industrial policy, its spatial aspects and cluster development in ...

The procedural requirements such as excessive documentation of loan application by
commercial banks are perceived as a major hurdle by SMEs. The government (MOI)
should advocate the State Bank to facilitate the development of a uniform simplified and
efficient procedure for loan disbursement to small and micro level enterprises. This will
substantially reduce transaction costs for SMEs and increase their incentive to apply for
loans.
Information asymmetry is the principle factor behind lack of access of SMEs to credit, so
it is imperative to have a Credit Rating Agency specialising in the SME sector. The State
Bank has successfully launched the Pakistan Credit Rating Agency, however it does not
cover the SME sector. An agency similar in scope but targeted towards the SME sector
should be supported by the government
The government should recommend to the State Bank to promote Venture Capital
Funds in Pakistan in order to stimulate small-scale entrepreneurship in the country and
also rectify credit market failures present in the formal commercial banking system.
Venture Capital Funds do not only provide capital but also support nascent enterprises
and entrepreneurs with technical and managerial support. Such support is crucial for
the success and survival of a new business.
The State Bank along with the Ministry of Industries should provide information on
investment opportunities in the country and facilitate investment by expatriate
Pakistani’s both directly and through such Venture Capital funds.
Invoice-based financing, where the borrower gives accepted invoices (or receivables) of
its business customers or downstream buyers, as collateral to the commercial bank
should be promoted by the State Bank as an alternative to collateral based lending.
2.3.3.5 Land Market
Land represents a principal asset for manufacturing firms. In Pakistan, however,
inefficient and archaic land registration procedures and transfer laws have an adverse
effect on investment and growth in the manufacturing sector.
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