Welcome SME Pakistan EYF By Rehmatullah Javed Chairman

Welcome – SME Pakistan EYF By Rehmatullah Javed Chairman FPCCI SME Regional Committee 1 st International Conference on Business Management (ICOBM) 1

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. ü Mr. Rehmatullah Javed is the only member of the Federal Task Force to formulate the SME policy from the private sector. ü Mr. Rehmatullah Javed is also Chairman of the SME Committee of FPCCI & LCCI. ü Mr. Rehmatullah Javed has attended several international forums and seminars on SME in Pakistan and abroad. ü Mr. Rehmatullah Javed has also organized about 500+ similar programs in Pakistan and abroad. ü Mr. Rehmatullah Javed also led the Pakistan SME Delegations to attend the SME Conference organized by APO in Pakistan, India, Taiwan & Malaysia ü He further attended several international conferences held by UNIDO, UNDP, European Union, WIPO, USAID and WTO. 2

Togetherness GET TOGETHER GROW FOREVER 3

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. 4

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. ü Lending money to SME is still a problem: SME Policy cannot be successful or properly implemented without cheap and readily/easily available financing ü Banks shy away from lending to SME and as result have put in place strict credit criteria requiring a lot of detail and documentation. ü Loaning criteria is very strict besides having a condition of provision of collateral. Banks also demand accounting financial statement before considering application for loan. 5

Areas like business development services • Qualified human resources, • Marketing and technology require special attention to improve SMEs competitiveness, • Productivity and capacity for Employment generation. 6

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. 7

RECOMMENDATIONS Separate Definition Industries For Cottage/Micro There is a need to separate the cottage industry From SME’s. 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. 8

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. 9

Some Suggestions • • • Loan application processing time should be 15 days. SME sector should be offered 5% interest rate with oneyear 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. 10

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. 11

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. 12

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. 13

SME FINANCE FOCUS POINTS: 3. Separate prudential regulations should be developed for small enterprises as these small businesses have a huge potential for growth compared with medium-sized enterprises. 4. 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. 14

SME FINANCE FOCUS POINTS: 5. 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. 6. 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 South Korea. 15

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. 16

Challenges Faced by SME in Pakistan 11. Why should banks promote SME Financing. 12. Diversification of the loan portfolio. 13. Boosting the industrialization process. 14. Reducing unemployment. 15. Growth of the export sector. 16. Improving the balance of payment situation. 17. Low loan loss ratio on SME bank deposits / banking services. 17

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. 18

Specialized Institutions for SME in Pakistan: • • SMEDA SME Bank Business Support Fund (BSF) Provincial Small Industries Corporation (PSIC); • NGOs. 19

Sub-contracting for SMEs: • Special considerations to evaluate finance proposal of sub-contractor. • Measures to promote subcontracting system. 20

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. 21

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. 22

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 Rs 100 billion. 23

Financing without Guarantee Collateral A fund for the purpose may be created to fill the GAP of non financing to SME’s out of this Rs. 100 billion Fund for financing up to Rs 3 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. 24

Proportion Issues Identified Lack of finance Shortage of skilled labour Getting business site Bribes Orders/Marketing of Product Lack of Knowledge Government interference Raw Material License for work Percentage 55% 39% 38% 21% 28/% 12% 10% 08% 25

Thank You Q&A 26