Bureau Chief, Islamabad

Aug 20 - 26, 2007

The long awaited National policy on the Small and Medium Enterprises (SMEs) was announced by Minister for Industries Production and Special Initiatives Mr. Jahangir Khan Tareen at a press conference in Islamabad on Wednesday afternoon with promises and initiatives to boost SMEs and thereby reduce unemployment and poverty. The questions by the media representatives that followed the presentation by the Minister, however, revealed that the stakeholders were not satisfied and had strong reservations.

The Minister launched the policy along with an implementation plan costing over Rs.13 billion after a meeting with the National Committee on Small and Medium Enterprises (NCSME) was held. He disclosed that a number of unique initiatives are under process of implementation, which include establishment of a Credit Guarantee Agency for SMEs with a fund of Rs.3 billion, a SME subcontracting Exchange at a cost of Rs.26.09 million, a SME Development Institute costing RS. 115.66 million, a SME Export House costing RS. 156.89 million and creation of SME Promotion Council with a fund of Rs.143.72 million. Whereas, a Business Support Fund and a SME Competitiveness Support were already operating at an initial phase, he added.

Mr. Tareen further said that in order to ensure proper implementation of the SME Policy, a permanent mechanism of monitoring has been developed in the form of National Committee on SMEs along with the four provincial Committees on SMEs. In this respect a fund of RS.25.82 million has been approved by the government for Policy Implementation, Monitoring and Evaluation Unit, he added. He was confident that the SME Policy would provide a conducive and hassle free business environment for SMEs that will ultimately create a long lasting entrepreneurial culture in the country by facilitating SMEs access to the formal resources of Credit, Technology and HR.

While unveiling the SME policy, the minister stated that the government was establishing six Small Business Development Centers in collaboration with the federating units to facilitate the business community. The government was also setting up a Credit Information Bureau where a data bank would be established and a Credit Enhancement Mechanism that would search for a viable model for commercial banks to lend money for SMEs. The government would encourage the provincial governments to form business clusters like Sunder Estates, where all facilities will be provided to encourage the SMEs, the minister added.

From questions of the newsmen it came to light that there was no consensus between the government and the Industry on many points including the very definition of an SME, solving Marketing problem, calling of input cost and lack of clear policy targets.

A source in the Islamabad Chamber of Commerce told Page that they do not agree with the definition of SME that the government proposed which invited heated arguments among participants at the NCSME. According to government's definition a SME is one that employs up to 250 employees with a paid capital of up to Rs. 25 million and annual sales of RS. 250 million. The stakeholders objected on the number of work force employed.

The representatives of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) raised the issue of marketing of SMEs produced goods. The sources said that they were of the view that ht issue of marketing was not appropriately addressed in the policy. Then raised question like what should be the market direction, what to prepare and where to sell the goods?

The Governor State Bank, Dr. Shamshad Akhtar, who was also present at the press conference, said that commercial banks wanted to lend to the SMEs but the credibility of these enterprises was doubted. She asked the SMEs to establish their credibility, cautioning that credit enhancement was very important and absence of it would be risky both for the banks and the enterprises. Answering a question, the governor said that banks were not facing liquidity problem, adding, they have money but there were no viable projects in the pipeline that banks could finance. She also brushed aside the impression that the central bank is maintaining a tight monetary policy in view of the upcoming general elections. "The Central Bank does not get involved in politics of the country, we focus on economic fundamentals", she replied.

To a question, Jehangir Tareen said that the main objective of the new SME policy was to provide friendly business environment to investors and bring an end to poverty by creating new additional jobs. The SME share in exports is very nominal and there is a need to enhance it through new innovations', answered Tareen. The minister said t that the government wanted to reduce cost of doing business by reducing time cost, simplifying procedure of doing business and bringing down transactions costs.

There is almost a national consensus that development of SMEs for which there is tremendous potential in Pakistan can greatly help us in reducing unemployment and poverty in the country. The present government has been announcing various measures to promote SMEs but they are not enough in view of the magnitude of the problems, secondly there is no proper follow up and as a result the desired and publicized results are not achieved from such initiatives. "SMEs are backbone of every developing country, but in our country it is very difficult to set up and run a small business enterprise", lamented a member of Islamabad Chambers of Commerce and Industry

In fact, with their tremendous growth potential, which is mostly owed to the entrepreneurial skill and experience of the men behind these units, SMEs have still remained largely burdened with too many problems, mainly because of their inability to gain easy access to the financial institutions. Several measures have been lately devised, though, to address this problem and reference in this context, may specifically be made to the State Bank's motivated inducement to commercial banks to provide them with needed credit facilities. But peculiar as happens to be the plethora of problems confronting them, these measure still fall too short of what they actually require to function to the best of their potential. It is often complained that quite a large number of SMEs cannot be regarded as dully qualified to benefit from the facilities offered, due to sheer inability to meet the harsh conditions.

So far as prospects of their development are concerned, reference may also be made to the growing realization of their importance world wide, the Muslim countries included. Among other things, more noteworthy is the setting up of the OIC Task Force, which has already held three meetings, in Bangladesh, Mozambique and Pakistan. Thus, with a whole new opportunity coming its way, the SMEDA would have done better and proceeded with development effort with greater vigour, which could not be done, despite encouraging initiatives in that direction by certain developed nations.