Smeda may sign MoU with banks: More credit facilities
By Zafar Samdani
LAHORE, April 10: The Small and Medium Enterprises Development Authority (Smeda) is expected to sign an MoU with the Banking Association of Pakistan for enhancing credit facilities to SMEs.
Following a meeting between members of the association's executive committee and Smeda officials, Smeda chief executive officer Shahab Khawaja presented the draft of an MoU to BAP president Shaukat Tarin.
The initiative has come in the wake of studies and realization that SMEs are not encouraged by banks for a variety of reasons and large industrial organizations are preferred for backing business and industrial ventures.
Mr Khawaja told Dawn that another meeting between BAP representatives and Smeda was expected to be held in the near future to clarify most points and finalize a policy under which banks came up with more support for SMEs.
According to available statistical data, SMEs represent a 30 per cent share in GDP and count for about the same percentage in exports, while their share of loans from banks was about 17 per cent against 83 per cent going to bigger organizations.
Smeda has already signed an MoU the Leasing Association of Pakistan to enhance access to credit for small and medium enterprises by leasing companies that have so far been reluctant to provide financial support to them.
The role of small and medium enterprises in the national economy is not fully appreciated at present and the fact that they are assessed as providing over 75 per cent of jobs in the country.
The Union of Small and Medium Enterprises has recently expressed dissatisfaction with the prevailing dispensation, complaining that financial institutions did not provide them the requisite support and thereby stood in the way of the expansion of the sector.
However, officials feel that although banks not enthusiastic about extending credit facilities to the small and medium enterprises, the sector was also responsible for this state of affairs to some extent because of misplaced fears and apprehensions of many members of the sector.
Many entrepreneurs try to avoid becoming part of the formal economy as formal financing would place then in the tax net and get them subjected to a variety of inspections for which they were professionally not equipped.
But the banking sector's mindset focused on secure collaterals was also very much in the way. Small and medium enterprises usually do not possess urban property that banks want to be pledged. As a result, financial needs of the sector went mostly by default and their plans for expansion and exports remained largely unfulfilled.
Mr Shahab said the purpose of taking up the issue with banks and preparing MoU was to clear the decks for better financial facilities for SMEs and creating more conducive conditions for their growth and helping them make a greater contribution towards exports, alleviation of poverty and overall economic growth.
