November , 2017
One region, one agenda: Development through cooperation
13:25 pm

B.E. Bureau

The initiatives of the SAARC CCI

Collective gains can result only from collective vision and action. The foundation of regional cooperation is cemented not just by a shared history or cultural affinity but by a strong sense of common purpose. The South Asia Association of Regional Cooperation (SAARC) was founded on December 08, 1985, to facilitate the economic growth of a region grappling with problems of poverty and inequality, and help its all-round development by allowing the free movement of people, goods, and services. A common market and regional communication and transportation networks were the main mechanisms envisioned to achieve this. But political conflicts and regional rivalries have often come in the way of trust generating, collaborative policies and ventures. Beyond the hardscape of politics, are the stake-building and confidence boosting drives of economics. Growing intra-regional cultural and trade ties have added heft to the idea that irrespective of disruptive politics, it can be “business as usual” for the SAARC member countries of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. The fulcrum of this cooperation is the SAARC Chamber of Commerce and Industry (SAARC CCI). Comprising of the leading entrepreneurs and representatives of national commerce and industry chambers of the member countries, it is in the best position to bring about, as its profile states, “improvement in the business environment, disseminate information about potential tradable goods and identify joint ventures in the SAARC region.”

One such policy-influencing initiative of the SAARC CCI took place recently during its two-day conference in Chennai. It was jointly organised with the Federation of Indian Chambers of Commerce and Industry (FICCI). On October 22, the focus was on “integrating small and medium enterprises (SME) into regional value chains” and on  October 23, domain experts and delegates discussed water management and scalable business solutions by “unlocking climate investment opportunities in SAARC”.

This was no boondoggle conference. It was about coming out with practical solutions to the problems faced by SMEs and those affected by the water stress and scarcity. All participants did not shy away from the fact that there are serious problems beleaguering the region, especially political issues, boundary disputes, and a lack of trust between certain member countries. The challenge was to rise above these and come out with a concrete, deliverable action plan to help the SMEs who form the backbone of most members’ industrial sector. Further, the common problem of water insecurity was mostly perceived to be the next major “resource war” after fuel and can only be tackled jointly. Opening the proceedings with a reality check, Vinod Juneja, Vice President (India), SAARC CCI, said that in the last few years, there has been a change in the working style and focus areas of the SAARC CCI to set out clear goals and suggest practical policies and measures to accelerate the growth and development of the SAARC countries.

Growth of SMEs

“It is not revolutions that change the world, but the revolutionary ideas that lead our way,” said S Pannalal Tatia, Chairman, Kreon Financial Services. He cited the examples of global giants like Apple, Microsoft and Reliance that started as SMEs. “They are the stepping stones for large enterprises and the foundation of any economy. Subcontracting and component manufacturing are classic admissions of the efficiency of SMEs,” he added.

Highlighting the vital role played by the private sector in the promotion of SMEs, Ramesh Mutha, SAARC CCIEC Member (India) and Vice Chair of the SME Council suggested reducing trade barriers, especially high tariffs, to encourage the smooth flow of goods and services. The point of a regional association is in cultivating a sense of collective identity and unity despite internal differences, cultural diversities, and economic, social and political disparities. SMEs, already challenged by fund crunch, need the support of states for the ease of doing business across borders. He suggested helping SMEs in the textile and garments sector in the SAARC region as most member countries have a huge trade potential for both domestic and international markets in this sector.

Why the focus on SMEs? There are many reasons for this. According to the World Bank (2017), formal SMEs contribute 60% of total employment and 40% of the total GDP of emerging economies. These figures go up considerably when one counts the informal SMEs. Most formal and informal jobs are created by this sector, with a World Bank publication of 2017 estimating that four out of five new positions are generated by this sector and that over 600 million jobs will be needed in the coming fifteen years to absorb the growing global workforce. The health of this sector has a direct bearing on a country’s income. As Tatia said, “My advice to the policy makers would be to focus on SMEs as of the largest employment generator.”

