KARACHI: The Union of Small and Medium Enterprises (UNISAME) has urged the government to promote the micro and small to medium sized enterprises (SMEs) through hire purchase, leasing and special schemes designed for the sector and also urged the Bankers Institute of Pakistan to co-ordinate with the government to design products for the sector.
President UNISAME Zulfikar Thaver said it is very important for the banks and financial institutions to relax their collateral requirements for financing the SMEs and consider financing against positive cash flows. He appreciated the different schemes of the government including the Prime Minister Youth Loan Scheme (PMYLS) but said that since the risk in financing was of the concerned banks, the different schemes did not succeed. The PMYLS is beneficial to only those who succeed in the ballot despite of having a sound business plan. Unless the SME financing issues are addressed seriously the financing requirements of the sector will remain and the sector deprived of its rights and level playing field.
The reduction in discount rate was also much appreciated but unfortunately the commercial banks have not reduced their lending rates proportionately and their spread is high. He urged the government to provide credit guarantee to commercial banks against default by the SME borrower and said the commercial banks will not be inclined to finance the SMEs unless they are made comfortable through credit guarantee insurance. The present 40% guarantee cover is insufficient and needs to be increased substantially.
Thaver said through a survey conducted by UNISAME it was found that some of the SMEs need finance to acquire assets namely land, machinery, building. Others need working capital or running finance to purchase raw material or goods, pay utilities, salaries. Many SMEs need trade finance for import, exports and domestic trading. All the entrepreneurs complained of lack of interest of commercial banks in financing them and pointed out that the banks were demanding immovable properties in selected areas as collateral.
Few even informed UNISAME that the banks were not inclined to discount export bills and refused post shipment finance against bills of third world countries and letter of credits established by buyers having low rating opening banks. Most of the entrepreneurs were not aware of the SME Bank and those who knew said it is just like any other commercial bank and not a specific SME bank. The government must restructure the SME Bank to make it a specific SME Bank.
Senior citizens complained that the commercial banks were not financing them as the insurance companies were not prepared to insure them and the unemployed youth complained that the banks were not financing them because the banks were financing businesses which were at-least 3 years old.
Incidentally senior citizens also complained that the National Saving Centres were delaying profit payments by checques as the checque books were in short supply and checques were not being issued by the treasury promptly and suggesting the depositors to collect profit of less than Rs 100,000 by cash. One senior citizen pointed out that he requested for profit checque 10 days ago but had still not received the profit checque. Secondly new senior citizen depositors are offered very low rates and they are unable to survive on such low rates. It is very important that the government takes good care of its senior citizens and ensures their comfort as Islamic Republic of Pakistan is a welfare state.
Thaver urged the Bankers Institute to educate the banks in risk management and also design products for the SMEs. UNISAME suggested the designing of SME credit cards for all micro and SME units according to their size to enable them to pay utilities and purchase bills and facilitate them for short periods till sale and realization of proceeds of their goods or services. Secondly commercial banks must be directed to finance mandatory percentage of their lending to SMEs. Most of the banks are engaged in consumer financing and reporting it as SME financing. This needs to be checked.
Thirdly there is need to promote hire purchasing and leasing without down payments or equity as this is asset based financing. Fourthly the ministry of finance must come up with schemes to finance energy companies and security companies to promote alternate energy generation and private guards and detectives services provider companies. Business is not growing due to lack of energy and due to poor law and order.
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