Daily Times

The All Pakistan Business Forum (APBF) has asked the government to announce soft financing with minimum possible markup and without any collateral for SMEs in the upcoming budget 2024-25 to support them in line with the rest of the world, which has been providing loans at very nominal interest.

The APBF office-bearers in their Board meeting forwarded several recommendations to be incorporated in the federal budget so that the small industry could deal with the challenges posed by the present economic crisis, saying mere statements would not work unless solid measures are taken by the government, including a sizable reduction in fuel prices, bringing down key policy rate to single digit, regionally competitive energy rates and substantial cut in duties and taxes.

It is unfortunate that the State Bank, in August 2017, had introduced a financing scheme for Small and Medium Enterprises, enabling them to get loans without collateral but it was never implemented in its true spirit.

The scheme was launched to improve the SMEs’ access to finances in collaboration with the government aimed at enabling the businesses that cannot offer security or collateral to access bank finance.

The APBF meeting was held here with a view to deliberate the federal budget 2024-25 and called for concrete steps to keep industrial wheels running, especially of SMEs, saving the livelihood of millions of workers associated with the small and medium industries.

The APBF President Syed Maaz Mahmood urged the central bank to announce a soft loan with minimum mark-up rate, especially for SMES to bailout their struggling businesses.

The forum called for significant cuts in import duties and waiver of sales tax, income tax and additional income taxes, which are still being charged in this time of grave crisis.

Maaz Mahmood asked the government to take concrete steps to keep the industrial wheels running especially of SMEs, to save the livelihood of millions of workers associated with the small industries. The APBF Chairman Ibrahim Qureshi said that we should keep our focus on support for cash flow management for SME sector and the government may prioritize its incentive preferences under the growth and importance for the economy. He suggested that the authorities should reduce sales tax to at least 10% to improve demand generation, besides announcing interest-free loans to pay employees’ salaries.

The APBF President said that to save the economy from the impacts of the slow growth, the government should announce special incentives for a cash-strapped small and medium industry, which represents more than 90% of around 3.2 million business enterprises in Pakistan, contributing 40% to GDP, employing more than 80% of non-agricultural workforce, and generating 25% of export earnings.

Syed Maaz said that under the new scheme, the SBP should provide refinance for five years to the selected banks. After five years, the refinance should be repaid by banks in 10 equal yearly installments.

The selected banks should get refinance from the SBP at 1 percent per annum and extend financing to SMEs at end user rate of up to 5pc p.a. which is very attractive compared to informal finance costs.

Under this scheme, all SMEs that are new borrowers of a bank should be eligible to avail financing of up to Rs20 million. The collateral-free financing should be available to SMEs for long-term fixed capital investment and working capital finance requirements. Shariah-compliant Islamic as well as conventional modes of finance should also be offered.

The SBP should provide refinance to banks while the government should support via partial credit guarantees to the participating banks. This support should be provided initially for three years to facilitate investments by banks in technology, infrastructure and team building specialized in SME lending, after which SME financing by banks is expected to be sustainable without the SBP or government support.

He said that the SME sector plays a pivotal role in Pakistan’s economy and is estimated to contribute 40pc to GDP and 25pc in export earnings.

Despite this, SMEs find it difficult to access formal bank finance as SME financing stood at Rs546 billion, which is only 6.5% of total private sector credit. This is due to several reasons, including relatively higher loan losses, high-cost bank finance models, low usage of appropriate technology needed for SME finance and the lack of acceptable security. SMEs, therefore, often turn to exorbitantly expensive informal credit and face impediments to growth.