1 Small & Medium Enterprises

12/12/2013



IOBM
SMALL & MEDIUM ENTERPRISES

Submitted To Sir Yousuf Razzak
Submitted By Hussain Lalji 11350
Salman Khan 11463
M.Zain Ghanchi 11419
Rabee Chhapra 11312
Syed Azam Raza 11266
2 Small & Medium Enterprises

Table Of Content
Introduction ...................................................................................................................................1
Difference between Small Medium Enterprises and Micro-Finance Institutions ...............................1
Small Medium Enterprises in Pakistan ............................................................................................2
Role of SME in Pakistan ..................................................................................................................3
Problems with SMEs in Pakistan .....................................................................................................5
Current SME Policy-Pakistan ..........................................................................................................7
Recommendations & Remedies ......................................................................................................7
General Measures: ................................................................................................................................................... 7
Policy Measures: ...................................................................................................................................................... 9
SMEDA-Small & Medium Enterprises Development Authority .........................................................9
SMEDA Development Projects ...................................................................................................... 10
Distribution of SMEs in Pakistan ................................................................................................... 12
Small Medium Enterprises Sector Briefs ........................................................................................ 14
Meat Sector: ........................................................................................................................................................... 14
Fisheries Sector: ..................................................................................................................................................... 14
Dairy Sector: ........................................................................................................................................................... 14
Furniture Sector: .................................................................................................................................................... 15
Horticulture ............................................................................................................................................................ 15
Textile Sector: ......................................................................................................................................................... 15
Spinning: ................................................................................................................................................................. 15
Employment in SMEs .................................................................................................................... 16
SME FINANCING PRODUCTS ......................................................................................................... 16
Working Capital Financing Needs ........................................................................................................................... 16
Asset Acquisition / Business Expansion:................................................................................................................. 17
Trade Financing: ..................................................................................................................................................... 17
CEO Interview Regarding SME in Pakistan ..................................................................................... 22
Bibliography ................................................................................................................................ 23


1 Small & Medium Enterprises

Introduction
Small Medium Enterprises (SMEs) are the key driving mechanism of an
economy. The abbreviation SME is frequently used in European Union countries
as well as in International Organizations like IMF and World Bank. They are
defined as a project that is engaged in economic development and are an
essential source of jobs, create entrepreneurial skills and innovations in an
economy and thus are crucial for encouraging competitiveness and employment.
According to Cressy and Olofsson (1997) European commissions definition
states that company which provides work to a lesser than 250 workers is called
SME. Knight (2000) specifies that the Small Medium Enterprise build up large
employment opportunities that thus assure future growth and development of that
country. Small Medium Enterprises play an essential role in development of any
under-developed country as well as developed country. Small Medium
Enterprises also have a key role in the progress of any nation as well as its
modernization. According to Frankfurt School of Finance & Management
Every government whose economic policy is rooted in market principles regards
promotion of the SME sector as a key objective. Robson and Bennett (2000)
pointed out that since SME have started growing, governments are beginning to
support and sustain SMEs growth through their soft and flexible policies.
Customarily a SME, (a small and/ or medium venture) is characterized as an
endeavor and is acknowledged to be any substance occupied with a monetary
action, independent of its authoritative document. This incorporates specific,
independently employed persons and family organizations occupied with art or
other exercises, and organizations or acquaintanceships customarily occupied
with an investment movement.
Difference between Small Medium Enterprises and Micro-
Finance Institutions
Micro finance is a form of financial service organization for people that require
access to banking services. Microfinance is the provision of financial services
including Credit, Savings, Insurance etc, to those sectors of economy, which are
not serviced by traditional formal financial institutions viz. commercial banks and
non-banking financial institutions.
1
The main objective of a microfinance

