US to provide $50m to SMEs through private equity funds

Amount to be diverted from funds earmarked under Kerry-Lugar bill

KARACHI: The US has announced that it will invest $50 million in small and medium enterprises (SMEs) in Pakistan, out of an economic cooperation package promised in the Kerry-Lugar bill. The amount will be invested through a privately-managed equity fund.

The US consulate’s Economic and Development Assistance Coordinator Vinay Chawla made an announcement in this regard here on Friday.

He said the assistance to be provided to SMEs follows Pakistan’s stated policy of ‘trade, not aid’, and will promote job creation. He said the equity funds will work to fulfil the capital requirements of SMEs.

He informed journalists that Pakistani, Middle Eastern and American fund managers have expressed a keen interest in investing in Pakistan through the programme. He said that in the first round of selection, fund managers had pledged $660 million on their behalf as well, apart from the funds promised by the US. He said that some fund managers have been shortlisted out of the total pool of applicants, and they will present a final application for the programme by January 2013. “Two equity funds will start investing in Pakistan by the first or second quarter of the coming year,” Chawla said.

Companies and trade bodies with a net worth of $10-15 million will benefit from the programme, which will provide loans of between $0.5-5 million for their capital needs, said Chawla. He added that private fund managers will be free to identify those sectors and companies they wish to invest in.

“The US’ role will be limited as a partner: it will only ensure that beneficiaries abide by international environmental and social principles, and prevent funds from being diverted to prohibited sectors such as firearms manufacturing,” explained Chawla. He added that the programme does not come with any strings attached, and that the US will place no restrictions on its business activities.

He said the $50 million provided as start-up capital to the equity funds are being provided under Kerry-Lugar funds earmarked for economic cooperation. “These funds have been already approved and are available,” he added. “Returns earned by the funds will be reinvested in Pakistan, which will support growth and help us achieve the objectives of economic cooperation,” Chawla said.

He said that fund managers are willing to match 75% of the funds committed by America, and that the size of each fund will be at least 24 million dollars.

Published in The Express Tribune, December 1^st, 2012.