doing, leasing would create opportunities for the inclusion of cross-support services in Bank-financed projects, e.g., alternative energy, infrastructure and employment generation-oriented social funds.

# _Relevance_ **_of the Pakistan experience_**

_55._ The most important lessons provided by the experience with the Pakistan Microenterprise Project center upon (a) the eligibility criteria of participating financial institutions, (b) the importance of policies to attract collaboration from foreign corporations with expertise in leasing, (c) the indispensability of a clear regulatory and legal framework for leasing operations and (d) qualification criteria for enterprises and activities financed.

56. The Project required rigorous evaluation of (i) financial and managerial systems in operation in financial institutions interested in participating, and (ii) capacity of participating financial institutions to provide assistance in the form of leasing to MSBs. In the case of OLP the managerial infrastructure and financial technology was in place, and the company was already addressing the MSB sector as a target market niche.<sup>24</sup> Microenterprises were defined as firms with not more than 10 employees, which follows a conventional definition of microenterprise. However, no distinctions were made between microenterprises and small businesses on the basis of asset size. Thus, small businesses and microenterprises shared the same fixed assets maximum of not more than Rs 10 million (US$ 450,000). This underscores the practical difficulty of drawing a fine line to distinguish microenterprises from small businesses on the basis of assets or capital. In reality, enterprises in the MSB sector share many affinities and similarities.

57. The Project identified and classified MSBs, based on the SHMI into three 25 layers. The characteristic needs of enterprises in each of the sectors for financing were classified and evaluated. Microenterprises in the lower stratum have modest needs for financing (Rs 15,000 or about US$ 700 on average) for short-term loans to purchase raw materials and small tools. In Pakistan, as elsewhere, NGOs have been the principal source of institutional credit as well as support services. However, economically viable enterprises with the potential to realize high returns with small loans do not necessarily belong to the regular client base of the majority of NGOs in Pakistan. Most of the business activities of microenterprises in this lower stratum are perceived not so much as a means to achieve economic self-reliance, but as activities to generate temporary income support or relief for the target households.

58. MSBs in the middle stratum need external financing primarily for short-term working capital (Rs 40,000 or about US 1,800) to purchase raw materials or other inputs. Conventional banking practices in Pakistan are not sympathetic; MSBs are not likely to have the legally-required collateral [under current regulations a commercial bank must require collateral for any loan above Rs 25,000]. Financing needs for MSBs in the upper stratum are a combination of short-term working capital for inputs or inventory of

> 24 Allied Irish Bank plc Assessment Report on Orient Leasing Pakistan Limited.

> 25 StaffAppraisal Report, Pakistan Microenterprise Project, sections 3.05, 3.11- 3.21.

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