PM Youth Loan Scheme: Honest Opinion
I have received ” Honest Opinion” about PM Youth Loan Scheme which i am posting here… your comments are welcome…
The purpose is not to criticize on the policies and standard operating procedures designed by the Federal policy makers, but I am here to present some honest observations and suggestions for better improvements regarding the counseling, execution and implementation of the PM YOUTH BUSINESS LOAN at all over the Pakistan. As we all know that the Respected Chairperson Ms. Maryam Nawaz has clearly stated that it’s the true responsibility of the SMEDA management to provide assistance and counseling to clients on all the matters related to the loan application processing and business plan making.
Although, being a junior subordinate, I think i am not shrewd enough to state arguments on federal policy makers. Therefore, I apologize honestly, if some of my ideas might be irrational or non pragmatic enough to actually touch minds of higher management. But as far as I learned from this organization, it truly encourages the level of honest communications and ideas sharing through some practical real life experiences. Keeping in view of the above subject, I hereby present some of my observations to you along with suggestions for improvement.
Policy for PM youth loan eligibility criteria
THE PRIME MINISTER YOUTH Program is functioning very smoothly in all over the Pakistan. The basic idea behind this scheme is to facilitate the youth of Pakistan (Age 21- 45) with some entrepreneurial potential, and there is no further qualification or skills clearly defined for this segment.
In my point of view, there should be an addition to the criteria defined in policy to judge entrepreneurial potential of applicants.
1. The applicant must be metric or intermediate or above
2. The applicant must already have some informal or formal skills in any field of economic activity
For example, many people come to desk, who are not educated enough to read or write his/her name on a piece of paper. Sometimes officer becomes literally confuse that how can he communicate the parameters and pros and cons of a formal business plan to him?
Similarly in case, if a person has not done any sort of work or economic activity in his life or he does not possess any particular skills to work, than how can we expect a successful business economic activity from that person??
HONESTLY speaking, in order to make the business successful, the applicants for PM loans must also be aware of the gigantic economic challenges like energy crisis, law and order, unemployment, price hikes, inflations, amortization schedule and all other unpredictable changing economic factors faced by the nation day by day.
POLICY FOR INFORMATION INTEGRATION
Its clearly observed that there is no formal network has been designed to share new information between SMEDA, NATIONAL BANK AND FIRST WOMEN BANK. In case of any new policy related to guarantor SOPs, business plan criteria and loanee criteria, the NBPL should inform to all three institutions formally through written circular and same policy should be adopted on virtual contents in a quick manner. For example, the link of NBPL and FWBL is given on SMEDA web, but the link of SMEDA services are not given on NBPL site.
INVOLVEMENT OF ISLAMIC ECONOMICS SYSTEM
To establish the business more effectively and efficiently, the policy makers should adopt a formal Islamic economics business system. According to this system, the bank will sell the machinery to the client on a reasonable profit rather than handing over amount of cash to him.
STEP 1. The client will present SMEDA business plan to bank.
STEP 2. The bank will enter into MURABAH agreement with the investor, in which investor is bound to purchase goods or machinery from bank after being possessed by the bank.
STEP 3. The bank will purchase machinery or land from market according to the requirements of the investor and take the possession of the purchased items.
STEP 4. After possession, the bank will sell the machinery, goods or property to the client and take reasonable profit (decided earlier with mutual consent) on goods from client. The bank will make installments of the principle plus profit and divide it into installments for ease of the client. In return, the bank will mortgage some properties or guarantees as per scheme policy from the client. MURABAH agreement encourages the transparent and true profit based Islamic banking systems rather than the conventional KIBOR interest rate systems developed by the conventional banks.
POLICY FOR EFFECTIVE BUSINESS PLAN
The business plan is the backbone of any business, but with reference to the regulations of this scheme, I am perplex thoroughly about the significance and role of a well defined business plan particularly on the very first stage of loan application submission. Yesterday, I asked from Regional manager National bank that “what would be the criteria set by NBP for securing loans to the millions of applicants, either its depends upon a well defined business plan or it will be done through a transparent merit based balloting system?? “.. He replied, “Its crystal clear that business plan making is an integral part of business set up for client but it has less role in securing loans to clients, the loan securing process will be done through proper and transparent balloting system on merit basis in which we will select first 15,000 applications randomly out of millions, and give loans to them according to their business plans”.
So a question arose into my mind that, why there is need to submit business plans before balloting? SMEDA is providing advisory services to all the general public, in which most of them might be non serious or not eligible to fulfill the pre requisites of the youth loan scheme. The suggested model should be that SMEDA may provide effective business plan making consultancy to the selected 100,000 loan applicants only. Because these 100,000 clients are going to be engine of the growth for the sustainable business economy and would contribute a handsome share into GDP of Pakistan.
