.

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Sustainable program for SME financing

• Banks to re-focus their financing activities
  towards the SME sector.
• Restructuring of lending organization in banks to
  incorporate SME financing.
• Making finance available conveniently and
  speedily.

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Marketing for SME loans

• Reluctance of SMEs seek bank financing despite
  ability to meet credit criteria.
• Need for creating awareness of desirability for
  and availability of financing facilities.
• Proper packaging marketing of SME financing
  proposals developing SME financing schemes /
  products.

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Creating a SME Venture Capital Fund

• In this era when the SME sector has been facing
  constraints and shortage of working capital for
  running their business cycle and that the banks
  are also reluctant to finance this sector, there
  is need that the Punjab Government establish a
  Fund for the revival and uplift of these thirsty
  units for wants of working capital requirements
  of about Rs100 billion.

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Financing without Guarantee Collateral

• A fund for the purpose may be created to fill the
  GAP of non financing to SMEs out of this Rs.100
  billion Fund for financing up to Rs3 Million
  without any collateral and third party personal
  guarantee. Mark up rate may be at reasonable
  affordable to the customers not more than
  13.Preferably Small businesses or even sick
  units may also be financed to revive them. All
  the Small businesses running for the last 2 years
  may be eligible for this financing. We urged that
  the banks to develop collateral free cash flow
  based lending products to meet the requirements
  of this large segment of SMEs.

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Proportion
Issues Identified Percentage
Lack of finance 55
Shortage of skilled labour 39
Getting business site 38
Bribes 21
Orders/Marketing of Product 28/
Lack of Knowledge 12
Government interference 12
Raw Material 10
License for work 08
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Thank You

• QA