Small and Medium Enterprises (SMEs), which constitute nearly 90 percent of all ventures in the country, are facing hardships in running their operations smoothly due to the non-supportive stance of the Finance Division as well as private banks. It has been learnt that many SMEs have been awaiting the outcome of a revision in rules of Defence Saving/Special Savings/Regular Income Certificates regarding third party pledging for two years. However, in October last year, the Finance Secretary at that time, Salman Siddiq stated that a revision of rules was underway, however a whole year had passed with no major development and the matter was still under consideration. He was responding to a letter from the All Pakistan Contractors Association (APCA).
In its letter, the association explained that the construction contractors of the country are facing great difficulty after the Central Directorate of National Savings, Government of Pakistan, Islamabad disallowed the facility of third party pledging, according to the Defence Saving/Special Savings/Regular Income Certificates vide Memorandum No. F.12(5)/SJ/Certf2007 dated 25 July, 2009. ‘We kindly request the withdrawal of Memorandum (Notification) No. F.12(5)/S.I/Cert’2007 dated 25 July, 2009 issued by Central Directorate of National Savings, Islamabad, so that suffering of the construction industry may end,’ the letter added.
A delegation representing the association also highlighted the said issue to the finance division at a meeting with an Afghan trade delegation in July last year. It was indicated that construction contractors were availing financial facilities from banks by pledging certificates from their guarantors – the owners of the certificates which have been denied with one stroke of pen by the banks. It was proposed that in construction contracts, a bid bond/performance bond and an advance payment bank guarantees are required as well as cash working capital but banks in Pakistan are too rigid to allow such facilities without obtaining a cash deposit, security or collateral in order to avert risk exposure. The defence saving certificates and special saving certificates issued by the Saving Centers are being used for the above stated purpose since a long time.
In the enclosed Memorandum of National Savings, the directorate has implicitly stated as third parties have pledged the certificates without ownership of certificates. As a matter of fact, the certificate’s owners pledge their certificates themselves and by doing so, they stand as guarantor to allow facilities in favour of third parties – the private firms, companies and bodies undertake that in case of default by the third party, the bank may call up the guarantor and encash the same as and when required. In addition to documentation relating to pledging on the part of owners of the certificates in favor of the bank which provides the facility to the private entity upon National Saving Centre confirmation to the bank that certificates have been pledged in their favor, the association said.