A major problem hobbling the growth of SMEs is credit crunch. According to the World Bank report cited earlier, over 70% of micro, small, and medium enterprises (MSMEs) lack access to credit. The current credit gap for formal SMEs is estimated to be $1.2 trillion while the total credit gap for both formal and informal SMEs is around $2.6 trillion. Providing the bankers’ perspective, Harun Rashid Khan, former Deputy Governor, the Reserve Bank of India, said that one should be concerned about the global economic slowdown that has also affected the SAARC region. This has aggravated the problems of the SME sector. “Thus, it is more important than ever to re-enforce SAARCcooperation and a focus area should be SME value chain integration to improve the general economy. Gone is the phase of low or semi-skilled workers. We cannot tout this to be an advantage. We are living in the age of automation. Given this context, we need to train and upskill workers and invest in SMEs,” said Khan. He identified the following problem areas that need to be addressed by the SAARC countries: (a) lack of organised economic corridor in the region; (b) political and boundary disputes; (c) the South Asia Free Trade Agreement (SAFTA) not working to its potential ( the SAFTA created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka and was meant to reduce custom duties of all traded goods to zero by 2016); (d) too much documentation and paperwork delaying or impeding trade; (e) lack of agreement on transport links, connectivity, and internet payment paths that would have otherwise allowed for seamless flow of business and finance; (f) need to strengthen regional value chains; (g) need to collaborate on manufacturing and marketing products; (h) value addition to agricultural products, textiles, spices, leather, gems and jewellery etc. and provide remunerative employment to farmers and workers; (i) improve logistics; and (j) creating clusters of cooperation and branding SAARC products.

Once the problems were outlined, the keynote address by Suraj Vaidya, President (Nepal), SAARC CCI, formed a natural segue, where he spoke of the solutions. As Vaidya said, “Rather than saying we have problems, we need to ask what the problems are and find solutions to these. Take for example, the case of Taiwan and China. Both have political problems and yet, there are a maximum number of flights and high investments between both.” The World Bank’s South Asia Economic Focus (2016) reported that it was the world’s fastest growing region. It said, “Economic activity is expected to accelerate from 7.5% in FY2016 to 7.7% in FY2017 based on the expectation of strong private investment, a push in infrastructure spending, an improved investment climate, and deleveraged corporate and financial balance sheets.” However, income inequality and a less than stellar performance in human development index can offset this bright prospect of the region. While in the last twenty-five years, the SAARC has not been able to deliver to its full potential, the SAARC CCI has, in the last few years, decided to be proactive in chalking out viable trade and economic policies and creating an information network that facilitates trade and business activities in the region. The SAARC CCI has executive meetings four times a year. South Asia has a lot going for it, especially the fact that 30% of its population is below 15. The youth of the region are an asset. “SAFTA is too political for me,” he said, adding, “while free visa may not happen during my lifetime, let’s focus on what can be achieved. Regional integration of SME value chain is doable. So, we now have a dedicated SME Council under the chairmanship of Rajeev Chadha.”

Rajeev Chadha felt that integration and value addition of SMEs and trade facilitation through government consultation and private collaboration can make South Asian products globally competitive. The SME Council is looking into mechanisms to raise funds for SMEs within SAARC countries. It is also exploring venture capitalist and equity funding as well as, the feasibility of the SAARC Development Fund. An ambitious project is SAARC product certification that is not country but region specific and allow free trade of the certified products. Manufacturing needed to be incentivised to fast-track growth.

The venue of the two-day conference was well-chosen as Tamil Nadu is a major manufacturing hub. As Thiru M.C. Sampath, the Minister of Industries, Government of Tamil Nadu, said, “We encourage SMEs and have a thriving SME sector. Our state does very well in the automobile, auto components, agriculture, food processing, textiles, leather and many other sectors. Around 50.61 lakh SME entrepreneurs have registered with us in recent times.”

