2. SMALL AND MEDIUM ENTERPRISES IN PAKISTAN
Presentation By
Manzoor Ul Haq Malik
Regional Chairman and Vice President
The Federation of Pakistan Chambers of Commerce and Industry

3. Small and Medium Scale Enterprise (SME’s)
SMEs: ENGINE OF GROWTH
Small and Medium Scale Enterprise (SME’s)

4. INTRODUCTION
It is a well-established fact that Small and Medium Enterprises (SMEs) are one of the largest and the most important sector of Pakistan's economy.
As defined by State Bank of Pakistan. A small Enterprise (SE) is a business entity which does not employ (including contract employees) more than 50 persons and annual sales turnover is up to Rs.150 million. Small Enterprises can be extended finances up to Rs.25 Million.
SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. 

5. What are the main factors of SME’s?
Technology and Skill innovation
Employment Generation
Entrepreneurial and sector development
Foreign export
Trade promotions
Driving Force of Country Economy

6. SMEs in Pakistan Numbers Percentages Micro SMEs % Micro % SME
Manufacturing and Processing (Total)
569,763
13,410
19.4%
48.3%
Services (Total)
649,787
11,246
22.2%
40.5%
Construction
1,380 30
0.0%
0.1%
Community, social and personal services
648,407
11,216
22.1%
40.4%
Trade, Restaurants/Hotels (Total)
1,564,858
1,859
53.4%
6.7%
Extractive Industries (Total)
554
157
0.6%
Mining and quarrying
Infrastructure (Total)
51,323
361
1.8%
1.3%
Electricity, gas and water
116 8
Transport, storage and communication
51,207
353
1.7%
Financing, insurance, real-estate and business services
47,866
567
1.6%
2.0%
Primary Agriculture (Total)
46,201
177
Agriculture, forestry, hunting and fishing
Total
2,930,352
27,777
100%

7. SMEs AS HIDDEN CHAMPIONS
The hidden champions (Small but highly successful) : Low level of public awareness; most of their products contribute significantly to the current account of their countries
The Champions where Investors avoid to invest in those enterprises:
No historical record of business
Owners are not well known
Introducing a newly experimented product

8. SUCCESS STORIES IN DIFFERENT MARKETS
Junk Bonds by ‘Microsoft’ and other knowledge based products in information technology, chemicals and medicines etc.
‘Grameen Bank’ in Bangladesh to maintain peace and happiness in the country
Direct Financing to SMEs in Western India

9. SMEs AS SUPPORTER OF LS INDUSTRIES
SMEs link with large scale industry: Sometime as a horizontal part of chain like in sugar industry, sometime part of vertical chain (backward or forward linkage) with a large scales industry like in textile, chemicals and petroleum
It reduces the cost of working capital and inventory management by large scale industry either to store end-user goods or holding raw material inventories for large scale industries.

10. Pakistan SME’s doesn’t get proper support from
Government Departments
Banking Sectors
Financial institutions
Corporate sectors
Because of this SME’s can’t trade on national and international market.

11. THE CURRENT SITUATION Most SMEs do not utilise Banks
Self financing of new ventures
Retained earnings used to fund growth
Larger Firms rely much more on Banks
Use of informal credit market
12/7/2018

12. Facing Problems by SME’s
Financial planning
Low production capacity
Limited knowledge/ lack of skill labour
Ineffective marketing
Credit policy
Identification of new market
Not adoptability of new technology
Continuous modernization
Lack of Government support
8/19/10

13. ACCESS TO FINANCE: PRACTICAL ISSUES FOR SMEs IN PAKISTAN

14. Access to Finance Longstanding Constraint in the growth of SMEs
Innovative Products being introduced in Developed Countries
SMEs in Pakistan are still struggling to access finance
Lack of access to finance hampers the growth of the SMEs
Multifaceted issues

15. Why Commercial Banks in Pakistan avoid from Investing in SMEs?
Why commercial banks do not finance SMEs in Pakistan?
They fill the gap of investment banking (through syndicate financing and consortium) and bond market, DFIs, while big financing in develop countries through investment banking including merchant banking and bond market.

16. ACCESS TO FINANCE Multifaceted Problem
Governments
Accounting Practices
Banking Sector Issues
Interest Rates
Human Resources
Informal Economy
The Banks
Collateral
Legal Framework
Infrastructure
SME LEVEL
12/7/2018
Tax Issues

17. LACK OF ACCESS TO FINANCE
Combination of factors are responsible:
Financial Institution Level
Government Level
SME Level
All are inter linked...

18. THE GOVERNMENT Legal Framework exists but implementation is difficult
Bureaucracy
The Fiscal and administrative burden of taxation
Large number of taxes and regulations
Intellectual Property Rights protection
On the ground reality often different from the government policies
The Implementation of SME policy
Improvement in Infrastructure(Transport, Electricity)

19. HOW CAN WE IMPROVE ACCESS TO FINANCE FOR SMEs?
THE REAL CHALLENGE!!!
HOW CAN WE IMPROVE ACCESS TO FINANCE FOR SMEs?
12/7/2018

20. RECOMMENDATIONS Adopt an Integrated approach to the problem
Reduce the administrative burden of SMEs
Work on changing the culture of Government Organizations

21. Simplification of Taxes
It is suggested that one-window services
should be provided besides addressing the
issues with regard to Employees Oldage
Benefits Institute (EOBI) and social security.
These should merge into sale tax in order to
simplifying the tax procedures.

22. Allocation of Funds It is suggested that role of Business Support
Fund (BSF), Competitive Support Fund (CSF)
should be made supportive and active in terms
of provision of grant to SME sector. The private
sector representation could be encouraged in
decision-making regarding allocation of funds
and grants of above mentioned organizations.

23. 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.

24. 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.

25. Available of Financing at Affordable Mark Up rates
Financing may be available at the rate of mark up equivalent to Corporate Sector. The government of Punjab may take the burden of excess mark up out of this fund.

26. Banks must be directed to develop industry specific products
Special product for different industries may be
developed keeping in view the industries of the
area like surgical industry etc.

27. Thank you