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Financing a major issue faced by SME sector

There is a need of fund enhancing schemes for Small and Medium Enterprises (SME) sector in terms of expanding the economic activities from the grass root level in Pakistan. Actually SME sector is considered as a backbone of any economy for its role of supplementing supply chain, which is vital for producing export surplus in the economies around the world.

In Pakistan, the SME sector is confronted with financial issues due to lack of documentation in most of the SME sector in the face of prudential regulations, which requires documentation support for access to banking financial. However, some major developments have taken place, which may resolve this chronic issue of the SME sector in Pakistan.

LISTING OF SMES WITH PAKISTAN STOCK EXCHANGE

However, the signing of a Memoranda of Understanding (MoUs) between Pakistan Stock Exchange (PSX) and Islamabad Chamber of Commerce and Industry was a major development which would enable Small and Medium Enterprises (SMEs) to get listed at the bourse and raise financing for their projects.

The PSX is in the process of finalizing the launch of its SME Board, which will provide a platform for businesses to raise equity capital to fund their growth and expansion requirements.

According to PSX management steps are being taken to make the listing procedure simple and easy. “A public company with post issue paid up capital of not less than Rs25 million and not more than Rs200 million is eligible to get listed on the SME Board. Meanwhile, to reduce listing cost, the listing fees of the exchange has been capped at Rs50,000,” it added.

The MoUs were signed with Small and Medium Enterprises Development Authority (SMEDA) and Islamabad Chamber of Commerce and Industry (ICCI) last week for mutual cooperation and collaboration to facilitate access to equity financing for SMEs.

On the occasion of MoU signing, the PSX and SMEDA representatives agreed that there was a dire need to promote small and medium businesses’ growth in Pakistan as these account for 80% of non agricultural labor force, but their ability to access bank financing was usually very limited, primarily due to high collateral requirements.

A core objective of the agreement was to generate awareness amongst SMEs regarding the benefits of listing in terms of not only obtaining financing for growth, but also to create proper corporate structure for long term business sustainability, improved branding, have greater credibility with buyers and suppliers.

At the same time, in order to protect investors, a number of steps have been taken by the PSX. For the SME Board, there will be a lock-in period on the shares of the sponsors, which means that the sponsors would have to retain their entire shareholding in the listed SME for one year and, for the next two years, would have to retain at least 25% of the paid-up capital of the SME.

It was suggested that to encourage and support SMEs, SMEDA Provincial Chief should lay emphasis on infrastructure services, expert advisory assistance, and access to short and long term funding at reasonable rates.

Speaking on the occasion, M. A. Jabbar, Director SMEDA said that in the budget priority should be given to SMEDA and create conducive business environment by cutting down the cost of doing business; reducing direct and indirect taxes; tariff, customs and excise duty; subsidies for export promotion; industrial development incentives; market access and access to finance.

Mr. Mukesh Kumar, Provincial Chief-SMEDA Sindh said that the core objective of SMEDA is to promote and facilitate the SME sector by creating a conducive and favorable environment to enhance its capacities and competitiveness. He further added that new entrepreneurs who wish to establish SMEs can get copy of case studies of different sectors available with SMEDA. Mr. Kumar requested FPCCI leadership to forward suggestions and proposals for the revival of sick industrial units in Sindh.

GOVT OFFERING FOR FINANCING SMES

In order to promote the role of the SME sector the government has also offered financial assistance to SME sector for acquiring quality certification, this was announced by the Ministry of Science and Technology at a “Certification Incentive Program” led by the Ministry of Science and Technology, at Lasbela Chamber of Commerce and Industry (LCCI) to discuss the need of Certification (ISO 9001, ISO 14001, ISO 18001 etc. ) and the support of the government available for private sector.

The meeting that was chaired by LCCI President, Ismail Suttar and also attended by Ch. Muhammad Ashraf, Additional Secretary, Ministry of Science and Technology and Shaheen Raja, Project Manager, CIP and M.D. Lasbela Industrial Estate Development Authority (LEIDA) have attended the session and shared their inputs at LCCI’s seminar.

The purpose of the program was to provide incentive grant to more than 200 SMEs for adopting and implementing certification system in their relevant business objectives. To organize training for their stakeholders for establishing the different certification systems under the one-roof of Ministry of Science and Technology, Government of Pakistan and to provide any technical and sustainability of products in globally fulfilling the international standards requirements on quality, safety and social accountability or universally recognition by the internationals body.

SME BANK IS THE NEED OF THE HOUR

President UNISAME Zulfikar Thaver said since the SME sector is the majority sector and the undisputed backbone of the economy, it is very important that the policy makers adopt a scientific approach and focus on the primary, secondary and the tertiary sectors for the growth of the economy strategically through PIDC, SMEDA, TDAP, PCSIR, EDB, NPO and other institutions. The sector needs finance, information and education, marketing and logistic support. The technological gap needs to be filled as we are far behind the other countries.

Zulfikar Thaver has appreciated the efforts of the State Bank of Pakistan (SBP) to make finance affordable but regretted that it is not accessible. To make it accessible the sector needs an SME specific bank with country wide branches and also the commercial banks need to take interest in the SME sector. The commercial banks are inclined to park their funds in government treasury bills rather than focus on private sector which is supposed to be their key role.

It is very important that the banks are made comfortable to finance the SMEs and for this SME Credit Guarantee Insurance institutions needs to be strengthened. The sector is awaiting the much talked about and promised Exim Bank and UNISAME has urged the SBP to expedite the establishment of the Exim Bank promptly to facilitate international trade.

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