1
SBP-Banking Supervision Department
2 Small & Medium Enterprises

institution is to make people self-sufficient by providing financial services.
Microfinance employs fewer than 30 people. On the other hand, SMEs normally
employee between 10-200 workers and are smaller in size. Their differences go
beyond mere size. Microfinance institutions concentrate largely in trade sector of
an economy and operate usually in local market. Thus microfinance needs
mostly working capital. In contrast, SMEs operate usually in formal sectors of an
economy and thus tend to be fully independent institutions. They focus more on
their growth and the growth of individuals associated with them. Thus their
activities go beyond the borders. Thus they need working capital as well as
investment finance. It is also believed that providers of finances to microfinance
institutions are NGOs whereas providers of finance to SME are proper banking
business. Also, SMEs are for small enterprises willing to start-up their own
business and thus provide finances of 1-1.5million whereas Microfinance usually
satisfies niche level needs. Their maximum credit limit is a hundred thousand.
Small Medium Enterprises in Pakistan
Pakistan have developed and designed policies for the upliftment and
development of SME sector. According to a study, the small scale sector of
Pakistan recorded an impressive growth rate of 5.06% from 1950 to 2003 and
that too without getting any benefit from macro-economic policies that large-
scale manufacturing sector was obtaining.
According to official key figures, SME show an astonishing growth of 14.7% from
1987-1996.
2
Neithammer et al., (2007) supported the basic idea of SME and
points out that the institution has been favorable in the development of Pakistans
economy. According to Small Medium Enterprises Development Authority
(SMEDA), 9/10 of businesses in Pakistan are running as small and medium
enterprises and SMEs contribute of 4/5 of employment of the country and 2/5 of
total GDP of whole national economy
3
.
In Punjab an industry is ordered as a SME in the event that its repaired venture
comprises to Rs 20 million barring its property and building. In any case, in the
territory of Sindh, a SME is characterized as any element occupied with handling
handiworks or in the assembling business with an altered capital not more than
Rs 10 million incorporating its altered speculations.

2
SME DEVELOPMENT IN PAKISTAN: ISSUES AND REMEDIES
3
ENTREPRENEURSHIP AND SMEs IN PAKISTAN

3 Small & Medium Enterprises

In Pakistan, house or family commercial ventures hold a significant position in
rustic set-up. Generally villages are independent in the essential necessities of
life. They have their own woodworkers, blacksmiths, potters, skilled workers and
cotton weavers. Numerous families hinge on upon house commercial enterprises
for wage. The industry has huge potential. It includes in the sum GDP
development of the nation. However because of the absence of monetary
chances and other deterrents the little scale organizations are unable to work in
its full potential and subsequently just makes up to 5% of the aggregate GDP
development. Extraordinary measures need to be taken for the change in the
advancement of such commercial ventures in the economy since such
commercial ventures specifically have made extensive scale occupation
chances. Since the industry is work concentrated in nature 25% of the Pakistani
work energy is at present employed in the diverse SMEs particularly in the
distinctive regions of Punjab like Sailkot, Faisalabad and Gujranwala. Zones of
Sindh incorporate Hyderabad and Karachi in specific. Separated from these
significant downtown areas, there exist numerous diverse little scale ventures in
the remote zones of KPK and Kashmir.
Role of SME in Pakistan
Pakistan is the second biggest developing economy in Asia after China, in 2004
2005, as ensured by government and fairly recognized by worldwide rater's and
budgetary organizations. According to the Economic Survey of 2004-05 the
extension in correct GDP is the possibility of uncommon execution of extensive
scale collecting and organizations section. As the advancement of the
considerable scale part was 15.4% still and medium endeavors (SMEs) was the
center issue in the country's progression and flourishing of the masses in view of
which Pakistan ranks 135th out of 174 nations on the Human Development
Index.
The part of SMEs in Pakistan is of crucial criticalness. Sometimes we have
shinny figures and data concerning economy like GDP advancement or for each
capita pay however these could be misleading in light of the way that the earners
of this colossal improvement are not the masses yet the businesspersons in the
country.
In Pakistan SME division is not only the minor sharer work yet, the reality is that
Pakistan's whole economy is exceedingly dependable on the pace and additions
of SMEs. Out of Pakistan's 3.2 million endeavors 95% are the people who have,
4 Small & Medium Enterprises

