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4TH PAKISTAN SME
CONFERENCE 2010
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INTRODUCTION
Shamrock is arranging SME Conferences from
last four years because it knows the importance
of SME to economy
SME sector had step fatherly treatment bygovernment
A lot of corporate banks are now showing interest
in SME banking
State Bank of Pakistan is supporting SME sectorthrough sustaining certain regulations
Recent flood provide both challenges and
opportunities to SME in Pakistan
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SURVEY ON ENTREPRENEURIAL CULTURE
45% of total population in EU wants to become
entrepreneur
While 71% in China, 39% in Japan and 65% in
U.S wants to be an entrepreneur Only 3% of Pakistan women want to become
entrepreneur
While the women population that want to become
entrepreneur is 13.8% of India, 28% of U.S and35% of EU
We can compete with other nations, only if we
increase womens participation in SME because
half of our population is women
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DEFINITION OF SME IN PAKISTAN
Employees 250 or less
Paid up capital 25 million or less
Sales 250 sales (annual) or less
90% of SME has annual turnover of 10 million in
Pakistan.
Pakistan is ranked 124th rank (in terms of
regulation)
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SUGGESTIONS TO PROMOTE SME
CULTURE
Procedure to set up should be centralized
Access to finance should be made easily available
to SMEs
Promote entrepreneurship as part of formaltraining/career building as an entrepreneur
Strong linkage between institution and business
industry should be developed
Close collaboration between small businessentities like SMEDA and other
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IMPACT OF FLOOD ON SME SECTOR IN
PAKISTAN
20.2 million people are effected by flood
1.9 million houses destroyed
4.25 million acres of land destroyed/damaged
500 600 thousand tons of wheat destroyed
Thousand of enterprises (small) has been
destroyed
Rehabilitation, recovery and rebuilding of
enterprises are required.
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PROBLEMS
Biggest impediment in SME growth is financial needs
No information regarding tax allocation
Lack of management
Financial projects are inadequate
Billions of dollars are being spent on SME sector butno output
There is no financial Model to support SME (agro-based)
Government has not been able to support agro-basedbusiness though the massive growth in demand ofagricultural products
No innovation in terms financial products
Lack of corporate governance
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SUGGESTIONS
Clusters should be present cluster financing makesit easier for financial institutions to cater to needs ofsmall enterprises.
Bankers should take interest in SME banking.
International Finance Corporation program will dowell to support SME in Pakistan.
Technology needs to be integrated into smallbusinesses.
Commercial banks must diversify their financialproducts.
Corporate governance is required for accountability Home grown models should be developed.
SME lending Socio Commercial lending.
2007 SME policy needs to be revised
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SESSION# 1STRUCTURAL REFORM AND
SUSTAINABILITY IN THE SME SECTOR
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ROLE OF COMMERCIAL BANKS IN
SUSTAINING THE SECTOR
A number of banks are working with State Bank of
Pakistan
One of the fastest growing sector within the banks
(internally) is SME, example: India and China
Commercial banks have not really gone into the SME
Sector
Product Program Approach has been used by many
commercial banks. This approach is very good but
banks have difficulty in sustaining this. None of the commercial banks has the right business
model
Financing to this sector is easy because of no
documentation
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UNSECURED LENDING CULTURE
Large local banks prefer collateral based lending.
Limit of Rs 2 million on unsecured lending by
commercial banks discouraging
New products must be developed with both mixedapproach of secured and unsecured loans
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STANDARD CHARTERED BANK
Globally fastest growing sector in SC is SME
Sector
Even though SC has not used Product Program
Approach, they have to close the SME financingunit because of wrong structuring, losses and
lack of control
According to Standard Chartered Bank, all that
is required is a Change in Mindset of bankers
to fuel SME lending.
