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Investment initiative for SMEs

September 14, 2012

ISLAMABAD, Sept 14: The United States on Friday launched a new multi-year investment initiative with up to $80 million of US funding for Pakistan’s small to medium sized companies.

Drawing on public-private partnerships, the initiative seeks private or other qualified sources of capital for matching investments and fund management services. The investment funds will make equity investments in promising Pakistani companies under-served by existing sources of capital.

According to US Embassy in Islamabad, the Pakistan Private Partnership Initiative will accept proposals by October 12, 2012 from qualified Pakistani, regional and international fund managers keen on investments in Pakistan.

“Pakistan has a wealth of talented entrepreneurs that desperately need capital to fully realize their potential. This initiative is an example of how the United States can move beyond traditional foreign assistance by playing a constructive role to help these entrepreneurs expand their businesses, provide new jobs to Pakistan's fast-growing population, and improve lives,” said acting US Ambassador in Pakistan, Richard E. Hoagland.

The project is an initiative of USAID which will promote private-sector growth in Pakistan by establishing leveraged investment funds to provide capital for SMEs with high growth potential, coupled with management direction and skills for improving operations and corporate governance practices.

SMEs are recognised as an important engine of job growth in any economy.

The USAID is committed to increasing the sustainable impact of development assistance programs through strategic alliances with the private sector. Such alliances enable USAID to leverage private sector markets, expertise, interests, and assets in a manner that solves critical development problems and promotes effective market led development.

A USAID report on the project says that while other elements of the US assistance program in Pakistan attempt to address most of these constraints, this project focuses on the last one – access to finance, it says.

The SME sector in Pakistan has great difficulty in accessing capital – debt or equity – to grow their businesses as the country’s banking sector prefers to lend to the state.

This unprecedented heavy public borrowing has resulted in crowding out of private sector borrowing, especially with respect to SMEs.

The lending to government as a percentage of the total lending of commercial banks has increased from 17 per cent of their portfolio to 42 per cent in four years at the expense of credit to the private sector, which as a percentage of GDP, is otherwise one of the lowest (21.5 per cent) in comparable economies.