99% agents in the private mechanical region and 78% use of non green work
vigor. SME helps 25% admission of gathering items and 30% of GDP is the
aftereffect of business efforts of SMEs.
SMEs will be the essential wellspring of desperation abatement in Pakistan that
will make the quality and advancement in the country in the days to come. The
thing that without a doubt needs real thought is to clear the unnecessary
bureaucratic systems. It is key to make it possible that the chances for aspiring
individuals should not be wasted through wealth arranging of cash procurements
or other official terms. Back to SMEs is deficient; the assembly and particular
money related and specific associations should just stayed as accessories of and
medium specialists, this is the principle way that the cash identified
establishment can recover their stores with yield. The governing body could
perform its destination of dejection lessening, monetary progress or more all the
worth creation plan by promoting the social order of SMEs. This is the primary
way that can figure out the poor masses of Pakistan may not leave poor any
more extended.
Like other propelling countries, lacking financing of SMEs in Pakistan is an
eventual outcome of disequilibrium in the SME credit market. This recommends
that ask for and supply of SME financing don't clear each one in turn due to
confound of issues of both sides. On supply side, banks meek a long way from
advancing to SMEs in view of; (i) wonderfully risky division as a consequence of
its more spectacular affectability to fiscal progressions; (ii) unlucky deficiency of
security; (iii) nonappearance of bona fide data on business area appraise; (iv)
credit supervisors' high look for cost4; (v) high taking care of expense, et cetera.
On premium side, SME industry can't address concerns of banks in light of; (i)
humbler measure; (ii) confined organization capabilities; (vii) compelled holdings
in keeping business account with keeping cash necessities, et cetera. These
concerns of both sides show that banks are threat unwilling and are reluctant to
grow credit to SMEs while SMEs can't deal with the expense of assembling
keeping cash essentials. In the later log stick of the economy, the blunder
between premium and supply of credit market of SME may compound further
importance the need for mediation.
All around the present fiscal downturn in the country, budgetary pointers portray
a declining example in SME financing. On the backing of SME potential,
institutional limit and recorded example, the State Bank of Pakistan motioned in
2007 that the keeping cash credit for the division needed to be extended up to Rs
5 Small & Medium Enterprises

1000 billion in 2012 to be relentless with the expected macro-speculation centers
of improvement and employment5. Be that as it may, the negative advancement
rate in the unprecedented credit measure of the territory and its falling knowledge
all in all development portfolio sometime during the latest two years have made
the target troublesome to be accomplished. The striking credit measure has
declined from Rs 361 billion in 2005 to Rs 348 to whip the test of obliged
financing for SMEs.
Problems with SMEs in Pakistan
The following is a quotation from Independent Organization Evaluation of
Small Medium Enterprise Development Authority (SMEDA) which highlights
the key issues of SMEs in Pakistan
The country which is the closest in terms of population, level of development
and demographics is Brazil. Their organization, SEBRAE, is getting funding of
$7.24 per capita (which is dedicated capital base of 0.3% of payroll taxes), which
is an immense amount when compared to Pakistan. Brazil, like Pakistan, is an
emergency economy and its SME agency employs 4500 direct workers and has
over 9000 external consultants helping the SMEs. In contrast, SMEDA employs
only 125 workers and a handful of consultants. SEBRAE runs 788 service
centers, has presence in 2000 municipalities, supports 200 clusters and runs 377
incubators. In contrast, SMEDA has 4 provincial offices and 18 regional offices. If
SMEDA were to acquire enough funding, with a proper organization structure
and good management in place, Pakistan would take the first step towards
energizing the SME sector for industrial development of Pakistan.
4

Due to the short investments and financial assistance available to entrepreneurs
of SMEs, there prevails large number of barriers for the proper functioning of
such industries. Some problems highlighted are:
Due to the low investments, the business isnt as developed which results
in low revenues that tend to have low monetary worth. Thus the profits
generated are too low.
The issues to be addressed for this sectors development falls within
Ministries and Departments at Federal, Provincial and Local Government
level and SMEDA has no institutional jurisdiction with such institutions.

