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- SMEs make up over 99% of business units in Pakistan and generate a significant portion of GDP, exports, and employment. However, most SMEs are small, self-financed operations with limited access to formal financing.
- The document analyzes barriers facing SME growth, including issues related to government policies, taxation, access to finance, skills, and infrastructure. International case studies on SME support mechanisms are also presented.
- In Pakistan, most SME financing comes from retained earnings rather than banks. The document proposes recommendations to strengthen the SME sector such as improving access to credit
An presentation on Meezan bank Basic Information there products and services there history, Its board of directors it's PEST, SWOT and Financial Analysis of Year 2014 There Mission And Vision Statement there Core Values and there service Mission
This slide is prepared based on the position of small and median enterprise. Especially is defined the small and median enterprise separately. The different sectors of sme are also included. The process of loan application for sme load and the documents that are needed for sme loan is described.
An presentation on Meezan bank Basic Information there products and services there history, Its board of directors it's PEST, SWOT and Financial Analysis of Year 2014 There Mission And Vision Statement there Core Values and there service Mission
This slide is prepared based on the position of small and median enterprise. Especially is defined the small and median enterprise separately. The different sectors of sme are also included. The process of loan application for sme load and the documents that are needed for sme loan is described.
The Government of Pakistan is a central i.e. Federal government that is established under the constitution of Pakistan. Under the constitution of Pakistan a federal government represents the authority of four provinces and conventional parliamentary democratic state, which is collectively called as the State of Pakistan.
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https://seribangash.com/article-of-association-is-legal-doc-of-company/
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Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
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Small Medium Enterprise In Pakistan
1. Small & Medium Enterprises in
Pakistan
SMEDA
May 10, 2005
Lahore
2. SME Sector in Pakistan
3.2 million business units in Pakistan
Over 99% business units employ less than 99
persons i.e. 3.16 million SMEs
Generate 78% of non-agri sector employment
Direct Contribution to GDP over 30%
Generate 25% of Manufacturing Export Earnings
Contribute 35% in Manufacturing Value addition
3. Characteristics of SMEs
Owner is the manager & few employees
Owned & operated independently
Relatively small investment, production, sales,
dealings etc.
Inadequate efficiency of business operations -
no relationship with other firms or parties for
IInnvveessttmmeenntt
MMaannaaggeemmeenntt,, ffiinnaannccee,, ttaaxx,, aaccccoouunnttiinngg
4. Classification of SMEs
SMEs have been historically classified as:
IInndduussttrryy
TTrraaddee;; WWhhoolleessaallee,, RReettaaiill && SSeerrvviicceess
Criteria For Definition: The criteria is based
on;
FFiixxeedd AAsssseettss
EEmmppllooyymmeenntt
TTuurrnnoovveerr//ssaalleess
Fixed Assets include Land, Building,
Machinery
Employment: Essence of SMEs is job
creation.
Turnover/Sales: Sales have been
researched to arrive at the Annual
5. Growth of SMEs vis-à-vis Large Scale
Large-Scale Small-Scale
Output
Growth Rate
Capital
Formation
Growth %
Output
Growth Rate
Capital
Formation
Growth %
1970s 4.84 -2.28 4.4 5.5
1980s 8.16 8.15 4.7 10.5
