KARACHI: Experts and industrialists recommended an exclusive financing scheme offering low-markup rates to small and medium-sized enterprises (SMEs), which could help expand production and economic activities of the sector for domestic and export markets.
They criticised commercial banks for a “discouraging policy and lukewarm response” to provide financing to SMEs across the country, despite the launching of a risk coverage scheme for banks and continuous directions to banks for lending to SMEs by the banking regulator.
“The government should set a markup rate of 4% with a subsidy to enhance SMEs financing through commercial banks, with preference should be considered to export-oriented companies in the first place,” said Ibrahim Ameen, a banking analyst.
“To encourage the banks, the government should allocate subsidies on markup as similar to had allocated subsidies to promote housing finance, small farmers, and international remittances through banking channels in recent years,” Ibrahim Amin added.
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He appreciated the role of the banking regulator and the government to work for empowering SMEs in a regulatory framework of the financial sector, including the risk coverage scheme for financing and challenge fund for SMEs, however, Ameen said, the benefits were to be translated to the SMEs in true letters and spirits.
He pointed out that a major hurdle for SMEs growth in the country was the difficulty in obtaining credit as banks were often hesitant to lend due to perceived high risk, lack of collateral, and poor financial record-keeping by SMEs.
It is pertinent to mention that the government realised the importance of SMEs in the economy and set multiple targets to boost credit access to the sectors by over Rs1.1 trillion or 17% of total private-sector credit by 2028. Currently, the share of advances to SMEs stood at 9% as per the data of the SBP.
All stakeholders, including the government, the banking regulator, the association of banks, and industrialists, should exchange ideas and introduce a scheme to promote SMEs across the country and enforce an easy financing mechanism, said industrialist Syed Raza Hussain.
“The government should allocate subsidies for a dedicated SMEs finance scheme to develop this sector and its entire landscape, including domestic productions, exports, employment generations, etc,” he said.
Hussain was of the view that the government should also identify high-potential SMEs under different sectors such as IT, textile, mines & mineral, and agriculture, which have been supported by the Special Investment Facilitation Council (SIFC).
“SMEs producing raw materials, light engineering, sports goods, surgical and medical items, and food products should also be considered for the subsidised markup scheme,” he said.
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Hussain pointed out that smaller firms were often more “agile and innovative”, driving “new ideas and entrepreneurial spirit”, hence, supporting SMEs fosters a “dynamic business environment and encourages competition”.
Over 5.2 million SMEs are operating in Pakistan, having a crucial role in Pakistan’s economic growth, contributing around 40% to the gross domestic product (GDP) and 26% to exports in the manufacturing sector, as per the Ministry of Industries and Production.
According to the World Bank, SMEs are the economic backbone of virtually every economy in the world, as the sector represents more than 95% of registered firms worldwide, accounts for more than 50% of jobs, and contributes more than 35% of GDP in a number of emerging markets.
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