LAHORE, Jan 18: The first-ever SME policy being formulated by the Small and Medium Enterprise Development Authority (Smeda) will attempt to develop products and procedures for banks to hedge the risks involved in the financing of micro and small sectors.

This was stated by Smeda CEO Shahab Khawaja at a briefing held here on Tuesday evening. Smeda has been given the task to formulate the new SME policy. It is organizing a series of provincial consultative workshops on the SME policy. The second such moot is scheduled to be held here on Wednesday (today). The first workshop was held in Karachi last week.

Mr Khawaja said the central bank had allowed commercial banks in the new prudential regulations to advance loan up to Rs3 million on personal guarantees to SMEs that did not have any collateral to mortgage.

However, he added, the bankers were still reluctant to advance credit to the SMEs due to the unavailability of products and procedures needed to mitigate the risks involved in such lending despite the provision of financial support mechanism in the new prudential regulations of the SBP.

"The SME policy will attempt to provide such products like insurance to enable the banks to advance loans to micro and small entrepreneurs who don't have any collateral to pledge," he said.

He also stressed the need for changing the mindset of bankers and borrowers in order to tackle the problem of lack of access of the SMEs to bank credit. Another factor, the Smeda CEO said, which was stopping bankers from financing such projects was lack of manpower trained for the job.

He said the State Bank was devising a programme to train the bankers in processing the cases of SMEs. He said the central bank would start training the staff of 12 branches of five banks.

"The capacity-building of bankers is expected to begin from June this year," he said. "The Asian Development Bank has given $8 million for this purpose. The Manila-based donor has also given $200,000 for the formulation of SME policy," he said.

These moneys are part of the $170 million SME sector development loan. A sum of $152 million has been set aside for the restructuring of SME Bank. Mr Khawaja said the SME policy would be ready for enforcement by June this year. He said the consultative workshops were being organized in order to consult the provincial stakeholders of the industry.

"So far, the SME stakeholders have pointed out lack of access to formal bank finance, hostile business environment, including government policies, tax structure, etc., and lack of access to services as major hurdles blocking the way of the development of SMEs in the country," the Smeda CEO said.

He said the new policy would also contain the universally accepted definition of the SMEs and the mechanism for enforcing the policy as well as procedures to periodically monitor its implementation.