1990s 3.6 -5.02 2.6 7.2
6. Barriers to SME Growth
Govt. & SME Interaction
Taxation
Finance
Labour Legislation
Human Resource Development
Technology
Market & Industry Information
Lack of Infrastructure
Environmental issues & compliance
Social compliance issues
Intellectual Property Rights
7. World Bank Survey 2002
Issues Identified Percentage
Lack 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 8%
New Technology 8%
SME Policy Note – World Bank 2002
9. Sources of Working Capital for SMEs
Financial Sector Contributing 7% Working Capital
Retained
Earnings
68%
other
8%
Informal
1% Equity
12%
Trade Credit
Banks/ FIs
7%
4%
Source: Gallup Survey of 1000 Industries in 2002 covering 12 cities & 8 sectors
10. Sources of Investment for SMEs
Financial Sector Contributing 8% Investment
Info rmal
Eq uity
17%
Trad e C red it
2%
o ther 2%
12%
B anks / FIs
8%
R etained
Earning s
59%
Source: Gallup Survey of 1000 Industries in 2002 covering 12 cities & 8 sectors
11. Loan Disbursement Pattern
0.5%
2.9%
5.7%
5.0%
3.1%
2.1%
6.4%
69.9%
4.3%
80%
60%
40%
20%
0%
Loan Size Rs. in ‘000
%age Exposure to Each Category
Source: State Bank of Pakistan
12. Loan Disbursement Pattern
Size of Firm Age of Firm (years)
% age of Total
No of
Employees 0-5 6-10 11-20 21 and
more
All
Firms
0-10 0% 0% 0% 0% 0%
11-49 0% 35% 0% 0% 29%
50-99 100% 67% 75% 15% 50%
100 or more 100% 75% 75% 83% 80%
All Sizes 50% 67% 64% 50% 59%
Source: Dr. Ehsan ul Haq, Dr. Faisal Bari- LUMS; Barriers in SME Growth - 2002
13. Legal Structure of Business Units
in Pakistan
C o rp o ra tes &
O thers
8%
Pro p rieto rs hip
s &
Partners hip
8 5%
Pub lic Sec to r
7%
Source: ILO SMEDA Study 2001
14. Comparative Access to Financial Sector
Comparatively low financial sector access in Pakistan
High
Low
High High
India
Access
to loans
Timeliness
of loans
Affordability
of Loans
High
Access
to loans Low
Timeliness
High High
Bangladesh
of loans
Affordability
of Loans
High
Timeliness
of loans
High
Affordability
of Loans
Pakistan
High
Low
Access
to loans
Source: ITC publication - SMEs and the Global Market Place
15. Our understanding of the Situation
Most SMEs operate through Self-Financing or
Retained Earnings
SMEs do not make use of Trade Finance for
Expansion
Fear of regulations discourage them to come in
the formal fold
Access to formal credit is strongly correlated to
firm size & age of the firm
The size of SME ccrreeddiitt mmaarrkkeett iiss
eessttiimmaatteedd ttoo bbee 225500 ttoo 440000 bbiilllliioonn
16. Demand Side Issues
Assessment of total demand by region/
sector
Access to Industry/ Business Benchmarks
Informal accounts and management systems
Proposal Formulation
Securitization of Business operation
Difficulties in managing loan documentation
(volume/language)
Inadequate capitalization particularly for
New Business and issues of
rriisskk mmiittiiggaattiioonn
ssttaarrtt--uupp ffiinnaanncciinngg
ccoollllaatteerraalliizzaattiioonn
17. Situational Analysis 1/3
SME Business reliant on Support System
SMEs are insecure – Quick Response
Support System absent i.e. Access,
Timeliness & Legal Support
Lack of specialization in Banks
Small Enterprises – Lacking attention
Characteristics: Little knowledge, inadequate ccoollllaatteerraall,,
LLeessss aaffffoorrddaabbiilliittyy aanndd lliikkeelliihhoooodd ffoorr ssuucccceessss –– hhiigghh rraattee ooff
ffaaiilluurreess
OOfftteenn ccoonnffuusseedd wwiitthh MMeeddiiuumm EEnntteerrpprriisseess
NNoo ssppeecciiaall PPoolliiccyy aatttteennttiioonn oorr SSuuppppoorrtt
CCoonnssiiddeerreedd aa ccaassee ffoorr ddiirreecctteedd oorr ssuubbssiiddiizzeedd ccrreeddiitt –– hhaass ttoo
rreeggaaiinn iittss RReeppuuttaattiioonn
20. Regulatory Framework
Missing links between SMEs and the financial
institutions – Credit Guarantee and Insurance (Laws
& Institutions)
