01 June 2004	Tuesday	12 Rabi-us-Saani 1425

KARACHI, May 31: Seven government institutions directly linked with the development and working of small and medium enterprises maintain different definitions for SMEs.

These versions not only vary in weightage and size but also on assets of these enterprises.

As a result of variation in definitions which are normally used for attaining qualifications and approval of facilities from an institutions most of the SMEs die out much before gaining strength to survive.

The situation does not reflect so well on the government that has lately been emphasizing the role that SMEs can play in generating employment and expediting the growth in the country.

It is an accepted fact that SMEs' ratio of bank loans default is the lowest and they generate more employment as compared to capital intensive large-scale units. When SMEs operate in clusters they transform into vendors and provide support to larger industrial units. But unfortunately, all the seven government institutions are giving different definitions with regard to their weightage to assets, number of workers and investment.

Even Small and Medium Enterprise Development Authority (Smeda) and SME Bank - institutions directly involved in the development and promotion of SMEs perceive them differently. With the result that a unit identified by one as a SME does not qualify for the programme and facilities offered by the other.

The Smeda's definition for small enterprises: "10-35 employees or productive assets of Rs2 to Rs20 million. And for medium enterprises it says that 36 to 99 employees or productive assets of Rs20 to Rs40 million should be the criterion for an enterprise to qualify."

Against this the SME Bank which has been given a task to arrange finances for the SMEs defines as: "A SME should have assets of Rs20 million and for medium size unit total assets of Rs100 million. The bank does not consider the number of employees in the SMEs.

Yet another flabbergasting definition is of the Sindh and Punjab industries departments. Though both the departments have fixed the capital investment up to Rs10 million but the Sindh Industries Department has included the cost of land and building in this amount.

The Punjab Industries Department, however excluded the cost of land from the fixed capital investment of Rs10 million. Furthermore, they have not given separate definition for small and medium enterprises.

The Punjab Small Industries Corporation while giving a combined definition for the small and medium enterprises has fixed investment up to Rs20 million excluding land and building cost.

The Federal Bureau of Statistics also gave combined definition for the SMEs and says "an enterprise with less than 10 employees qualifies as an SME." However, the State Bank of Pakistan (SBP) under SME Prudential Regulation come up with better and more pragmatic qualifying definition for the SMEs.

According to SBP: "an entity, ideally not being a public limited company, which does not employee more than 250 persons (manufacturing) and 50 persons (trade/services) and also fulfils one of the following criteria: i) A trade services concern with total assets at cost excluding land and building up to Rs100 million. ii) A manufacturing concern with total assets at cost excluding land and building up to Rs100 million.

The other qualifying definition for an SME has been fixed by the SBP is that any concern (trade, services or manufacturing) with net sales not exceeding Rs300 million as per latest financial statements.

For all practical purposes after the SBP announcement of SME Prudential Regulations the best should have been that all other institutions involved in the SME development and promotion should have also changed their definition accordingly to create uniformity.

But instead all these institutions continue to define SMEs differently creating chaotic conditions for the SMEs. For the sector to realise its potential it is absolutely necessary that such distortions are removed and all bodies dealing with the sector are encouraged to adopt one unified criterion to identify SMEs to start with.