KARACHI, April 10: The Union of Small and Medium Enterprises (Unisame) has urged the State Bank to promote the system of "discounting and factoring" to facilitate small and medium enterprises in maintaining their cash flow.

Unisame convener Zulfikar Thaver in a statement issued on Saturday drew the attention of the State Bank towards the fact that most of the bills of SME vendors are tied up and the cash flow is hindered.

He said in foreign countries the banks were discounting bills and factoring companies were also facilitating SMEs against bills drawn on companies listed with commercial banks.

Mr Thaver said that there was an urgent need of upgrading the banking system because the system of letter of credits (LCs) was being replaced by discounting and factoring all over the world. A seller or an exporter can get his money by accepting lower present worth of his consignment and banks can claim full amount on maturity.

He regretted that banks were still insisting on collaterals despite the Prudential Regulations that had advised banks to advance to SMEs on cash flow basis.

During discussion with bankers, Mr Thaver said it was pointed out that the SBP could not instruct banks to give loans to SMEs on cash flow basis as the banks were not willing to take risk.

Unisame has also drawn the attention of the State Bank to the fact that banks are even refusing to finance SMEs on bills, which are accepted by the inland and overseas buyers.