Tax Related Laws – SMEs unwilling to share
operations related data and information on accounts
Inconsistent government policies – S Tax 300
amendments
No policy or legal support for business Start-ups or
projects backed by only sound business plans
21. International Best Practices -Countries
Studied
Developed Countries
GGeerrmmaannyy
JJaappaann
Neighboring Countries
CChhiinnaa
IInnddiiaa
Developing Countries
TThhaaiillaanndd
TTuurrkkeeyy
22. International Best Practices –SME Financing
Infrastructure
Separate legislation
Specialized Institutions for :-
Promotion of SMEs- AAddvviissoorryy rroollee--SSMMEEDDAA
PPrroodduuccttss ddeevveellooppmmeenntt ffoorr rriisskk mmiittiiggaattiioonn iinn rreessppeecctt ooff ffiinnaanncciinngg
bbyy ffiinnaanncciiaall iinnssttiittuuttiioonn
CCrreeddiitt GGuuaarraanntteeee MMeecchhaanniissmm-- iinn aallll ccoouunnttrriieess ssttuuddiieedd bbyy tthhee ggrroouupp
CCrreeddiitt BBuurreeaauu
SSeeccuurriittiizzaattiioonn aanndd RReeccoonnssttrruuccttiioonnss ooff ffiinnaanncciiaall aasssseettss-- IInnddiiaa && KKoorreeaa
SSeeppaarraattee AAcctt
MMeecchhaanniissmm ffoorr rreeddrreessssaall ooff ggrriieevvaannccee-- OOmmbbuuddssmmaann ffoorr SSMMEEss ((IInnddiiaa))
Banks for channelizing the resources to end users
Venture Capital arrangements
23. International Best Practices - Laws for SMEs
These laws vary directly with respect to the stage of
development of SME sector e.g.
llaawwss ffooccuussiinngg oonn tthhee pprroommoottiioonn ooff tthhee SSMMEE SSeeccttoorr
llaawwss ffooccuussiinngg oonn tthhee rriisskk mmiittiiggaattiioonn rreeggiimmee ee..gg.. SSMMEE CCrreeddiitt
IInnssuurraannccee LLaaww ((JJaappaann)),, CCrreeddiitt GGuuaarraanntteeee AAssssoocciiaattiioonn LLaaww
Institutions are the outcome of these laws e.g. Credit
Guarantee Corporations is the outcome of Credit
Guarantee Association Law in Japan.
24. 2244
Model for SME Financing - Germany
Partners Actors Advantages/
DtA
Refinancing +
Guarantee
On-lending bank
„House bank“
Entrepreneur
EIF
sales factors
Risk release
Microloan
Risk release
Better access to finance
Financing from one source
Guarantee
Information
Advice
Advisory
Network
Cost covering margin
25. International Best Practice - Japan
National Federation of Credit Guarantee
Corporation (NFCGC) - Insurance
arrangement for SME financing through
Credit Guarantee system under JASMEC
Credit Guarantee Corporation with 52 offices
in all prefecture - funded by the Govt. of
Japan
Shoko Chu-kin Bank(102 Branches), Japan
Finance Corporation & National Life Finance
Corporation are exclusive institutions for
SME Financing Besides, City banks
(Commercial Banks)
26. International Best Practice – China
Special Funds in Federal Budget for SME
Development Fund
SSoouurrcceess ooff ffuunnddss:: ffeeddeerraall bbuuddggeett,, aallll ggoovveerrnnmmeennttss aabboovvee
ccoouunnttyy lleevveell,, pprrooffiittss ffrroomm ooppeerraattiioonn ooff ffuunndd,, ddoonnaattiioonn,, ddoonnoorrss
UUssaaggeess:: CCrreeddiitt GGuuaarraanntteeee ffuunndd,, SSeerrvviicceess ffoorr SSMMEEss,,
TTeecchhnnoollooggyy,, ssppeecciiaalliizzaattiioonn ffoorr iinntteeggrraattiioonn wwiitthh LLaarrggee
EEnntteerrpprriisseess
CCeennttrraall BBaannkk ssuuppppoorrtt bbaannkkss ffoorr SSMMEE ffiinnaanncciinngg
State to provide direct channels for SME Finance
All commercial banks will provide SMEs loans,
financial consultation and investment management
27. International Best Practice – India
Reserve Bank provides Guidelines for
directive credit for SMEs
Small business financing is binding for
all financial institutions
Banking Ombudsman for Small
Enterprises
Penalty system
Credit Guarantee upto Re.2.5 million
29. Evolutionary Phases of SMEDA
Phase - 1
Dec ‘98-Dec ‘00
Textile Vision 2005
Fisheries
Transport
Dairy
Light Engineering
Information Technology
Leather