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SME FINANCING BYCOMMERCIAL BANKS
MYTH OR REALITY
There is a huge potential for SME in Banks
$ 450 billion investment in SME
56% of SME is in urban
No institution for SME bankers
Small businessman never do fraud because his
only source of earning is from business (no
Balance Sheet and no Income statement)
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FUNDING NEEDS ON SUSTAINABLE BASIS
FOR THE SECTOR
Business Support Fund (BSF) has very noble task toaccomplish
Three core values of BSF
1.Develop new business
2.Help develop existing business3.Rural enterprises need to help
Rural Enterprises have always been neglected but SoneriBank have included it
Banks have been reluctant due to the risks involved
Banks have enough resources to spend since last 10 years Plus banks have well qualified and trained professionals to
guide the owners of SMEs
Default rate of SME is less than 5%
Default rate of large enterprises is more then 5%
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Enterprise development centers
1. Banks will be looking into the EDC, all service
providers and stakeholders will be talking to
EDC, not to BSF2. To stabilize SME
3. Private public partnership promotion
4. Develop policy framework
5. Private sector should be allowed to runbusinesses
6. Governments role is not to run business but to
create policies which help/regulate business
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Financial Models
1. Fail to address the financial need of SME
2. No innovation in Financial Model
3. 3.6 million SME is in Pakistan4. 1.8 million contribute 25% of GDP (golden
triangle)
5. 87% of SMEs are sole proprietorship, while 10%are partnership and 2% are corporate entities
6. 70% of sole proprietorship does not have propereducation, how can they develop mission, vision,policies etc?
7. SME policy needs to be revised
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Cluster Financing
1. This program will be launch in a month or two
2. Cluster financing will be handling all their
activities necessary to promote and prosper theSME
3. Supply chain to fulfill the financial needs of
businesses
4. Banks can make money from Cluster Financing
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HR plus Program
1.Addresses the lack of professional managers
2.Assessment of SMEs and advertize positions
required3. HR audit to identify needs
4. Monitor performance and give benchmarks
5. Rs. 15 crore for this program
6. Enterprise Development Center (EDC) hasestablished in Swat and Malakand
7. There are 1250 enterprises in Swat
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SESSION# 2FACILITATING AND EMPOWERING THE SMES TO
RISE AND SHINE
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SME CLUSTER AND THEIR SHARE OF
PROBLEMS
Role of SME today
1. We have 2nd largest coal reserves in World
2. Production of wheat, milk and rice is also huge
3. Economy of Pakistan is at shambles with theseresources because of bottleneck
4. Last year, trade deficit was $12 billion while
current account deficit was $ 10 million
5. Can SME can help to improve these conditions6. Japan did it with SMEs
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Sindh Development Program
1. Give people 15% rate of return for investment inSME to encourage investor
2. KIBOR secured/sustained
3. Dispute resolution4. 2 milk power plant and 1 pasturizing plant are the
first 3 projects
Sindh Board of Investment
1. SBI believes in the significance of SME2. It provide platform for Public Private interaction
(PP Partnership)
3. They want improvement in regulatory framework
4. It invest $ 800 billion for treatment plant (health)
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Projects of SBI
1. Fisheries special Economic Zone (60% rate of return, ifinvest)
2. Livestock Special Economic Zone (land near Bhambore)
3. 1300 acres for farming
4. 1200 acres for grazing5. Marble City
6. Near Karachi at Dabaji
7. Hugh marble and ignite reserves available and quality andcolor best in Pakistan
8. India is also exporting while U.S and China are the markets
9.Agro-based opportunities for SME Sector
10.Date processing unit near Khairpur
11.Only by packages, we can charge 4 times the price
12.Scope of exporting of date is of 1000 countries
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Conclusion
1. Fate of Pakistan can only be improved by the
active participation of SME
2. By bringing SME in rural areas we can improvestandards of living and stop influx of people to
urban areas
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NEEDS OFAGRO-BASED SMALL & MEDIUM
BUSINESS
Impediments
1. Export financing scheme rate has enhanced by 0.5%to 9%
2. Increasing discount rates
3. Huge government expenditure cause discount rateto increase, so cost of business in Pakistan
Common wealth recommendation
1. Empower public projects
2. Focus on those private sectors that offer greatestopportunity for growth, export and employment
A consisted effort is required to ensure sustainableinfrastructure facilities
We have a growth without development
We should have growth with development
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BOOKKEEPING, TAXATION & TODAYS
TECHNOLOGY FOE SMES
Four major conceptual changes in Income tax
Ordinance 2001
1. Tax payers vs tax collect (revenue generation)
2. Self assessment scheme (universal)3.Assessment vs Audit
Books of record
1. Basic record for income up till Rs. 200,000
2. Record all money received and paid3. Record for all assets and liabilities
4. Record for costs (manufacturing)
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When income is greater than Rs. 200,000
1. Cash memos and invoices should be numbered
2. Daily record of sales, purchases and expense
