KARACHI: The State Bank of Pakistan (SBP) and Unites States Agency for International Development (USAID) have assured that the Karachi Chamber of Commerce and Industry (KCCI) will be taken on board and frequently consulted prior to devising numerous polices for the Small & Medium Enterprises (SMEs) while special attention will be given to SMEs’ issues which are brought to SBP’s and USAID’s notice by KCCI.
The assurance was given by Senior Joint Director, Development Finance Division, State Bank of Pakistan Najam Altaf and Business Development Support Specialist USAID Nauman Ali Syed at a Small & Medium Enterprises Activity held at KCCI which was well attended by various stakeholders while President KCCI Junaid Esmail Makda, Senior Vice President KCCI Khurram Shahzad, Vice President KCCI Asif Sheikh Javaid, Managing Committee members and others were also present on the occasion.
Najam Altaf, Senior Joint Director, Development Finance Division, State Bank of Pakistan, in his presentation, pointed out that keeping in view the 30 percent contribution of SMEs in GDP, 25 percent in exports and 78 percent in the industrial employment, banks and the government have started realizing the particular needs and preferences of SMEs.
He said that SMEs are confronting numerous issues including low financial literacy, lack of collateral and documentation, lack of awareness on SME financing products, complicated loan procedure, reluctance to tax filing, Quick and easy access to informal finance. The State Bank is trying to deal with these issues and is taking steps to increase SME share from existing 8 percent of private sector credit to 17 percent by 2020, he added.
He said that steps were being taken to simplify tax regime for SMEs which include Tax rate reduction on banks’ income derived from SME financing, Tax holiday on income of eligible start-ups and women borrowers and reduction in sales tax on service sector. Moreover, Ministry of Commerce and other stakeholders will work to create a Marketplace Website under e-Commerce while an innovation challenge fund will also be launched to explore new solutions to promote SME financing through technology, he added.
In his presentation, Business Development Support Specialist USAID Nauman Ali Syed informed that SMEA is a five-year, US $35 million project aimed at helping SMEs from selected sectors grow. “We aim to do this by improving firm level performance, fostering entrepreneurship, helping understand and access new markets and promoting access to finance”, he added.
He informed that under SMEA, work was being carried out in different sectors including ICT, Hospitality, Textile, Light Engineering, Logistics and Packaging and Minerals with an objective to help increase sales revenues and help create jobs, besides focusing on identifying and supporting women-led businesses along with exploring new and emerging sectors.
“We are also planning to launch SMEA Challenge Fund soon in which startups and small companies will be invited to pitch their solutions to sector specific challenges and also giving the opportunity to get funding to pilot solution”, he added.
In his speech, President KCCI Junaid Esmail Makda said that keeping in view the significance of the SME sector, the Karachi Chamber particularly focuses on raising awareness about the status and potential of the SME sector, besides helps in identifying the key issues being faced by this important sector of the economy.
He stressed that the importance of the SME sector in the industrial development of a country cannot be underestimated. The SMEs in Pakistan face numerous problems including access to finance which affects the overall productivity of SMEs thus making them uncompetitive across the global value chain. “I strongly believe that there is a need to provide finance to SMEs at affordable mark up and with repayment facilities on pay as you earn schemes”, he added.
He said that the economic planners and SBP should realize that SMEs, which now need loans of over PKR 1 million, are the ones that have scaled up their businesses from micro level to this stage. “By excluding these upcoming entrepreneurs from credit, we are ruining our economy”, he said, adding that the SBP has to make it mandatory for the commercial banks that their loan portfolio should have at least 25 percent component of SME loans.
Junaid Makda further urged the government to provide incentives to the financial institutions that support SMEs while more refinance schemes with easy terms and conditions must be introduced particularly for the urban SMEs. “The government also needs to introduce a Domestic Refinance Scheme for SMEs on the pattern of Export Refinance Schemes (EFS) to support SME growth with the ultimate objective of promoting overall economic development of the country”, he added.
While underscoring the need for incentives, he said that it was very essential that industrial estates are established with in house facilities for alternate energy generation and the land must also allotted to the SMEs at concession and on instalments.
He opined that taxation system also needs to be revisited. It should be based on lower taxes and higher collection and tax benefits must be ensured for new entrants, innovative industries, import substitution industries and export industries etc.
Junaid Makda said that if the government wants to see economic growth in Pakistan, it has to focus on promoting the SMEs while all the relevant legislations should be finalized after taking inputs from KCCI, SMEs and the Manufacturing sector.