Minister for Economic Affairs Hammad Azhar said the government is preparing a policy to uplift the small and medium enterprises (SMEs) while addressing the Pakistan Innovative Finance Forum organized by Asian Development Bank in Islamabad on Tuesday. He said the new policy is aimed at addressing the challenges in the way of growth of the SMEs.
These policies complement recent moves in the country for promotion of SMEs. The Securities and Exchange Commission of Pakistan (SECP) approved Growth Enterprise Market Listing Regulations to enable small and medium enterprises (SMEs), Greenfield projects, not-for-profits and other companies to raise capital through capital markets conveniently.
Pakistan's recently announced Fiscal Policy measures aim to reduce the cost of doing business and accelerate the growth of manufacturing activities by offering incentives to Small Medium Enterprises (SMEs), industry, agriculture and capital markets. #Pakistan #EmergingPakistan pic.twitter.com/buq4kpWA3w
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The commission advised Pakistan Stock Exchange (PSX) to publish the new regulations in the Official Gazette of Pakistan to replace PSX’s existing regulations for listing and trading equity securities of SMEs.
SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. However, unlike large enterprises in the formal sector, a small and medium enterprise is constrained by financial and other resources. This inherent characteristic of an SME makes it imperative that there should be a mechanism through which it may get support in different functions of business including technical upgradation, marketing, financial and human resource training & development.
The Minister said the government has also taken many other initiatives to promote the SMEs including the Kamyaab Jawan Programme to provide subsidized loans to the youth. A subsect of the program plans to provide essential funding to HEC and NAVTTC to accelerate the expansion of Business Incubation Centers by introducing blended incubation model. HEC’s BICs will provide 500,000 trainings in entrepreneurship and provide blended incubation for all HEC accredited universities across Pakistan to graduate 5,000 start-ups from BICs, established in all Universities of Pakistan.
Federal Minister for Economic Affairs Hammed Azhar noted that SMEs are the backbone of our economy and they have an important role in exports and the economic growth. The Minister said the government is also giving special emphasis on ease of doing business and Pakistan has jumped twenty eight points in the World Bank’s Ease of Doing Business Ranking.
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Speaking at Pakistan Innovative Finance Forum, Chairman FBR Shabbar Zaidi said the country’s economy is being documented and the present government is taking serious efforts to bring the SMEs including those in the manufacturing sector to the tax system.
Alongside government efforts, the banking sector has also taken steps to accelerate the growth of SMEs. Executive Vice President of JS Bank Babar Wajid said banks have a high appetite to lend to small and medium businesses.
The target of increasing small business loans to 17 percent is quite achievable (500,000 borrowers) as over 40 percent of SMEs in Pakistan already have a banking relationship.
JS Bank is the 3rd largest SME lender, with over 20,000 customers. The bank successfully continues to expand in SME lending primarily through its relationship management, market-leading lending solutions and prudent risk assessment, which have allowed it to manage its expansion with one of the lowest NPL ratios in the industry.
According to Wajid, an SME establishment is extremely significant for the economy of Pakistan. Emergence of the SMEs and start-ups results in large job creation. Currently, there are multiple issues facing the economy. These include high inflation, high interest rates, and some sectoral tightening. This has impacted the buying power and the pace of economic expansion has slowed. However, this situation is expected to ease in the medium term, with a positive economic impact.
The target of increasing small business loans to 17 percent is quite achievable (500,000 borrowers) as over 40 percent of SMEs in Pakistan already have a banking relationship. SBP has assigned targets to respective Banks for SME Financing and they are playing a very constructive role in helping Banks expand SME lending, with support now coming through from the Govt of Pakistan.
JS Bank is focused on financing to SMEs and currently 18.8 percent of their outstanding loans consist of loans to SMEs, which includes a portfolio of Rs45 billion and over 20,000 customers. They currently offer ten customised SME products catering to different financing needs of the customers, varying from short- to long-term financing needs.