How Can Small and Medium Enterprises Survive When They Can’t Apply For A Loan?
The current government prides itself on its pro-business and investor-friendly outlook. But is that really the case? If enhancing the national exchequer is considered the top priority of Dar and Co., then naturally, efforts should be made to make it possible.
Measures like permitting banks to issue credit cards to freelancers, bloggers, entrepreneurs are supposed to be a no-brainer. These are the people who, just last year, made Pakistan one of the top 5 countries for freelancing, in terms of raking in some of that foreign exchange to Pakistan.
But no. That still hasn’t happened.
Also on the list of a pro-business measure that should happen (if the government was not so apathetic that is), is one where SMEs could be able to secure a loan from a Pakistani bank. For a sector that is Rs. 350 billion strong, this needs some serious attention by eminent economists and financial decision-makers.
According to Nabeel Hashmi, the former Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturer (PAAPAM),
The State Bank of Pakistan regularly allocates funds for advancing loans to the SMEs, but the small industrialist cannot take bank loans as in majority of cases as they cannot provide the collateral required to borrow the loans. Besides, the government itself is the biggest borrower of loans from the financial institutions.
Essentially, the government borrows heavily, with no eye on the widening trade deficit. And private banks for their part make private citizens with legitimate business prospects bear the brunt.
Simply stated, when you have risk-free borrower like government that can solely meet all your ROI needs then why would you risk your loans to small businesses?
It’s not as if the government is unaware of the role of SMEs in lifting the national economy. There is a dire need to bring SMEs in on the policy level as well as give them preference when it comes to credit lines.
Uninterrupted flow of finances is important for survival and expansion of the SME sector without which economy cannot be revived. The role of microfinance banks remains crucial to ensure unobstructed flow of financial resources to the SME sector which is engine of economic growth for the country.
– Abdul Rauf Alam, candidate for FPCCI Presidency
SME sector, according to Mr. Alam, represents 90% of all enterprises, employing 75% of the non-agricultural workforce and enhancing Pakistan’s GDP by way of hundreds of billion rupees. That is why Pakistan needs to give the SME sector access to the banking sector since the current state is woefully inadequate for all stakeholders involved.
Poverty alleviation and equitable resource generation initiatives are only possible with governmental and commercial banks’ help and to this effect, SMEs also want to step in. Therefore, the bottlenecks that exist currently for SMEs need to be reformed. These also include taxation, labor, energy and environmental concerns.
One way that small and medium enterprises can become an engine of growth, employment and poverty reduction is by ushering in microfinance banks. Microfinance banks with a successful track record in other countries should be allowed entry into Pakistan or local banks should consider emulating them. Doing so would make possible for SMEs to take Pakistan’s economy to its next level.