LAHORE, Jan 19: Punjab Finance Minister Sardar Hasnain Bahadar Dreshak has said growth of the small and medium enterprise sector was vital to reduce poverty in developing and transitional economies.

Inaugurating a one-day provincial consultative workshop on the SME Policy here on Wednesday, the minister said the development of a strong and dynamic SME sector was the top priority of the government because the small and medium enterprises were widely credited with generating the highest rates of revenue and employment growth in virtually all the economies.

The government had taken comprehensive measures and initiated policy reforms to create a conducive business and investment environment for the SMEs. He said the SME sector held imperative importance in the country's industrial development because nearly 90 per cent of the industrial enterprises were small and medium, employed over 80 per cent of non-agricultural labour force and contributed approximately 40 per cent to the GDP.

Unlike large enterprises in formal sector, the growth of SMEs was constrained by a number of factors like finances and regulations. Smeda was offering necessary services to help the small and medium enterprises to overcome their weaknesses.

He said the SME Policy Consultative Workshops were planned to be held in all the four provincial capitals for soliciting views of the business community on the recommendations of the task force constituted for the SME policy development.

The deliberations through the workshops would add value to the policy development exercise and the input incorporated in the policy document. The policy formulated with public-private partnership would usher in an era of prosperity not only for the SME sector but for the economy as a whole generating employment and alleviating poverty.

Smeda Chief Executive Officer Shahab Khwaja said in his address of welcome that the proposed policy would attempt to develop products and procedures for banks to hedge the risks involved in the financing of micro and small sectors.

He said the state bank had allowed commercial banks in the new prudential regulations to advance loan up to Rs3 million on personal guarantees to the SMEs, which did not have any collateral to mortgage. However, he added, the bankers were still reluctant to advance credit to the SMEs due to unavailability of products and procedures needed to mitigate the risks involved in such lending despite the provision of financial support mechanism in the new regulations.

He said the SME policy would attempt to provide such products like insurance to enable the banks to advance loans to micro and small entrepreneurs, who did not have any collateral to pledge.

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 stopping bankers from financing such projects was lack of manpower trained for the job, he said.

The central bank was devising a programme to train the bankers in processing the cases of SMEs. The Asian Development Bank had given $8 million for this purpose. A Manila-based donor had also given $200,000 for formulation of the SME policy. The money was part of the $170 million SME Sector Development Loan. A sum of $152 million had been set aside for the restructuring of the SME Bank.

He 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 had 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 in the development of SMEs.

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