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SME Sector

What Are SMEs

As defined by SME Bank

Significance of SMEs

Find out how Small and Medium Enterprises contribute to a countrys economy

Problems Faced by Pakistans SME Sector

Mostly, the small and medium entrepreneurs in Pakistan are facing problems likelack of a sound collateral & bankable business plan, absence of adequate business

service providers, weak marketing links, etc.

SME Financing and Hand-Holding

Pakistans SMEs are still unable to achieve their maximum potential and are in dire

need of hand-holding, financial assistance and business support services

What Are SMEs

As defined by State Bank of Pakistan - SME (Small and Medium Enterprise)means an entity, ideally not a public limited company, which does not employeemore than 250 persons (if it is manufacturing concern) and 50 persons (if it is trading/ service concern) and also fulfills the following criteria of either a and c or b andc as relevant:

(a) A trading / service concern with total assets at cost excluding land and buildingsup to Rs 50 million.(b) A manufacturing concern with total assets at cost excluding land and building upto Rs 100 million.(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs300 million as per latest financial statements.

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Significance of SMEs

SMEs are considered the engine of economic growth in both developed and developing

countries, as they:Provide low cost employment since the unit cost of persons employed is lower for SMEsthan for large-size units.

Assist in regional and local development since SMEs accelerate rural

industrialization by linking it with the more organized urban sector.

Help achieve fair and equitable distribution of wealth by regional dispersion of

economic activities.

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Contribute significantly to export revenues because of the low-cost labour

intensive nature of its products.

Have a positive effect on the trade balance since SMEs generally use indigenousraw materials.

Assist in fostering a self-help and entrepreneurial culture by bringing together

skills and capital through various lending and skill enhancement schemes. Impart the resilience to withstand economic upheavals and maintain a reasonable

growth rate since being indigenous is the key to sustainability and self-

sufficiency.

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Problems Faced by Pakistans SME Sector?

Pakistan 's economy has amazing potential for development but sadly, we haven't been

able to derive optimal benefits despite a series of efforts launched by various policy

makers at different times. The impetus of all these endeavors was on the large scaleindustries and manufacturing concerns. High rate of failures, owing to economic slumps,

institutional malpractices, political motives and damaging activities of labour unions in

that sector, left the formal lending institutions with huge infected portfolios, in addition toadverse effects on the entire economy e.g. insufficient and low quality production to meet

the demands of local and international markets, deficit in balance of payments and ever

rising unemployment, etc.

Pakistan 's SMEs are still unable to achieve their maximum potential and are in dire needof hand-holding' and business support services.

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SME Financing and Hand-Holding

Research reveals that despite the lack of collateral, SMEs are a better credit risk, as the default rate of this

sector is much below that of large enterprises (LEs). Throughout the world, SMEs have provided

tremendous opportunities to financial institutions to design various tools for the sector's development (e.g.

Program Lending Schemes, Credit Scoring, Venture Capital Financing, etc.). Then there are clusters,technology parks and industrial estates, all being fuelled by the dynamism and vibrancy of small and

medium enterprises. Banking institutions, running on Islamic principles, are also experimenting with

interest free financial instruments (e.g. Mudarabah, Murabaha, Ijarah etc.) for this sector.

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