3. Special requirements for4. Wholesaler, distribution, dealers
5. Professionals
6. Manufacturers (income > 2.5million)
7. Records also required for other types of income
8. Records to be maintain for 5 years after
completion of tax year
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All Expenses related to earning of income should be recorded butthere are certain exceptions:
1. Fines and penalties
2. Personal expenditure
3. Salary of Rs. 50,000 or more, there should be a separate account
4. Crossed bank checks, not cash5. Expenditure of capital nature
Technology for SME
1. Computer program is available at FBR website
2. Quick access to filling
Needs
1. Skill up gradation2. Technology up gradation
3. Modification of mindset
Who is to file a tax return
1. Every company either profit or not for profit
2. People earning greater than Rs. 300,000
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SESSION# 3GOOD GOVERNANCE AND EFFECTIVE HUMAN
RESOURCES PRACTICES
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TECHNOLOGYSOLUTIONS FOR OPTIMUM
PERFORMANCE
Use of technology in SME is very less
Software's, example; ERP, Business Process
Management System etc
First identify form of business and then usetechnology accordingly
For small businesses, there is no need for ERP
Free software for SMEs is available on SMEDA
website and by government as well One-third of cost incurred on buying (if free,
then no cost) while two-third in implementation
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Targets (through technology)
Productivity improvements
Reduced resource requirement
Improved order management Improved business process
Issues in using technology in Small Business
Limited capacity for investment
Organization inability to absorbed technology
Human Resource constraints
Training
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ERP adoption in our country as compare to other
High per capita cost
Limited infrastructure skills
Levels of integration is too high Organization cultural issues
Centralize decision making
Benefits/reasons of technology implementation
Retain customers
Introduce new delivery channels
Introducing right new product
Optimizing existing supply chain
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In the period of recession
New technology is better because technology
provider provide technology at low price
Low cost of implementation For new technology people have to work hard
Provide your worker an opportunity to work and
cope with change
Under utilized resources can be utilized It also helps to opt for best available option
Decision should be based on business needs
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Preferred traits
Reliable, dependable, trustworthy
Speed
Comfort, feel geed
Secure status reputation Example BMW
People with these characteristics and qualities will beaccepted anywhere
Who is professional?
Quality of work he performed He can be banker, mother etc
It is not necessary that he person should wear goodand drive car
Face should show what your heart feels
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Service to third degree
SME should satisfy the customer of customer not only thecustomer
Lack of patience and honesty
If 100,000,000 people
Monthly improvement is 0.5%
Then total monthly improvement will be 5,000,000 people
Risk averse
In Endowment Fund, salaries for 1 year is provided tonew businessmen
Pakistanis are reckless but risk averse not ready totake risk
Parent feeds into our mind not to take risk so its in ournature
There is nothing like trying do it or not
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Credibility Orientation
SME is the backbone but is it able to bear theburden
People must have
1. Integrity business acumen2. Innovation creative problem solving decision
making skills
3. Alignment
Power = will * inertia
As, V = ir (volt = current * resistance) Example:
People in rural areas are helpless; we should providethem resources and produce will in them to work hardand generate positive resistance in them
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GOOD GOVERNANCE IS AT THE HEART OF
ASUCCESSFUL SME VENTURE
Good governance is not all about rules and regulation but its aboutattitude and values of organization
Corporate governance is a part of SME
12 essential principle of Good Corporate Governance
1. Business should have Framework
2. Should not be a one man show3. Board should meet on constant basis
4. Hiring employees of your desired skills
5. Stakeholders should be on board
6. Division of responsibilities
7. Board should have appropriate information
8. Board should have appraisal system setting the tone at the top9. Levels of remuneration should be appropriate
10.Board should include people with experience
11.Family favoritism should be avoided
12.There should be a training program on joining the board
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7 key concepts to improve Good Governance in SME
1. Delegation of authority
2.Accountability
3. Transparency
4. Conflicts resolution
5.Aligning incentive
6. Check and balance
7. Professionalism
Conclusion:
We Should come out of mindset that government will dofor us
Pakistanis are sleeping and this is the most dangerousthing
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REBUILDING & REHABILITATION THE TASK,
RESPONSIBILITY& OPPORTUNITY FOR SMES
People can do anything, do not focus on education
and health
Provide people with employment and they do it
themselves Road link should be improved because then they
can themselves to educate and health
Farmers must be helped to come back to stand
their feet after flood destruction
There are number of opportunities for us in
agriculture
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