ISLAMABAD: Minister for Economic Affairs Hammad Azhar said on Tuesday that new Small and Medium Enterprises (SMEs) policy is being developed as promotion of SMEs is essential for economic growth.

Addressing the last day’s opening session of two-day Pakistan Innovative Finance Forum, organized by Asian Development Bank and Karandaaz on SMEs, the minister said that SME policy is being developed by Small and Medium Enterprises Development Authority (SMEDA). The new policy is designed to address various challenges hindering SMEs’ growth in the country.

Hammad Azhar said that Pakistan’s SME sector contributes 30 percent to the GDP, constitutes 90 percent of the enterprises, employs 80 percent non-agriculture workers and contributes 25 percent to the exports. The minister added that as proportionate to the total private sector credit, SME receives 7.5 percent, considerably lower compared to 20 percent in Bangladesh and 29 percent in Turkey.

He said that SME sector remained neglected during the last 10 to 15 years and consequently credit to it contracted from 15 percent to 7.5 percent. However, he added that the present government accords highest priority to the SME and set the target of taking the SME credit to 17 percent by 2023 and borrowers from 200,000 to 300,000, he added.

Azhar further stated that SME is the key agenda for discussion during the Prime Minister’s meetings with his economic team, as the government wants to create conducive operation and regulatory framework for businesses.

He said that the government is establishing a credit guarantee company. The minister lamented that the commercial banks are not lending to the SME sector because of collateral and high risk factor.

Azhar said that SMEs have complex needs which go beyond credit and Economic Affairs Division has been trying to provide them advisory services and got signed bilateral technical assistant agreements for SMEs.

The minister said that in bilateral relations with China, China-Pakistan Economic Corridor (CPEC) is a key for Pakistan and energy projects under it entail spillover impacts on other sectors of the economy.

The minister said the government has also taken many other initiatives to promote the SMEs including the Kamyaab Jawan Program to provide subsidized loans to the youth. He said that the said government is also giving special emphasis on ease of doing business. He said Pakistan has jumped twenty-eight points in the World Bank’s Ease of Doing Business Ranking. This, he said, is a great achievement and expressed the confidence that the country’s ranking will further improve next year.

Deputy Governor SBP Jameel Ahmed said that regulatory and policy decisions have been taken to promote SMEs in the country whose development is critical for employment creation and exports.

He said that commercial banks have been reluctant in the past few years to lend to SMEs owing to high risk. Ahmed said that another reason was that SMEs do not maintain proper record and awareness of various financing options. He said that SME financing has been increased from Rs 360 billion in December 2016 to Rs 513 billion in December 2018 and SBP has launched initiative for SMEs’ promotion. He said that new financial technology could also be helpful for the SMEs in getting access to market, finance and risk management.

Former governor State Bank of Pakistan (SBP) Dr Shamshad Akhtar said that sustainable economic growth and job creation are unthinkable without SMEs. She added that 9 out of the 10 jobs are created by the SMEs. The SMEs’ contribution to employment and GDP growth constitutes 60 percent and 30 percent respectively. The SMEs are facing immense challenge of financial gap. The demand of SME finance in Pakistan is Rs 2.4 trillion and only 15 to 20 percent is catered by the formal financing while rest is either met through informal sector or remained unmet.

She said that SME lending has declined from 15 percent to 7.5 percent. However, she said, it is encouraging that the government is planning to increase SME borrowers to 0.7 million. She said that Pakistan needs to have a very dynamic SME sector for job creation and Karandaaz is ready to provide support. She said that Karandaaz is supporting digitalization of Central Directorate of National Savings which accounts for 30 percent of the total saving.—ZAHEER ABBASI