Monday, February 26th, 2024
In the development of industry and economy of any country, Small and Medium industries (SMEs) serve as the backbone provides jobs to the masses. At present, there are more than 38 million small and medium enterprises in Pakistan wherein 8 lakh are industrial units, 12 lakh service sector, 18 lakh commercial and retail shops. 41% of these industrial units are in urban areas and 59% are set in rural areas. India will become Asia's third largest economy due to rapid growth in the industrial/manufacturing sector; provides jobs to approx. 45% of masses. Japan which is a developed nation; consisting of 4.2 million SMEs which is 99% with a work force of 20.84 million. Whereas there are only 12,000 large scale industries in Japan with approximately 10.22 million work force.

China has become the world's second largest economy after US and the credit to goes to Chinese leader Xi Jinping who transformed large numbers of government institutions into small and medium industries in the private sector. Today, 86% of Chinese people are associated with these industries for employment and contributing 60% in GDP of China. European Union (EU) which is a member bloc of 27 countries has 99.8% of small and medium-scale industries providing employment to 67% people. Overall, in the world, there are 95% small and medium scale enterprises which provides employment to 60% people of the world. The above examples of China, Japan and India belong to our region Asia which are emerging economies and have successful model of economic development in the world.

The Small and Medium Enterprises (SMEDA) established in 1998 in Pakistan for the development of Small and Medium Enterprises with the responsibility to provide Sectorial Feasibility Studies with coordination of the Chambers & Stakeholders for the promotion of SMEs. SMEDA announced SME policy in 2007, but this policy did not play any major role in the promotion of SMEs as it did not comply with the fast-changing business environment of the world due to which the SMEs and Vendor industries could not grow in Pakistan. Moreover, for the promotion of SMEs, SME Bank was established but regret that its privatization has been announced. These institutions did not pay any significant role in promoting SMEs in Pakistan.

For the development of SMEs, I have always emphasized the establishment of the Vendor Industry. The way automobile sector's vendor industry is providing quality standards parts to auto sector for vehicles assembled and manufacture in Pakistan, we have to promote similar vendor industries in textile and other industrial sectors.

In the recent past, Ministry of Industries and Production in consultation of SMEDA has prepared a draft National SME Policy 2019 and sent to their Board Members including FPCCI for the feedback of stakeholders and Chambers of Commerce and Industry. In this connection, FPCCI has organized an interactive session and apart from me attended by Engr. Daroo Khan Achakzai, President FPCCI, Vice Presidents, Iftikhar Ali Malik, Sr. Vice President SAARC-CCI, Shahid Ali Khan, Director of State Bank of Pakistan, Muhammad Azam, Joint Director SBP, Sajjad Waraich SME Bank, Former Deputy Governor SBP Qazi Muqtadir, Arjumand Qazi, Convener FPCCI Standing Committee on SMEs Financing, Rehmatullah Javed Convener FPCCI Standing Committee on SMEs, Engr. M. A. Jabbar Convener FPCCI Committee on R&D and Representatives of SMEDA and different chambers/associations who provided their valuable input/recommendations for SMEs growth in Pakistan.

It is recommended that there should be a uniform definition of SMEs in all organization and the annual sale turnover of Small Industries should be upto Rs 200 million and Medium Industries should be from Rs 200 million to Rs 1200 million. The new draft SME policy suggested the annual sale turnover for the small scale industry upto Rs 100 million while the State Bank of Pakistan has annual sale turnover is upto Rs 150 million for small industries. Similarly, the annual sale turnover for the medium industry is Rs 650 million while the State Bank annual sales turnover for medium industries is Rs 800 million. According to National SME Policy 2007, the SMEs sector includes Textile Garments, fruits, vegetables, information technology (IT), surgical goods, leather, branding & packaging, furniture, dates processing and gems and jewelry can take loan for working capital and BMR at 6% per Annum interest rate from commercial banks while the other sectors of SMEs are usually provided loans on high interest rate of 18% to 20%. It is suggested that the new SME Policy should includes all industries based on annual sales turn over definition and credit be given for working capital and BMR at 6%. The stakeholders also suggested that in order to promote SMEs, the credit guarantee scheme should be introduced and NBFI and Modaraba should also be included for the financing of small and medium enterprises.

One main reason for the lack of promotion of SMEs sector in Pakistan is that this sector is not providing loans at a affordable interest rates. Two decades ago, State bank of Pakistan had the same Rules and Regulations (Prudential Regulation) for getting loans by corporate as well as SMEs sector, and SMEs sector had to mortgage their factory, assets, and machinery as security/collateral for getting credit/loans from banks. As most of the small scale factories are on rent basis and due to non-ownership rights, such factories cannot be mortgaged which was hurdle in getting loan from banks. In order to solve this problem I, as a Chairman of FPCCI Standing Committee for Banking, Credit & Finance demanded the Governor of the State bank of Pakistan to devise separate rules of loans for Small scale Industries wherein SMEs should be provided loans on cash flow basis rather than holding of assets/collateral. I am glad that due to many years of my struggle, State Bank of Pakistan announced separate prudential regulations for SMEs under which the small and medium scale enterprise can get credit from banks on the basis of their feasibility report, their capability of repayment on cash flow basis without mortgage. Unfortunately, the banks are still giving loans to SMEs on 18% to 20% by keeping their asset as collateral on the old regulations, due to which the small and medium industries in Pakistan could not grown.

Today, SMEs sector in Pakistan is providing 80% employment to the non-agriculture labor and contributes 40% in GDP while the share of SMEs in Global GDP is 55%. The growth of small and medium sector is 8% in manufacturing sector, 10% in exports and 10% in service sector which need to be enhanced. SMEDA and SME bank should establish special clusters like Women shawls, motor pumps and manufacturing of fans so youth can establish small and medium industries and earn their livelihoods rather than running from pillar to post looking for a job.

Copyright Business Recorder, 2019

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