Talking about SMEs at the regional level, Anandrao Patil, Comissioner-E-Governance, Government of Tamil Nadu, said, “There is a need for specialised institutions and corpus for SMEs. There are several financing options. Debt and equity options for re-financing can be there. There can be special institutions or agencies for this in the SAARC. OBC share in SME refinancing is increasing and the Tamil Nadu government can take a lead in this. We welcome investments and provide a good business environment for this. Cross-border investment programmes and deeper penetration of roads, railways, and communication networks between SAARC countries would help logistics and value-chain integration of SMEs. Investors should be entitled to same benefits and protection as home-country operatives to aid ease in doing business across the region. There is $25 billion worth of opportunities in both e-commerce and m-commerce. SAARC and the SAARC CCI can think of a digital platform for exchange of information on best business practices.”

Zubair Ahmed Malik, SAARC CCI EC Member (Pakistan), and Former President, FPCCI, SAARC CCI, said that the SAARC CCI has been doing a lot of work on this. It has been identifying the non-tariff barriers and proffering policy-relevant suggestions to overcome these. The process of auditing continues. It has collated information on sectors that can help generate revenue and employment opportunities. Business and cultural ties enhance relationships regardless of politics.

Financing channels for SMEs

During the session on alternative financing channels for SMEs chaired by G. Gopalakrishnan, Director, CAFRAL, and former ED, RBI, said that SMEs need to adapt to disruptive technologies and hone their digital and financial skills.  Over 80% of loan proposals from SMEs are rejected on account of inadequate financial history or collaterals. Bank loans to SMEs come under priority sector lending. In India, around 60% of MSE advances are supposed to go to micro enterprises. For stepping up credit to small and medium enterprises, a debt restructuring mechanism for units in MSME sector has been formulated by Department of Banking Operations & Development of the RBI.  There is also credit-linked capital subsidy scheme. Loans are given without collateral to certain limits.

He said that due to the e-commerce lending programme, banks can evaluate credit rating based on inventories of particular SME operatives. Therein lies the importance of big data and data analytics. Small finance banks and paymentbanks have to lend a sizeable portion of their funds (often as much as 75%) to SMEs. Fin-tech companies will change the models of financing SMEs and start-ups. Self Help Groups (SHGs) and Non-Banking Financial Companies (NBFCs) are other lending formats. NBFCs are growing at 30-40%. They lend more, but bank’s is only 5%. Banks can buy portfolios from these. Crowd funding and peer to peer (P2P) funding are other financing options. These grow depending on borrower’s and lender’s risk aversion. P2P organiser along with the government representative can decide lending rates.

C.K. Mohan, General Secretary, Tamil Nadu Small and Tiny Industries Association (TANSTIA), India, asked why there was a need for alternative financing in India. He felt that given the fact most SMEs belong to the informal sector, the RBI’s guidelines on financing these need to work better. Unfortunately, financing constraints and strict regulations force several new start-ups and companies to become non-performing assets (NPAs) like the rule on 90-day non-payment of interest, SARFESI Act (that allows banks and financial institutions to auction residential and commercial properties when borrowers fail to repay their loans) etc. Banks, he felt, should not dissuade SMEs. Non-payment of PF or GST for three months, for example, will entail punishment. Despite getting excellent orders, companies get hamstrung by the lack of funds or previous record. Non-listed SMEs are ready for alternative financing like for buying material on credit. One forgets, he said, that most angel investors and venture capitalists prefer funding IT start-ups, not SMEs, most of whom belong to the manufacturing sector. The RBI has allowed the Trade Receivables Discounting System, which Mohan felt was an excellent system. It is a digital platform where MSMEs can get access to funds by auctioning their trade receivables. He also cited the New Entrepreneur cum Enterprise Development Scheme (NEEDS) scheme promoted by the Directorate of Industries and Commerce, Government of Tamil Nadu, for providing opportunities to young, educated entrepreneur with subsidy and support for starting a new venture.