SES Monitoring
Phase - 2
Jan ‘00-Dec ‘00
HEXPO 2000 & beyond
Leather Outlook 2010
Cool Chain
Flatted Factories
Fisheries Implementation
Marble & Granite
Gems & Jewelry
Boat Modification
Auto Vendors
Carpet Weaving
Power Loom Cluster
Ceramic Cluster
Marble & Granite
Dates & Apples
Wooden Furniture
Leather Garments
Trade Secrets
Phase - 3
Jan ‘01- May ‘03
Help Desk Launched
OTC Products
Business Plan Develop-
Training & Development
Website Launched
Publications
Sector Strategies and Implementation
Cluster Development
Business Dev. Services
Phase - 4
Oct ’03 - onwards
SME Policy
SME Info. Services
SME Networking Group
Sector Strategy Updates
Strategic Focus - WTO
Policy and Conducive Environment
Textiles
Marble and Granite
Ginning
Cutlery
Furniture
Light Engineering
Bangles Cluster
Dairy
Help Desk & RBCs
Tech. Up gradation
Training & Development
Marketing Services
Financial Services
Entrepreneurship
ILO Study
World Bank
ADB PPTA
30. Operational Strategy
Building a Conducive Environment
Proposing and facilitating changes in
Policy and Regulatory Environment
Reducing the Cost of Doing Business
Facilitating Government-SME Interface
Developing Sectors and Clusters
Sector Studies, Strategies and
Implementation
Cluster Development
Common Facility Centers (CFCs)
Provision and Facilitation of Services
Investment Facilitation
Technology, Training, Finance, Business Information,
Marketing, and legal support
Productivity and Competitiveness Improvement
32. SMEDA Performance
Number of SMEs facilitated through 14,500
helpdesks
Number of SMEs trained (482 programs in 25,533
+50 cities )
Business Guide Series Downloaded 1,433,527
Total Hits (25,669,736) from countries 159
Business Plans 120
Pre-feasibilities on Web site 97
Pre-feasibilities under Process 80
SMEs facilitated through Library 9,379
33. SME Policy
Business Environment
SME Financing
Access to Resources & Services
HHuummaann RReessoouurrccee DDeevveellooppmmeenntt
TTeecchhnnoollooggyy
MMaarrkkeett aanndd IInndduussttrryy IInnffoorrmmaattiioonn
SME Definition, Feedback, Monitoring & Evaluation
Mechanism
Over 1000 stakeholders consulted
12 Workshops
34. Recommendations
SME Bill 2005
SME Definition
Feedback, Evaluation & Monitoring
Capacity building of SMEs
Specific Support Funds for SME Development
Credit Guarantee Fund
Credit Insurance Fund
Venture Capital
SME Financing Credit Fund
SME Bank Reform
35. SME Development – Policy Statement
“The Government of Pakistan is committed to develop the SME
sector for achieving higher economic growth leading to creation
of jobs and poverty alleviation. SME development will be
achieved by providing conducive business environment, greater
access to formal financing and through provision of support in
technical up gradation, human resource development,
marketing and innovation. The Government will facilitate
establishment of new businesses by developing policies that
help in unleashing the entrepreneurial potential of the people of
Pakistan”
It is fair to say that our economy is an economy of SME.
Enterprises employing up to 99 persons constitute about 90 %[1] of all private enterprises in the industrial sector and SME employ some 78 % of non-agriculture labour force. [2] They contribute over 30 % to GDP, PKR 140 billion to exports, and 25 % of manufacturing export earnings besides sharing 35 % in manufacturing value added.[3]
[1] Pakistan Country Assistance Strategy, World Bank Report, Annex II, Page 3
[2] Census of Establishments-1998
[3] Economic Survey of Pakistan 2002-03
As against the general impression the growth rate of SME sector has been lagging behind the large scale sector growth for last three decades. In contrast it is coupled with high Gross Capital Formation Rate which highlights that this sector is plagued with inefficiencies.
