KARACHI, Dec 12: Banks are showing a marked shift to small and medium enterprises despite a number of problems, and bankers estimate allocation of more than Rs16 billion during the first four months of the current fiscal year which is about 60 per cent more than Rs10.50 billion given in the same period of last fiscal year.

“Bulk of the portion of finance (42.7 per cent) went to the manufacturing side, followed by 31.7 per cent to commerce and trade,’’ a State Bank of Pakistan official informed the Private Sector Credit Consultative Council meeting on Dec 3.

He went on to inform that SMEs have, so far, in a longer term of period received an overall Rs385 billion financing. Yet SMEs continue to face problems and bankers point towards absence of proper account management, scarcity of technical skills, lack of adequate collateral and absence of credit history.

Banks still perceive credit allocation to SMEs, a high risk operation, and, therefore, exercise restraint and caution.

In the absence of any official SME census, a rough estimate is that there are about two million small and medium enterprises in the country, of which about 25 per cent or 400,000 are manufacturing units.

There are roughly about 600,000 service units and about one million commerce and trade retailers.

But the Economic Census of Pakistan counted 2.96 million business units in Pakistan during 2005, of which 2.6 million were establishment and six per cent or 0.18 million were household units or cottage industries.

Lack of access to formal financing source remains the top problem of the SMEs.

According to a survey, organised by the Gallup Pakistan, with the help of World Bank and the Pakistan government, covering 500 sampled small entrepreneurs, 55 per cent small entrepreneurs complained of their inability to get access to formal financing sources.

Many of them are either ploughing back their profits in their business, depend on funds from small informal committee or informal sector at a very interest rate.

The SMEs interviewed in the survey complained of harassment by the tax authorities and at least 21 per cent of 500 sampled businesses conceded of giving bribe to authorities for keeping their business run.

“Pakistan’s policymakers and bankers have shown an open bias towards big business from the beginning and small entrepreneurs had to struggle hard for keeping their business run,’’ Qasim Jan, owner-operator of a small engineering concern in an old town area remarked.

Qasim is a commerce graduate with some knowledge in tool-making and is a regular newspaper reader and hence aware of the banking facilities and business concessions being given by the government.

His observation is well substantiated by the results of another study that showed 8.75 per cent growth of large scale manufacturing during 1950 to 2003.

During the same period, small business showed an average growth rate of 5.06 per cent.

During this period, the large scale manufacturing was supported by macro-economic policies and liberal bank loans. There was no declared policy for supporting small business. It was in the last five or six years that a number of small finance banks have been established, and State Bank has put in place a set of prudential regulations. The State Bank also allowed collateral- free loans up to Rs100,000.

But SMEs made some strides during the decade of 1987-86 to 1997-08 when production was estimated to have jumped from Rs19.68 billion to Rs 67.54 billion in 1996-97.

The contribution of SMEs to GDP varies from 30 to 11 per cent because of these being mostly in the informal sector and lack of proper accounting. A vast bulk of these micro-enterprises are owned by individuals.