Introduction of SMEDA

The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME development strategy. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved overhauling of the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. After successfully qualifying in the first phase of sector development SMEDA reorganized its operations in January 2001 with the task of SME development at a broader scale and enhanced outreach reach in terms of SMEDAs areas of operation. Currently, SMEDA along with sectoral focus offers a range of services to SMEs including over the counter support systems, exclusive business development facilities, training and development and information dissemination through a wide range of publications. SMEDAs activities can now be classified into the three following broad areas: 1. Creating a Conducive Environment; includes collaboration with policy makers to devise facilitating mechanisms for SMEs by removing regulatory impediments across numerous policy areas. 2. Cluster/Sector Development; comprises formulation and implementation of projects for SME clusters/sectors in collaboration with industry/trade associations and chambers. 3. Enhancing Access to Business Development Services; development and provision of services to meet the business management, strategic and operational requirements of SMEs. SMEDA has so far successfully formulated strategies for sectors, including fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a

broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation.

Role of Policy & Planning Department

The Policy & Planning department of SMEDA is the hub of policy and regulatory research that feeds national, provincial and local government institutions, SME associations, industrial clusters and individual entrepreneurs with the ultimate objective of creating conducive business environment. It has a mandate to identify and where suitable initiate strategic projects. The Policy & Planning of SMEDA plays a key role in providing an overall policy direction to SMEDA, under which SMEDA provides support to SMEs. The P&P provides guidance based on field realities pertaining to SMEs in Pakistan and other parts of the world. Information resource center of SMEDA is an integral part of Policy & Planning department while development of Regulatory Procedures is a part of an overall information dissemination function of the department. In order to facilitate SMEs at the micro level Policy & Planning department has developed user-friendly systems which provide them detail description of the Laws and Regulations including the process and steps required for compliance.

What is SME?
As defined by State Bank of Pakistan - SME (Small and Medium Enterprise) means an entity, ideally not a public limited company, which does not employee more than 250 persons (if it is manufacturing concern) and 50 persons (if it is trading / service concern) and also fulfills the following criteria of either a and c or b and c as relevant: a) A trading / service concern with total assets at cost excluding land and buildings up to Rs 50 million. b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million. c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements. In order to obtain financing from SME Bank, the enterprise must fall within the bracket of definition of small and medium enterprise given by SME Bank.

SME Banks Approach to Financing

Any commercially viable business proposal can qualify for banks financing. However, in the first instance the Bank tries to help and support enterprises, a) Use indigenous raw material. b) Add value c) Export oriented

How to Apply for a Loan to SME Bank?

For obtaining financial services or assistance from the Bank, the applicant should fulfill the following criteria or more specifically called the General Lending Criteria

General Lending Criteria

Borrowers
Banks 3 main requirements are: 1. A viable business plan 2. Adequate debt equity1 ratio 3. Acceptable securities If you meet SME Banks lending criteria and have a sound business proposal that is commercially viable, please apply for our assistance as follows: 1. Get an application form from one of our designated branches. 2. Fill it up with the required information. 3. If you need assistance in filling up the form, our staff will be there to help you. 4. After completing the form, kindly hand it over to our credit officer along with the required documents. These documents have been listed in the application form.

Sectors
The lending facilities are available for SMEs in the sectors of textiles, gems & jewellery, marble & granite, cutlery, surgical, engineering vendors and any other viable/profitable enterprise.

Financing
SME Bank can provide financing within the range of Pak Rs.50, 000. - To Pak Rs. 30 Million. Loan provided by the Bank will not exceed 60% of the forced sale value of collateral. At least 40% of the projects/enterprises financing should come from the borrower in the form of equity. Up to 60 % would be financed by SME Bank.

i.e., debt: equity ratio is 60:40.

Mark Up
What a client pays to the Bank, in addition to the loan amount, is called the mark-up. This is necessary to sustain the Banks activities. It is market based and depends upon the projects expected cash flows. It varies from business to business, but is in the range of 4% to 8% above the GOPs 5-year PIB rate.

Repayment
The repayment of loan is linked to the cash flows of the project, which are separately projected by the bank. The banks projections are based on the business plan and the financial statements of the client, which are provided at the time of submitting application for a loan. The repayment is scheduled according to the cash flow of the client. It could be either on monthly basis or quarterly basis. However, the total repayment period does not exceed 7 years with varying grace period of up to 12 months.

Collateral
Collateral forms are: Acceptable forms of security are mortgage of property/house/building Hypothecation of stocks/machinery/equipment Personal guarantees

The collateral requirements are as follows:

Securities
These include Mortgage of land, building and fixed assets having approximate forced sale value 70% approx. of value of loan. Professional evaluator of banks choice assesses the forced sale value. Bank charge by way of hypothecation, pledge etc on moveable and other non-real estate assets. The bank carries out two types of mortgages

1. Registered Mortgage
SME bank has assigned some areas to be negative and carries out registered mortgage in case of these areas. The bank registers the mortgage deed with the registrar of properties and the client

has to pay 2 % of the value of collateral. (1% stamp duty and 1% mortgage fee). Original documents of the property are also kept with the bank.

2. Equitable Mortgage
This type of mortgage is for those clients who fall under the category of areas which are rated as A+ or positive by the bank. The client simply signs the mortgage deed and his original documents of the collateral are deposited with the bank as security. This type of mortgage is cheap but normally avoided by the bank.

Assignment of Rights
According to this the borrower shall have to assign rights to Bank on his: Insurance monies. Receivables etc.

Guarantees
The loan guarantees accepted by the bank are: Personal guarantees of persons having capacity to repay the finance in case of default. Trade Body or Corporate Guarantees

The guarantors shall have to give their NIC copy, copy of registry of property and sign the guarantee paper. The bank judges whether the guarantor has worth equal to the amount of loan or not.