SMES CAN BENEFIT FROM REDUCTION IN DISCOUNT RATE PROVIDED FINANCED

Whilst appreciating the reduction in discount rate by State Bank of Pakistan (SBP) the Union of Small and Medium Enterprises (UNISAME) stated that the SMEs will only be able to benefit provided they have access to finance.

President UNISAME Zulfikar Thaver said what good is the reduction in discount rate for SMEs if they are not facilitated by finance, it is very important that the SME sector is financed by the commercial banks. The big and the small banks are all parking their money in treasury bills and recent reports of most of the banks disclosed that major portion of their funds are in government bonds. The private sector enjoys a small portion of their advances and from that small portion the SMEs are the least benefited.

If this state of affairs continues commercial activity will be reduced and government borrowings will increase. The government is borrowing money from banks for their huge expenses and unfortunately not for development work. It is understandable if the government borrowings are for development work. The development work which is undertaken is at enhanced cost and big money is siphoned out by the contractors in connivance with the authorities. He invited the attention of the policy makers to the sorry state of affairs and urged them to realize the importance of the role of the private sector inclusive of the SME sector.

The banks need to learn risk management to feel comfortable in financing on the basis of positive cash flows and collateral management rather than simply financing against mortgage of immovable property. The inflation rate determined by the financial institutions is 15% and savings are earning barely 9% on an average at this rate the rupee is becoming small and losing its buying power. The worst sufferers are the SMEs who are deprived of financing by commercial banks and the cost of production is increasing and sales are declining. Thaver invited the attention of the government to facilitate the SME sector which is disappointed with the non serious attitude of the government to resolve their issues.

The SMEs need to be facilitated with finance. It is regretted that the SMEs are not getting even post shipment finance leave aside pre-shipment finance. There is urgent need for the SBP to study the requirements of bridge financing for SMEs.

No commercial bank has developed any product for SMEs. The sector needs finance on pay as you earn scheme under leasing and finance for import of raw materials and to manufacture goods for export and also for domestic market. UNISAME has reiterated the need time and again and hopes the government will realize the fact that the sector is the majority sector and the engine of growth and facilitate it in the best interest of the economic growth of the country.

Posted in: Press Releases