mr. shahzad ahmad cheema (1)
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TRANSCRIPT
Presentation by
Shahzad Ahmad Cheema
General Manager Operations & Regional Head (Off iciating)
NBP Gujranwala Region
Ph: 055-9200338 Fax: 055-9201229
E-mail: [email protected]
STRUCTURAL REFORMS AND SUSTAINABILITY IN SME SECTOR
At
5th SME Conference October 6, 2011
Organized by Shamrock Conferences International
What are SMEs?
An entity, ideally not being a public limited company, which does not employee more than 250 persons (manufacturing) and 50 persons (trade / services) and also fulfills one of the following criteria:
• A trade / services concern with total assets at cost excluding land and buildings up to Rs 50 million.
• A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million.
• Any concern (trade, services or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.
As per State Bank of Pakistan Prudential Regulations
Importance of SMEs
SME growth strategy is critical for Pakistan. This requires private sector development, deep reforms, a broad public debate and a complete commitment by govt.
We have to address complex and long term structural issues, product innovation and increased connectivity for better urban and rural management to ensure level playing for all concerned.
There is also a need for vibrant and competitive markets, quality governance, institutional strengthening, human development and energetic youth.
Contribution of SMEs in
Economic Growth
3.2 million SMEs in Pakistan
SMEs which are employing up to 99 persons constitute over 95% of all enterprises
SMEs employ nearly 80% of the non-agriculture labour force
SMEs contribute 40% of GDP
SMEs are more labor-intensive than large enterprises
The significance of SMEs is associated primarily with their role in stimulating economic growth.
Structural Facilities Provided by the
Government
Establishment of Industrial Estates
Setting up of Technical Service Centers
Providing Marketing facilities
Providing Pre-Investment guidance and counseling for new customers
Handicraft Development Center
Issuance of Specific SBP Prudential Regulations for facilitating financing to SMEs.
Launch of Credit Guarantee Scheme for SMEs by SBP.
Organizations Working for the Development of SMEs
Organizations
Advisory & Facilitation
Bodies
Regulatory Institutions
Financial Institutions
NGOs, Technical Education
Institute & trade Associations
Organizations Working for the Development of SMEs
Advisory & Facilitation Bodies
Small & Medium Enterprise Development Authority (SMEDA)
Business Support Fund (BSF)
Pakistan Small Industrial Corporation (PSIC)
Punjab Small Industrial Corporation (PSIC)
Sindh Small Industrial Corporation (SSIC)
The Small Industries Development Board (SIDB) - Khyber Pakhtunkhuwa
The Directorate of Small Industries Baluchistan
Regulatory Institutions
State Bank of Pakistan (SBP)
Federal Board of Revenue (FBR)
Securities and Exchange Commission of Pakistan (SECP)
Trade Development Authority of Pakistan (TDAP)
Organizations Working for the Development of SMEs Financial Institutions (FI)
Commercial Banks (especially SME Bank) Micro Finance Banks
Non-Governmental Organizations (NGOs) For example: Kashf Foundation
Technical Education & Skill Development Institutes For example: Technical Education & Vocational Training
Authority (TEVTA)
Trade Associations / Chambers of Commerce For example: Gujranwala Chamber of Commerce & Industry
SBP’s Focus on SMEs
Current Schemes
Re-Finance for Re-Modernization
Financing for New Plant & Machinery
Credit Guarantee Scheme (Rural)
No Collateral, however, it discourages FIs due to high risk
SBP refunds 70% of defaulted loan, however only after post facto audit which makes FIs shaky
Same Prudential Regulations (PRs) for all SMEs
Financing from Rs. 1000 to Rs. 100 Million is regulated by the same PRs
PRs for smaller SMEs should be lenient
Priority Sectors
Sports Goods Gems and Jewelry Handicrafts Leather Goods Surgical Items Cutlery Fisheries Dairy Light Engineering Furniture Marble & Granite Ceramics & Sanitary
Problems & Challenges Faced by SMEs
And Structural Reforms Needed for their
Sustainability
A) Lack of Finances & Capital
Problems
SMEs are relatively smaller organizations so they have limited finances and capital at their disposal. SMEs fulfill 90% of the finances demands from equity or informal sources.
Lack of capital could be addressed by SBP, Financial Institutions (FI) and NGOs.
FIs demand as much documents from SMEs as from corporate clients.
Default ratio of SMEs is approximately 30% so considering a high risk sector banks avoid lending to SMEs
Solution
Documents should be reduced and simplified.
Relief in markup should be provided to SMEs for growing sectors of economy
Bankers should be trained to help SMEs in selection of business
NGOs should provide finance where banks couldn’t finance due to lack of documentation
Turnaround time for SMEs loan application should be reduced to 20 days
Cash flow based lending should be encouraged instead of collateral based lending for smaller SMEs. However, this scheme should take into account the ground realities of our market.
Startup businesses should be provided access to formal means of finance
Processing , valuation, mortgage and other legal fees should be as less as possible
B) Lack of Skilled Human Resources
Problem
Un-skilled manpower
Lack of managerial skills in the entrepreneurs
Solution
NGOs, training institutes and trade associations could provide the necessary training
Female entrepreneurs should be provided training to start up their own businesses.
C) Lack of Market Knowledge
Problem
SMEs have inadequate knowledge about the market in which they are operating.
They do not know what exactly is happening in national or international market?
Solution
Advisory Institutions (SMEDA), Trade Associations, NGOs and FIs should provide the necessary advice to SMEs
Trade Associations should facilitate SMEs for participation in international fairs & exhibitions
D) Lack of Awareness about Technology
Problem
SMEs are not up to date about new technologies
Solution
Advisory Institutions (SMEDA), Trade Associations and technical Training Institutes should impart necessary training
Trade Associations should send working papers to regulators for necessary relief in duties and markup especially for new technology equipments
E) Taxation and Licensing Problems
Problems
SMEs are Less documented as per tax requirement
Fear that documentation may expose to excessive taxes
License Fee are sometimes very high
Solution
Advisory Institutions, Trade Associations and FBR should review tax problems
Unnecessary documents should be eliminated
An easy process must be devised for tax assessment
Licensing Policy should be fair
License fees should be nominal
F) Power Crisis
Problem
Electricity and gas crisis is badly hurting the SMEs.
SMEs do not have the resources to employ alternate power resources
Solution
Energy efficient production methods should be utilized.
Government should be approached for helping the businessmen
Future of SMEs in Pakistan
170 Million population and over 3 Million SMEs are a real potential for economic growth
Human resource needs to be trained and educated
General public will adopt self employment through SMEs
Regulators, FIs and on the larger part government need to provide them a hassle free level playing field by addressing the earlier discussed issues.
I believe in hope, courage and confidence. Let us mobilize all our resources in systematic and organized way. We have to tackle the grave issues that confront us with a grim determination and discipline worthy of a great nation. The real success story behind Asian Tigers like South Korea, Taiwan, Hong Kong, Singapore and Malaysia is the development of SMEs.
Why can’t Pakistan be an Asian Tiger?
Thank You