There is a wide range of interventions that the government can make to solve the problems of SME finance. I would make the most important suggestions. There appears a strong case of market failure in bank practices relating to the private sector credit, needing SBP’s active rather than passive measures. The SBP should require the banks to increase their credit to the private sector to improve credit to GDP ratio to regional standards. Credit to SME’s should be enhanced in particular, with SBP seeing through its policy of bringing the credit to 20% of its total private sector exposure. This credit should be on relaxed terms, easy paper work, and within a defined period. The lending portfolio should account for small enterprises and medium enterprises separately for which SBP should develop targets after careful need assessment. The SBP should improve and enforce its Credit Guarantee Scheme (CGS) in that it should require the banks to fully utilize their lending quotas under CGS. The government should also offer direct credit guarantees and grants to highly qualified entrepreneurs venturing in key sectors. More measures could be developed following the examples of other emerging economies. Furthermore, the government should encourage private equity and venture capital firms targeting SME’s by introducing easier rules and no-nonsense regulation. To address the immediate liquidity problem in the economy the government should stimulate the real estate and construction sectors so that the middle and upper middle classes could liquidate properties to invest in the businesses. In this regard the proposal to remove tax filer requirement for purchase of property is a welcome move. The government should also do more to stimulate public to invest its savings. If the government does indeed create a positive business mood through meaningful reforms there is no doubt that overseas Pakistanis will invest in the homeland in large numbers bringing with them not only the capital but also best practices, knowledge, and new technologies. It is that contribution that should be the goal rather than not-for-profit crowd contributions. The present corporate law does not distinguish between SME’s and large companies, which would be akin to treating infants and juveniles alongside adults. Many countries in the world have such separation of law to prevent the large businesses from grabbing the benefits of small enterprises and to protect the latter from the complexity and high costs of regulatory requirements meant for large companies. The government should have a separate, comprehensive law for SME’s, which caters for their special needs concerning finance, taxation, labor regulation, dispute resolution, etc. which should override conflicting legal provisions in the broader law. Affordable and timely dispute resolution is critical for contract enforcement and consequently for mitigation of business risks for the SME’s. The government should pay special attention to this aspect by taking certain steps, it could establish business arbitration courts at district level with enough capacity to resolve business disputes in a short time. The other major problem faced by the SME sector is the shortage of skilled labor. I dealt with this issue in detail in my previous article; I argued it is good both for the youth and the SME’s that a massive skill development program is started and sustained by the government. The lack of professional values in managerial labor is a main impediment to business growth as decentralized management structures are difficult to practice in part due to widespread employee corruption and the resultant trust deficit that creates. The importance of workplace honesty and business ethics cannot be over-emphasized. And as if this situation was not hard enough, the withholding tax on banking and procurement transactions is forbidding for the SME’s, effectively having the feel of state extortion. It is therefore no coincidence that only 40% of Pakistani SME’s have a bank account, compared with 95% in India Another difficulty of SME’s is the high cost of business. High real estate rents and utility rates, labor inefficiency, costly transportation, lack of reliable market data resulting in costly business decisions, etc. are the direct cost drivers that often keep the SME’s under financial stress and lead to losses and even business failure. Adding to these woes is a tax structure that suffocates the honest and growing businesses, stunting their growth. The most confounding is the flat turnover tax rate without care to a SME’s financial situation. And as if this situation was not hard enough, the withholding tax on banking and procurement transactions is forbidding for the SME’s, effectively having the feel of state extortion. It is therefore no coincidence that only 40% of Pakistani SME’s have a bank account, compared with 95% in India. The government should pay close attention to the high cost of real estate for micro and small businesses in particular. The commercial zoning laws should be modified so that certain types of SME businesses can be operated from home as long as they are of authorized genre and give access for regulatory oversight. SME’s should also be exempt from the commercial rates of electricity. The government should also revamp federal bureau of statistics and include market research studies in real time apart from comprehensive and reliable economic and demographic data. All new SME’s should be exempt from direct taxes for the first 5 years. The withholding tax on bank transactions should be immediately taken back. The thresholds for withholding tax should be raised to realistic levels for individual and business to business transactions. The SME’s serving the public sector and large private companies have a whole set of problems, the most prominent of which is delayed payments by the buyers. The hundreds of small contracting firms on which dozens of industries depend, routinely face this problem. A small contractor easily goes bankrupt if not paid in reasonable time which is a common occurrence. The contractors are coerced to the extent that they are forced to sign ‘no litigation’ vows in the written contracts framed by no other than Public Procurement Regulatory Authority (PPRA), or worse, contractors are declined contracts on the basis of previous litigation. This is mockery of justice, to say the least. The malpractice also includes not signing a written contract at all and then paying to the contractor at will or not paying at all. It is shocking that this practice is not limited to Pakistani organizations, rather also prevalent in Chinese firms operating under the CPEC. Furthermore, it is inconceivable for a vast majority of small contractors to acquire or perform their contracts smoothly without paying bribes. There needs to be legislation as a part of the separate SME law proposed above which should specify time limits for payment of bills to the public sector contractors and offenders penalized with heavy fines. The contractors should have full right to litigation if they feel compelled to seek it. Furthermore, exhorting contractors into providing goods or services without a written contract or not paying them at all should be made a criminal offence. There should be a dedicated ombudsman at provincial level to redress complaints in this regard. If implemented, these reforms will help check corrupt practices and bring massive efficiency in the public sector and allied industries. Pakistan is blessed with very strong agricultural base. All past governments in the past have tried to boost raw production and primary value addition of crops, fruits, and livestock outputs. Industrialization is all dependent on economical and steady flow of raw materials and vice versa. If this fact is embraced, Pakistan’s natural choice is to industrialize agriculture sector as its highest priority. Under right conditions the agro-based SME’s dedicated to organized farming, manufacturing, and services will do the trick. If adequately harnessed, this latent resource—SME led agro-industrialization—is a great opportunity to industrialize and boost sustainable value added exports relatively quickly. In view of the importance of SME’s in the current economic scenario, the government should expand the SMEDA initiative in geographic outreach and scope of responsibilities, under a new federal ministry, following the example of India which created the Ministry of MSME in 2007. The Ministry should have full powers as the focal point for advocating, formulating and implementing government’s SME policy and regulation. SMEDA could become the Ministry’s sub-unit in all provincial capitals and even in priority districts. The SME sector can accomplish wonders if the government is able to stimulate its stagnant growth. If SME sector grows by just 4% annually, compared with 10% in India, the SME density could grow to 30 per 1000 people, or by 50%, over the next 10 years. It can be shown that growth of SME sector at this rate will in itself grow the GDP by at least 2.5% annually; it can be further demonstrated that this growth can create at least 1.3 million additional jobs per annum in SME sector alone and therefore it can help absorb the disproportionate number of youth entering the job market. In sum, in this series of articles I have argued that youth development and SME development are the two correlated areas needing government’s priority investment in time and resources during its current term. If welfare and prosperity of the people are truly central to PM Imran Khan’s Naya Pakistan vision, these two initiatives merit his most urgent and close attention in order to fix the country’s pervasive social, political, and economic problems. It is alarming that the open market economy, which was once Pakistan’s key strength even when compared with its bigger neighbor India, has been ailing in the past one decade or so. The two proposed interventions promise revival of this strength in a relatively short time and consequently sustained economic development in the times to come. (Series concluded) The writer is a graduate of MIT, an experienced entrepreneur based in Islamabad, with previous service in public sector. He can be contacted at tasadduq69@hotmail.com