4
Ibid.
6 Small & Medium Enterprises

In SMEs of Pakistan, there lacks consistency and quality measures
because of which, they cannot compete or participate in international
markets.
There also lacks synchronization and coordination between different
industries thus different prices prevail in the market.
The budgets of SMEs in Pakistan are at a very lower stage thus they the
technology and production methods are obsolete and old fashioned.
SMEs also lack Economies of scale. This is the very reason they cannot
compete locally. They also cannot compete with the wholesalers which sell
at cost price thus exploiting SME industry.
Another problem for the effective functioning of SME is the power
outrages. Electricity is not provided thus its difficult to setup SME in rural
areas. Also, the rise in power tariff by 70pc has adversely influenced the
functioning of SME and made them uncompetitive by adding up costs to
their cost of production.
The free trade policies have contributed to uneasiness for SMEs and has
inversely affected their growth of trade, commerce and economic activity.
SMEs in Pakistan work with obsolete technologies. The workers are
deficient in technical skills. There is a general absence of information on
opportunities for technological up gradation.
The incomes created have a tendency to have an extremely little fiscal
esteem because of which the distinctive benefits produced is less to the
point that a large portion of it is used in the every day uses. Additional
capital is not accessible for extension purposes.
There is an absence of institutionalization and quality control. In a few
cases they don't meet the benchmarks of outside business sectors. An
absence of coordination between various commercial ventures likewise
makes contrasts in costs.
Because of the low ability rate of the speculators, the preparation systems
and innovation utilized is old fashioned
The specialist and artisans study their abilities and processing systems
from their seniors. The procurement of specialized guidance and further
preparing is restricted.
Because of the absence of exchange obstructions and the advancement of
unhindered commerce, the businesses are overflowing with universally
processed merchandise which overshadow the locally transformed yield so
as to use the full potential of the SMEs in Pakistan there are unique
7 Small & Medium Enterprises

measures that are required to be taken by the administration which might
secure and push the presence of such businesses.


Current SME Policy-Pakistan
There does not exist, a proper definition of Small and Medium Enterprises.
Each agency uses its own definition which makes it complicated to target
them and give development programs.
The labor, fiscal and enterprise regulations of the Federal and Provincial
Governments dont provide for a focus on SMEs that is in line with their
specific needs.
5

Banks provide 8% of SMEs funding base.
6
Access to finance is SMEs
most important obstruction to growth according to Barriers to SME Growth
in Pakistan: An Analysis of Constraints by LUMS.
SMEs lack proper human resource. Most human resource is unaware of
SME needs which hinder in SMEs innovation and value-addition.
Pakistan lacks entrepreneurial potential and the youth does not prefer
entrepreneurship as a career option. The past government programs (Self
Employment Scheme, Youth Investment Promotion Society and Yellow
Cab Scheme) were limited and werent properly endorsed.
Investors lack financial support and managerial support. They are short in
visioning the potential and future prospects of this sector. There lacks
proper explicit policies for investors.
Recommendations & Remedies
General Measures:
The Government of Pakistan must take some special measures in order to make
use of full potential of Small Medium Enterprises (SMEs) and also to protect

5
SME policy 2007
6
Investment Climate Assessment 2003
8 Small & Medium Enterprises

promote the existence of SMEs in Pakistan. Lack of long term financing is one of
the major problems faced by SMEs in Pakistan. Lack of finance acts as a barrier
to many producers and entrepreneurs in fulfilling their basic production
requirements. In order to reduce the risk of default, the banking regulations
require borrowers to provide security deposits or collaterals for obtaining long
term loans from the banks. Many owners of SMEs in Pakistan are unable to fulfill
these requirements and thus they are not given financing by any bank which as a
result prevents these production units from any further production.

