Shamrock Conferrence

8/6/2019 Shamrock Conferrence

1/40

4TH PAKISTAN SME

CONFERENCE 2010


2/40

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


3/40


4/40

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


5/40

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)


6/40

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


7/40

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.


8/40

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


9/40

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


10/40

SESSION# 1STRUCTURAL REFORM AND

SUSTAINABILITY IN THE SME SECTOR


11/40

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


12/40

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


13/40

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.


14/40

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)


15/40

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%


16/40

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


17/40

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


18/40

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


19/40

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


20/40

SESSION# 2FACILITATING AND EMPOWERING THE SMES TO

RISE AND SHINE


21/40

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


22/40

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)


23/40

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


24/40

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


25/40

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


26/40

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)


27/40

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


28/40

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


29/40

SESSION# 3GOOD GOVERNANCE AND EFFECTIVE HUMAN

RESOURCES PRACTICES


30/40

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


31/40

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


32/40

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


33/40

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


34/40


35/40

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


36/40

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


37/40

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


38/40

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


39/40

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


40/40

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

Documents

Shamrock Conferrence