the primary issues seems to be dearth of appropriate skills to evaluate smes ’ credibility on non - traditional parameters. this is reflected in the lack of innovation in product design and in marketing of financial products for smes. a sustainable solution requires that we take a more holistic view of this problem. a large number of players have to be involved in contributing to the success of smes. there are number of different stakeholders who have to work together in a coordinated and cohesive manner to ensure sustainable growth of smes especially removing the hurdles in the way of their easy access to finance. important stakeholders are the government, state bank, commercial banks, smeda and various chambers and sme associations. first of all, the government and state bank of pakistan need to provide a conducive and enabling environment for smes to operate. this requires that the macroe conomic policies are sound, the regulatory regime is supportive and the legal system is able to enforce contracts and property rights. bis central bankers ’ speeches secondly, organizations such as smeda have to play a critical role in the business developments support, advisory services and managerial training of smes. for example, most small enterprises do not maintain proper accounting of their operation and do not have a trained accountant on their staff. this impedes their ability to access credit from commercial banks. smeda can organize training courses in this and many other important areas. sme associations also need to come forward and launch awareness programs for their members on the opportunities that are already available, assist them in linking up with the appropriate support institutions, listen to the genuine difficulties and problems faced by their members and communicate these to the concerned quarters. as far sbp ’ s role is concerned, it has been taking various important measures for improving the business environment for the sector, and addressing financing needs of smes. keeping in view the specific business dynamics of the sector, sbp issued specific prudential regulations ( prs ) for smes in 2003 that greatly helped banks to focus on sme financing and accordingly align their business strategies. these prudential regulations for smes do not make it mandatory for banks to require collateral but allow them to take cash flow generation as the basis for loan approval. we have always been open to any suggestion from the sector for further improvement and strengthening of these regulations. further, sbp has introduced various refinance schemes for smes. these schemes carry concessional rates for the end - users, in order to meet both short -

term and long - term needs of different sme segments. of special mention in these schemes are the schemes for modernization of smes, for developing alternate energy resources and establishing silos and storage houses. the maximum use of these schemes by smes can benefit the sector in a big way with resultant positive impact on the economy. sbp has also launched a credit guarantee scheme for small and rural enterprises that shares credit losses of banks, to the extent of 40 percent on loans to the small enterprises, under a ukaid - supported financial inclusion program. this scheme has been highly successful and the latest figures show that 64 % of the guarantee limits allocated to banks have been utilized by them. discussions are underway to further enhance the size of this facility so that a larger number of small enterprises are accommodated under the scheme. additionally, sbp, in collaboration with ifc, is assisting banks in their capacity building efforts, focusing on the areas of strategy formulation, product development, risk management, hr development and marketing area. initially, bank al falah has been selected for its capacity building, while many other mid - tier banks have been lined up for the subject consultancy project. this project will revitalize the sme lending by the participating financial institutions and will be a prototype for other financial institutions who could see financing to smes as profitable business ventures. keeping in view the absence of credible research data on sme clusters, sbp has been undertaking cluster development surveys, in partnership with ifc and lums, that will greatly help stakeholders, and especially banks, in coming up with cluster - specific products and tailored sme banking strategies. so far, 11 clusters have been covered whose survey profiles are available on the sbp web, while surveys of 10 more sme clusters are underway, that will soon be completed for the use of relevant stakeholders. lastly, i would emphasize the role of banks that is crucial for the development of smes, given their critical positioning and greater capacity in terms of their outreach and availability of funds. the actual statistics for lending to smes are not satisfactory in recent years. bank credit to smes has declined over the last 4 years from rs 437 billion in 2007 to rs 248 billion on june, 2012. with this decline, the smes ’ loan proportion to the total advances of banks has also decreased from 16 percent in 2007 to less than 8 % percent in 2012. bis central bankers ’ speeches although, this decline can partly be attributed to adverse economic conditions during the period and