9 Small & Medium Enterprises

Policy Measures:
Government should adopt a single definition. It should be then used by all
the authorities. According to SEM policy 2007, the policy should contain:
o Employment Size: up to 250 people,
o Paid-up Capital: up to 25Mn and
o Annual sales: up to 250Mn.
According to SME policy The Task Force recommends promulgation of an
SME Act that provides for identification of fiscal, registration, labor and
inspection laws that may be simplified for Small and/or Medium
Enterprises. Businesses may be licensed as a SME unit by a simple
process. SME desks should be established with a Complaint Cell.
Regulatory regime for specialized sectors may also be set-up.
SMEs credit should be added up to Budgets of SBP and GoP. Evaluation of
Prudential Regulations, Founding of Credit Guarantee and Credit Insurance
agencies to help banks facilitate SME financing and giving of new
bankruptcy laws should be implemented.
SMEs human resource need should be identified along with its
technological up gradation. Also, encouragement should be given for
investing in emerging sectors and skills up gradation.
Higher education curriculum should be amended. New Entrepreneurship
courses should be adjoined so as to promote entrepreneurship. Among
youth.
There should be proper explicit policies by GoP to cater to the investors.
GoP should design proper Labor Laws, Finance and Credit policies and
should directly supervise this sector to function efficiently and effectively.
SMEDA-Small & Medium Enterprises Development Authority
Small and Medium Enterprises Development Authority (SMEDA) is a premier
government organization of Pakistan under Ministry of Industries. It was
established in October 1998 with the objective of developing SMEs in Pakistan.
The SMEDA focuses on providing development services and an enabling
business environment for the SMEs operating in Pakistan. SMEDA not only
works as an SME policy-advisory body for the Pakistan government but it also
acts as a representative of SMEs in Pakistan. The SMEDA addresses various
issues, problems and agendas of SMEs to facilitate the stakeholders.

10 Small & Medium Enterprises

SMEDA Objectives
The main objectives of SMEDA are as follows:
1. To facilitate the SMEs by providing business development services.
2. To formulate such policies for SMEs which encourage the SMEs growth in
Pakistan.
3. To advise the Government of Pakistan on different fiscal and monetary
issues regarding SMEs in Pakistan.
4. To facilitate the development and growth of SMEs in the country.
5. To assist the SMEs in Pakistan in the process of obtaining different
international certification for their products and services.
6. To facilitate the SMEs in obtaining long term financing from the banks.
7. To strengthen the SMEs in Pakistan by arranging different seminars,
workshops and training programs for the employees of SMEs.
8. To provide donor assistances to the SMEs in Pakistan by through several
programs and projects.
9. To provide a performance report to different sectors of SMEs by
conducting sector studies.
10. To facilitate the SMEs by maintaining a database of service provider.

SMEDA Development Projects
Some important development projects undertaken by SMEDA are:

In the textile sectors the following projects being started

Ginning Technology Up-Gradation
Program Lending For Power Looms
Computer Aided Design Centre (Common Facility Centre-Sialkot)
Designing Institute for Garments (Peshawar)
Development of Handloom Cluster

In the Horticulture:

Establishment of Cool-Chain Agriculture Export Processing Zone
Fruit Processing Facility (NWFP in Collaboration with EPB)
Assistance to Set Up Horticulture Export Board
11 Small & Medium Enterprises

Revitalization of Sunflo Cit-Russ for Citrus Cluster Development.
Apple Treatment Plant in Balochistan (Co-Ordination with EPB)

In Fisheries:

Program Lending Boat/Engine Modification, Gwadar District
Establishment Of Shrimp Farms
Fish Processing Facility In Gwadar (Feasibility Study)
Export Warehouse Marble (Azakhel NWFP)
Establishment of Model Quarry and Training Institute Marble
Joint Ventures and Technology Transfer Arrangements (NWFP)

In Gems:

Five New Gem Mines To Be Operationalized (NWFP)
Lapidaries Program Lending (NWFP)
Glass & Ceramics
Ceramics Kiln Up-Gradation: Common Facility Centre, Gujrat
Sanitary Ware & Pottery Sector Kiln Up-Gradation
Bangles Kiln Up-Gradation (Hyderabad)