(Reference Dr. Faisal Bari, Dr. Ali Chema and Dr. Ehsan ul Haq, “BARRIERS TO SME GROWTH IN PAKISTAN: AN ANALYSIS OF CONSTRAINTS” 2002)
Coverage by support programs limited due to large size of the SME sector.
Absence of a specialized, uniform legal framework for the development of SME hampers SME operations.
Relationship between Government and SME seems to be fundamentally weak. In many cases this extends also to other large organizations and their interaction with smaller clients as SME.
Credit Management - Can we find our customer through Small Business (Relationship through thick & Thin)
Medium Enterprise - informally formal
Timely availability of finance is crucial - formal lending procedures do not help rather impede
Income stream estimation difficult - taxation laws discourage sharing of credible operational data
Objective :
Provide small and medium size companies with equity capital to restructure short term debt and to finance growth.
Four funds established
Three equity-oriented @ US$330 million each
One debt-only @ US$ 1 billion
Target small and medium sized enterprises
No investments in large chaebol permitted
New equity issues only
Both listed and unlisted companies
Unique Characteristics:
Initial capital raised from Korean financial institutions
International fund managers hired to manage investments according to international best practice
Foreign managers “partnered” with Korean firms for investment technology transfer
DtA has no regional offices. It channels its StartGeld via the commercial banking system to micro-enterprises.
The entrepreneur has to file his application to the house bank, which assesses the project, checks the available collateral and forwards the documents to the DtA. DtA checks whether the project is eligible for promotion by StartGeld. The house bank receives the loan commitment including the risk release of 80%. This risk is taken by DtA together with the EIF.
The risk release enhances the willingness of the commercial banking sector to finance small enterprises.
Phase I (Dec 98 - Oct 99): SMEDA in the initial stage started working on a few priority sectors. The objective was to develop comprehensive strategies followed by implementation with the collaboration of the relevant Government departments. Case in point is the marine fisheries sector where a detailed strategy was developed and implemented through various regulatory authorities. However, the Business Development Services (BDS) during that phase were only limited to the monitoring of the Prime Minister’s Self-Employment Scheme.
Phase II (Jan 00 - Dec 00): During this period SMEDA worked on different sectoral studies including the Textile Vision 2005, Hexpo 2000 & beyond, etc. These assignments of long term strategy development were successfully completed and later on submitted to the Ministry of Commerce for implementation and follow-up. Even during this phase limited resources were allocated towards the development of BDS.
Phase III (Jan 01 - Nov 01): SMEDA was restructured from being a sector driven organisation to a functional support body. Emphasis shifted from macro level strategy formulation towards provision of business development services to SMEs and physical intervention in SME clusters. During this period lending programmes tailored to meet the credit requirements of specific clusters were also formulated. A wide array of Over the Counter (OTC) products were produced to facilitate SMEs through Help-Desks. SMEDA also launched its B2B portal to provide market connect to the SME sector.
Building a Conducive Environment
Proposing and facilitating changes in Policy and Regulatory Environment
SME Policy
Budgetary & Trade Policies recommendations
Participating in Industrial Policy Exercise
Reducing the Cost of Doing Business
Formal Lending Cost: Development of Program Lending models for Power Loom, Fisheries, Cutlery, Auto parts Vendors, Schools etc.
Taxation policy & Procedure e.g. Income tax & Sales tax
Major policy shake up on import tariffs for Raw Materials
Utilities next target: Power Tariff, Telephone etc.
Facilitating Government-SME Interface
Public Private Dialogue; Policy Consultative Processes in Fiscal, Trade & Monetary
Developing Clusters and Sectors
Sector Studies, Strategies and Implementation
Marble & Granite, Dairy strategy, Poultry Sector Strategy, Leather, Garments, Horticulture, Fisheries, Textiles, Transport
Cluster Development
Ceramic Pottery, Fans, Surgical, Garments, Cutlery, Leather, Furniture, Gems & Jewelry, Ginning, Handloom etc.
Common Facility Centers
Reference Dr. Faisal Bari, Dr. Ali Chema and Dr. Ehsan ul Haq, “BARRIERS TO SME GROWTH IN PAKISTAN: AN ANALYSIS OF CONSTRAINTS” 2002