Bank’s Criteria for business plan
The bank also has no clear instructions about acceptance of business plans; SMEDA has done work in 56 sectors with an investment limit of (1.5 m to 2 million). There is no any SOPs designed for the people who want to start business in any other sector or with an investment range below 1.2 million?. In fact, its true that with less resources and short span of time, the SMEDA management cannot accommodate those applicants, who wants to start business from below one million investment. A number of applicants have been rejected due to the improper and wrong business plans. The criteria of business plan set by the bank is so much critical that, illiterate applicants who want to apply for one lac only , are even asked to present a formal business plan along with financial analysis, balance sheet, income statement and cash flows.
SMEDA has no answer to the people who apply below 1.5 million, so many persons have been ignored and refused by SMEDA loan designated officers at the help desk. At the end those persons has no option but to go to market and pay a colossal amount to the unskilled professionals, who are using smeda logo after copy/paste selling the smeda feasibilities and destroying good will of this prestigious institution. Many of plans made by unskilled have been rejected by bank due to improper calculations.
In view of the above facts, I will request the SMEDA management to allow me to accommodate the regions according to the demand of sector. For example, in rahim yar khan, 80 percent applicants are from dairy and livestock sector, so kindly allow me to rework on the 2 million dairy farm feasibility and make it shorten into to two investment size, one million and 0.5 million. This service will be also free of cost to the client. According to policy, these feasibilities will be checked and verified by SMEDA BDS before delivering to clients. Second solution is to hire any individual experts by Government from market on temporary basis, who would deliver this service to the clients freely. If it happens, this will accommodate thousands of people who have been rejected because of unavailability of the 2 million guarantee papers, which is approximately 1.5 times greater than two million. As according to the statement given by the Manager NBP RYK, that we have delivered 80,000 formto people but only 330 applications have been submitted untill today 2ND JAN 2014.
EXTENSION OF THE SMEDA’S VISION AND SERVICES
In order to make this scheme successful, there are two major steps that Government should have to take before securing loans to clients:
1. A well-organized system should be designed to execute, implement, practically monitor, control and supervise the businesses developed through PM loans
2. A strong and quick System for recovery should be designed, and a team comprising of ten members should be placed at every district for recovery of loans.
Smeda is now redefining its role and strategy to support YOUTH more aggressively all across the Pakistan. As per my understanding, the strategy and structure has been transformed from SME to micro financing, this organization was dealing the SMEs sector since 1998, whose assets are between 20 to 40 million. And Now it has broadened its structure from SMEs to micro finance, so, With reference to PM loans, the new SMEDA’s slogan should be “Turn Youth potential into profit”.
For the emergence of the effective economic systems, there is need to form an organization, which ought be responsible to control, monitor and supervise the economic, financial, technological, legal and supply chain systems aggressively. Government should allocate a handsome budget to expand the SMEDA’s departments and services to the regional and district level. SMEDA’s responsibility should not only to provide advisory services to the clients but it should take some practical measures to ensure the success and viability of the PM business loan businesses. Because we will be better knowing the fact that, “Measuring quality of service is much more advantageous than measuring the quantity of people come to help desk or counting the number of downloads from the website. And the best way to measure the quality performance of the business is to turn the Youth potential into profit practically”.
If the Government allocates a handsome budget to expand the SMEDA services to micro level, then the new structure of the organization should be to hire sector experts with specific to the regional loan percentage. The functions of the new SMEDA’s structure should be following:
- · Guidance, monitor and supervise the youth investors in land acquisition, purchase of machinery and all the economic operations
- Monthly visit the business location sites and deliver practical tips for improvements
- Arrange seminars and workshops for awareness and training of the deployed youth labor working already in business
- Prepare the financial statements of the business every year and submit to head office
- Ensure and justify the proper economic activities generated through the Pm business loans
- Ensure the timely submission of the bank installments by the clients
- Suggest every business to declare its proper income, tax payments and assets values.
- Inform all the clients about the day to increases in prices and expenses (electricity, gas, goods e.t.c)
- Ensure that the suggested businesses are actually going according to the business plans
- SMEDA will submit performance report of the businesses after six months, and give reasons of its failure or success to head office, along with suggestions for improvements.
Sector wise Loan distribution
As we know that National bank will disburse loans not only on individual basis but it will allocate on sector basis also. SO SMEDA should place the sector experts at the regional level with specific to the ratio of the sector wise loans disbursement. For example, the placement of the sector experts should be according to the largest share of the loans disbursed to the sector or region. If Out of 100,000 loans, the 10 % loans for dairy sector have been given to the Multan region, then there should be placement of the dairy livestock expert in Multan region. Please follow the table below for the reference about the sector wise placement.
Sector Region Loan allocation (%) SMEDA Expert placement
Dairy Multan 10 % Dairy consultant
Poultry Lahore 15 % Poultry experts
Auto parts Gujranwala 10% Auto parts expert
i know that most of the things might not be possible because of the adverse financial constraints faced by the Federal Government, but in fact the policy makers should realize that investing one billion on infrastructure is not detrimental for saving the 100 billion investment on this scheme in next five years. the nation’s money is valuable asset and sharing ideas and opinions is the only thing which costs nothing.
Note: These are some issues which have been identified here, but that’s not all… some other important issues which are not discussed here, but we will discuss it later, Insha Allah.