SMEs & AGRICULTURAL FINANCE

Course Outline

 A.   Agricultural Finance

1. Agriculture in Pakistan

• Role of Agricultural Sector in the Economic Development of Pakistan.
• Problems faced by the Agricultural Sector of Pakistan.

2. Agri-business Financial Management

• Nature and scope of financial management, managerial goals.
• Information flows and financial statements.
• Cost Benefit Analysis of the Agriculture Sector in Pakistan.
• Input-Output Ratio Analysis in Agriculture Sector of Pakistan. 
• Periodical financial statement, key ratios and break-even analysis.
• Good Governance in Agri-finance.
• Analysis & Evaluation of Agriculture and Industrial Inter-relationship.

3. Financing Agri-business

• Short term / Long term financing.
• Formulating credit proposal and testing its economic feasibility.

· Investment analysis; Capital budgeting, Inflation, risk and financial planning.

· Classification & Provisioning in Agri-Financing / Agri-Business.

· Securities, Collaterals, Sureties.

· CIB Report, Charge Creation procedure of Revenue office.

4. Agricultural Credit Market

· Analysis of Credit Estimation by Provincial Governments.

· Sources of agricultural credit (formal and informal).

· Role of NGOs and specialized institutions in agricultural lending.

· Cooperative financing.

· Corporate financing.

· Contract farming Methods & Procedures.

· Group lending system, Methods & Procedures.

5. Agricultural Credit Policy

· Role of State Bank of Pakistan in Agricultural financing.

· Supervised Agricultural Credit Scheme 2001.

· Mandatory Credit Targets for Banks.

· Revolving Credit Scheme.

· Prudential Regulations for Agricultural Credit.

· Purpose-wise & Province-wise Credit Targets.

B.   SME Financing

1. Classification / Definition of SMEs.

2. SME sector in Pakistan: present situation & future prospects.

3. Challenges faced by SMEs in Pakistan.

· Lack of proper infra-structure.

· Regulatory complexities.

· Shortage of skilled manpower.

· Quality control problems.

· Lack of entrepreneurial expertise.

· Shortage / irregular availability of financing facilities.

· Shortage of equity sources.

· Inability to meet credit criteria / credit conditions.

· Inadequate bargaining skills / options.

· Lengthy documentation procedure.

4.    Why should banks promote SME Financing.

· Diversification of the loan portfolio.

· Boosting the industrialization process.

· Reducing unemployment.

· Growth of the export sector. 

· Improving the balance of payment situation.

· Low loan loss ratio on SME bank deposits / banking services.

5. Preferred sectors for SME financing.

· Export oriented goods and services establishments.

· Largely using indigenous technology and resources.

· Choices of sub-sectors within each industry.

· Up stream/ down stream serving to medium / larger, cottage / heritage industry.

6. Role of Specialized Institutions for Development of SME in Pakistan:

· SMEDA;

· Provincial Small Industries Corporation (PSIC);

· SBFC & other DFIs;

· NGOs.

7. Sub-contracting to / through SMEs.

· Special considerations to evaluate finance proposal of sub-contractor.

· Measures to promote sub-contracting system.

8. Organizing a sustainable program for SME financing.

· Banks to re-focus their financing activities towards the SME sector.

· Restructuring of lending organization in banks to incorporate SME financing.

· Making finance available conveniently and speedily.

9. Marketing for SME loans.

· Reluctance of SMEs seek bank financing despite ability to meet credit criteria.

· Need for creating awareness of desirability for and availability of financing facilities.

· Proper packaging & marketing of SME financing proposals & developing SME financing schemes / products.

10. Eligibility and evaluation criteria for SME financing.

· A comprehensive, yet simple to use, point-score system to evaluate SME track record and the quality of SME financing proposals.

· Quality of ownership of prospective borrowing entities.

· Computerized spreadsheet system to calculate and evaluate key financial ratios, market competition, size, scope & potential of product line.

11. Elements of financing considerations

· 5Cs / 5Ps of credit.

· Operating ratios, debt / equity ratios, risk ratios, marketing / industrial / business norm ratios and / or preferred ratios for SME financing.

· Security collateral coverage, importance of personal guarantees.

· SBP lending guidelines, prudential regulations.

12. Why Monitoring of SME loans:

· Relatively informal structure and organization of SMEs.

· General lack of financial and managerial expertise, record keeping and planning on the part of their owners.

· Danger / problem signs / signals, problem solving / trouble shooting, cautions & protections.

13. Prudential Regulations for SMEs

Core Readings

1.	Pakistan, Institute of Bankers.	Case Studies on SME
2.	Juneja	Small & Medium Enterprises

SUPPLEMENTARY READINGS

1.	Pakistan, State Bank of	Rural Credit.
2.	MCB Bank Ltd.	Lets Paint Pakistan Green.
3.	Pakistan, State Bank of	Annual Report

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