1INTRODUCTION• Small and Medium Enterprises (SMEs) are one ofthe largest and the most important sector ofPakistans economy.• Approximately 3.2 million business enterprises inPakistan.• Enterprises employing up to 99 persons constituteover 90% of all private enterprises in the industrialsector and employ nearly 78% of the non-agriculture labor force.• Contribute over 30% to the GDP• 25% of exports of manufactured goods besidessharing 35% in manufacturing value added.
2RECOMMENDATIONSThe FPCCI Regional StandingCommittee on SME Sector for theyear 2009-2010 has made effortsthrough identifying the problemsSuggesting Workable solutionsrecommendations ; Some of themare listed the next.
3Areas like business development services• Qualified human resources,• Marketing and technology requirespecial attention to improve SMEscompetitiveness,• Productivity and capacity forEmployment generation.
4RECOMMENDATIONSSeparate Definition For Cottage/MicroIndustriesThere is a need to separate the cottage industry From SME’s.The Government of Pakistan should Clearly define theminimum number of employees, which small and medium sizebusinesses should have. In this respect, the houserecommended the minimum limit from 51 up to 250 employees.
5Financing policy of Banks for SME• The banks should facilitate businesses through lendingmoney on easy terms & conditions. This aspect requiredmuch more attention because businessmen having smallsetup deserve facilitation in this respect to run their businessoperations. The State Bank of Pakistan should formulate aprudential regulation to facilitate the SME sector rather thenissuing an advice to banks for providing loans to SME sectorwithout clear instructions.• There is a need to make suitable monitory & regulatorypolicy for SME sector. It is suggested that Banks shouldprovide good financial assistance according to the businessrequirements besides providing following facilitation to theSME sector.
6Some Suggestions• Loan application processing time should be 15 days.• SME sector should be offered 5% interest rate with one-year grace period.• Loan limit up to Rs. 5 million without anycollateral/guarantee should be provided to SME sector forthe period of one year. The loans may be granted up to Rs.3 million to those, running a business for at least threeyears.• Govt. of Pakistan and Bank of Punjab should establish aequity fund, for which at least Rs.50 million should beallocated.• There is a need to create a guarantee fund for SME Sector.• In loan sanctioning process, banks should put privatesector preventatives/stakeholders on board before makingany decision.
7Infrastructure for Industrial EstateThe Government should establish SMEindustrial estate having an area not lessthan 200 Kanals. It is suggested thatland for SME industrial area should beallocated near the city area, enablingSME sector to run their businesseseffectively and contribute their due rolein employment generation.
8Skill Development Center/ClusterTechnology parks may beestablished near the SMEindustrial estates so that thesmall industry may be benefitedwith the facility.
9SME FINANCE FOCUS POINTS1. Commercial banks have to make concerted efforts toexplore new avenues of business, especially financing tosmall & medium-sized enterprises (SMEs), which play acritical role in employment generation and povertyalleviation.2. SMEs finance play an important role in the creation ofemployment opportunities with relatively lower investmentlevels, it would help in reduce poverty and boost economicgrowth which remains one of the prime objectives ofGovernment of Pakistan. 3.2 million Economicestablishments in the country around 99 percent of thememploy 1-10 persons, clearly indicating that they fall underthe definition of SMEs, more specifically lower-end SMEs.
10SME FINANCE FOCUS POINTS:3. Separate prudential regulations should be developed forsmall enterprises as these small businesses have a hugepotential for growth compared with medium-sizedenterprises.4. The focus of financial institutions should be on mediumentities. The reason for this skewed distribution is theunorganized way of doing business of small entities. Majorissues faced by SMEs are lack of skilled labor, outdatedtechnology, weak governance, lack of managementhierarchy, absence of book keeping, taxation issuescoupled with limited access to formal sources of finance.
11SME FINANCE FOCUS POINTS:5. Capacity-building of banks through launch of SME FinanceGrass Root Cluster Training Program for credit officersbased in SME Clusters in Lahore, Sialkot, Gujranwala,Rawalpindi, Peshawar, Quetta and Karachi.6. SMEs could help to achieve diversified economic growth,employment generation, reduction in income inequalitiesand poverty alleviation in developed and the emergingeconomies like USA, Japan, Malaysia, Thailand and SouthKorea.
12Challenges Faced by SME in Pakistan1. Lack of proper infra-structure.2. Regulatory complexities – relaxation in prudential rules andeasy access to loan.3. Shortage of skilled manpower.4. Quality control problems.5. Lack of entrepreneurial expertise.6. Shortage / irregular availability of financing facilities.7. Shortage of equity sources.8. Inability to meet credit criteria / credit conditions.9. Inadequate bargaining skills / options.10.Lengthy documentation procedure.
13ProportionIssues Identified PercentageLack of finance 55%Shortage of skilled labour 39%Getting business site 38%Bribes 21%Orders/Marketing of Product 28/%Lack of Knowledge 12%Government interference 12%Raw Material 10%License for work 08%