Financing needs of SMEs

According to a news report in the Business Recorder the other day, the convener of the Union of Small and Medium Enterprises (Unisame) Zulfiqar Thaver has complained in a statement that commercial banks, barring a few, are refusing to provide export finance facilities to small and medium enterprises.
He has pointed out that the banks are demanding collaterals in the form of immovable assets against requests for export finance.
He is right in his plea that the banks should allow export finance to SMEs on the basis of prudential regulations of the State Bank of Pakistan, besides taking into consideration the letters of credit which are established by foreign buyers in favour of the concerned banks.
It is indeed highly disappointing to note that the banking system continues to ignore small and medium enterprises in so far as credit financing for export and expansion of production facilities is concerned, while the government assigns high priority to measures for promotion, sustained growth and expansion of this sector.
According to official statistics, the SMEs have a 30 percent share in the GDP, contribute to the extent of 30 percent to export earnings and account for about 80 percent of job opportunities in the country.
Recognising the high potential of SMEs in the overall development efforts, including creation of new employment avenues, the government has been following meaningful policies to speed up the growth of this hitherto neglected sector throughout the country.
The success of these efforts, however, will depend largely on the liberal availability of credit facilities to the SMEs specially in the form of project financing and working capital requirements.
For this purpose, the establishment of SME Bank is a step forward. However, the limited resources of the SME Bank cannot be expected to accelerate the growth in SME sector to the desired extent. In this context, the country's banking regime as a whole would have to extend support to SMEs by developing specific financing products and creating an exclusive window to cater for the financing needs of this sector on a liberal scale.
It goes without saying that the growth of small and medium industries, which may be promoted without much difficulty in small towns and even in rural areas, has the potential to contribute significantly to the goal of poverty reduction which is now the main focus of attention by the government and international financing institutions. It is the large-scale unemployment and under-employment in the country which is the main cause of the misery of the masses.
As could be seen from the policy pursuits of the government and the international financing institutions, the promotion of micro-finance facilities and vigorous support to the SMEs are meaningful steps to combat poverty besides contributing to the tempo of overall economic growth.
These policies, it is needless to emphasise, can hardly be expected to achieve the desired goals unless financing facilities are made available to the SME sector by the banks to the desired extent.
In fact, financing is the life blood in the pursuit of economic activity. Of all the types of financing needs, the export finance needs to be given top priority because it serves the dual objective of increasing production and exports.
The reservations by the banking system to restrict advances for exports would imply loss of production as also a setback to export growth. The adverse implications for the economy are therefore quite apparent.
It may be emphasised here that the Union of Small and Medium Enterprises (Unisame) and Small and Medium Enterprises Development Authority should co-ordinate their activities closely with a view to sorting out the financing difficulties faced by the SMEs.
At the same time the SBP may investigate the factors impeding adequate expansion in the availability of bank credit to SMEs for meeting their genuine requirements.
In this connection the need for making relaxation in certain prudential regulations may also be looked into.