KARACHI, Aug 8: The small and medium enterprises (SMEs) are incorrectly bracketed together and should be categorized separately for funding by banks, it was stated here on Friday.
In its comments to draft prudential regulations for SMEs submitted to the State Bank, the Small and Medium Enterprises Association (SMEA) has said the term small and medium should be redefined individually.
The State Bank has circulated the draft regulations among various trade bodies and invited suggestions for their improvement.
In its representation, the association has also urged the State Bank to set mandatory credit targets for small and medium-sized businesses in consultation with SME trade bodies.
The SMEA has dealt with issues like limit on clean facilities, source and repayment capacity and cash-flow backed lending, per party exposure and mandatory targets, Zafar Iqbal, SME Chairman, told Dawn.
Small enterprises have been defined by the association as follows: A manufacturing entity (not a public limited company) which does not employ more than 100 permanent employees (including skilled), holds assets (excluding land and building) up to Rs30 million and has a turn-over (3-years average) of Rs100 million.
A trading and service firm with a staff of 50 technical personnel, with assets up to Rs15 million and turnover of Rs50million.
Under the draft prudential regulations, the small and medium-sized industries have been lumped together and defined as follows: SME means an entity, not being a public limited company, which does not employ more than 250 persons (if it is a manufacturing firm) and 50 persons (if it is a trading/service concern) and also fulfils three-stated criteria:
a) A trading concern with total assets, excluding land and buildings up to Rs50 million, b) a manufacturing firm with total assets (excluding land and building) of Rs50 million, c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs300 million as per latest financial statements.
Differing from the State Bank, the SMEA has redefined medium enterprises as follows: A manufacturing unit employing 100-150 employees, with total assets of Rs30-50 million and turnover of Rs100-150 million; a trading or service firm with 50-100 technical employees, with assets worth Rs15-25 million and turn-over Rs50-75 million. Turn-over figures are for three years average and the assets exclude land and building.
Other points made by SMEA are: The banks should be allowed to take clean exposure (facilities solely against personal guarantees) up to Rs3 million for newly established small enterprises and up to Rs10m for small enterprises with five year track record. For medium-sized industries, the amount should be raised to Rs5 million and Rs10 million respectively. The maximum per party exposure of a bank on a single small enterprise should not exceed Rs50m and for medium units Rs100 million.
Mr Zafar Iqbal says his association also wants a system of periodical review and adjustment to help promising sectors to grow faster.
The association has also sought simple and clear procedure in the prudential regulations for change of category from small to medium and large enterprises. To avoid malpractice, it has suggested that the banks should decide a case for loan within thirty days for small and sixty days for medium enterprises after completion of formalities and submission of required information by the borrower.