Providing lessons from the Maldives, which has a good SME track record, Ahmed Mumtaz, Value Chain and Capacity Building Specialist, Ministry of Economic Development, Republic of Maldives, said that though his country enacted the SME law in 2013, steady and organised implementation by the SME Council, which was established in 2014, allowed SMEs to flourish. They have a single window clearance programme and six dedicated business centres to cater to the needs of SMEs. Around 50 million Maldivian Rufiyaa (MRf) is yearly earmarked for SME funding. The country conducts 13,000 training programmes and events for SMEs on exports, logistics, value chain analysis, resource mapping survey, etc. Their transport cost is very high and they space out their surveys. In three years, around 177 million MRf has been allocated to start-ups with no collateral. The government provides guarantees when it can. They have lesser interest rate and better loan repayment period. Mentors are also assigned to applicants. They are working towards an SME bank while a Business Centre Cooperation has been formed.

R.B. Rauniar, SAARC CCI EC member (Nepal) and Managing Director, Interstate Multimodal Transport Private Limited, Soaltee Mode, Tahachal, Kathmandu, Nepal, felt that proper certification of products can prevent wrong rules of origin (ROO) branding. For instance, tea from Ilam in Nepal is sometimes sold as Darjeeling tea. SMEs will lose some amount of revenue in the process. Correct branding of products is essential. Further, SAARC certification will also help SMEs. Government stability is also important when it comes to policies governing SMEs. Haats and bazaars  can be set up frequently across SAARC countries to raise awareness and interest in products of different member countries and have a continuous demand and supply of their SMEs’ products. Tatia felt all SAARC countries should work together here and also reduce taxation burden of SMEs. While funding was important, sharing of marketing knowhow and platform was equally important for SMEs to operate and make profit.

Inter-linkage of SME hubs across SAARC countries

In a session chaired by Ruwan Edirisinghe, Senior Vice President (Sri Lanka), SAARC CCI, three major concerns of linking SME hubs in the region were identified as good quality products and services, competitive pricing, and common market.


Chandrakant Salunkhe, President, SME Chamber of India, said that no bank will say no to finance or to SME. They need to be intimated properly. SME proposals must be well prepared and presented. There should be good SME knowledge support and promotion of SME website. While focussing on linkages across SAARC, one should also focus on village, district, state, and regional level SMEs. Start-ups need to be supported. A separate channel can be created in the SAARC for start-ups too. He advised the creation of a SAARC-SME bank that would bring on board the governors of all member countries’ banks and suggested routine meetings of their finance and commerce ministers.

Thinley Palden, Chief Industry Officer, Department of Cottage and Small Industry (DCSI), Ministry of Economic Affairs, Royal Government of Bhutan, said that one must have conceptual clarity about SMEs. Across the region, they may be different and termed differently. For instance, in Bhutan, SME is called Cottage and Small Industry (CSI). Youth unemployment and negative trade balance are their two problems overcome by CSI.

Mustafa Basij-Rasikh, Managing Partner, Qara Group, Afghanistan, said that his country faces the problem of seasonal tariffs, regulatory rates, unskilled workers, and shortfall in infrastructure. SAARC countries must work on these. Shehryar Tahir, DGM External Relations, SMEDA, Pakistan, said that SME Council must devise clear goals and actionable agenda, and work on policy advocacy.

Lakmini Mendis, Deputy Director of Commerce, Department of Commerce, Sri Lanka, said that GVCs need to be competitive. Value chains must be developed in SAARC. She saw a great potential in the “garage to great” business formats. For instance, Dilmah Tea and Odel of Sri Lanka started small but grew into huge companies. Value addition and cost of compliance are areas to be worked at. ROO issues must be sorted and proper branding must be done. The session ended with suggestions from all the speakers included for policy discussion and formulation. Mr. Mehboobul Alam, Vice President, SAARC CCI (Bangladesh), concluded the day’s conference with a vote of thanks.

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