In Agriculture:

Agri-Mall One Stop Shop for Agriculture Inputs
Support Services for Agricultural Credit (SSAC)
Establishment of 3 Private Sector Warehousing & Trade Promotion
Facilities in Afghanistan

Public Sector Development Projects
Agro Food Processing Facilities - Multan
CFTC for Light Engineering Cluster - Mardan
Chromite Beneficiation Plant - Khanozai
Dyeing , Washing & Pressing CFC for Silk Cluster - Mingora Swat
Establishment of Spinning CFC - Islampur Swat
Foundry Service Centre - Lahore
Glass Products Design & Manufacturing Center - Hyderabad
Gujranwala Business Center
12 Small & Medium Enterprises

Honey Processing & Packaging Common Facility Center - Mingora Swat
Juice Producing and Packaging Line for Fresh Fruits & Vegetables - Multan
Khadi Crafts Development Company (KCDC) - Multan
Leather Crafts Development Company (LCDC) - Multan
Meat Processing & Training Company (MPTC ) - Multan
Policy & Project Implementation, Monitoring & Evaluation Unit (PPIMEU)
Lahore
Red Chilies Processing Centre - Kunnri/ District Umerkot
Revival of Cutlery Institute of Pakistan (CIP) - Wazirabad
Revival of Hyderabad Leather Footwear Center - Hyderabad
Revival of Multani Blue Pottery - Multan
Sialkot Business and Commerce Centre
SME Subcontracting Exchange - Gujranwala
Sports Industries Development Centre - Sialkot
Spun Yarn Research and Development (R&D) Company - Multan
Washing & Pressing Unit - Matta Mughal Kheal, Charsada
Women Business Development Centre - Karachi
Women Business Development Centre - Mingora, Swat
Women Business Development Centre - Peshawar
Women Business Development Centre - Quetta

Distribution of SMEs in Pakistan
According to the Economic Census of Pakistan (2005):
There were 2.96 million SME units in Pakistan. For convenience, the SMEs in Pakistan
are categorized into 2 groups:
1. Establishment Units
2. Household Units
Out of 2.96 million SME units in Pakistan:
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2.8 Million units i.e. 93.9% of the total SME units in Pakistan were Establishment
Units; and
0.18 Million SME units i.e. 6.1% units were Household Units.
Punjab constituted the largest share of 65.26% in the total of 2.8 million Establishment
units in Pakistan. Sindh had the 17.82% share. Whereas, the shares of Khyber
Pakhtoon Khuwa (KPK) and Balochistan, in the total Establishment units, were 14.21%
and 2.09% respectively.
Out of total 2.96 million SME units in Pakistan:
53% units were in the major sector of Wholesale and Retail Trade and
Hotels/Restaurants,
22.3% units in Community, Social and Personal Services sector; and
the remaining 24.7% units in different industries and sectors.
Among 0.18 million Household SME units in Pakistan:
66.5% units were in the Manufacturing sector,
20.5% units in the Community, Social and Personal Services sector,
8.7% units in the Agriculture, Poultry Farming, Fishing sector; and
4.3% units in the Wholesale and Retail Trade sector.
The data of the manufacturing firms shows that out of 583,329 units taken in the
census, 466,153 units were in the category of Establishment units which means that
about 80% of the manufacturing units in Pakistan fell under the category of
Establishment SME units. Out of this 80% units:
43.2% units were in the Textile Wearing, Apparel and Leather industries,
20.9% units in the Food, Beverages and Tobacco industries,
10.8% units in the Wood and Wood Products industries,
10% units in the Fabricated Metal Products, Machinery and Equipment
industries,
8.9% units the other Manufacturing Industries and Handicrafts industries; and
The remaining 11.1% units in the other different sectors.




14 Small & Medium Enterprises

Small Medium Enterprises Sector Briefs
Meat Sector:
Asian countries export bulk quantity of meat. The major meat importers are
Japan, Saudi Arabia, Korea and UAE (Figure 1). Countries like Saudi Arabia,
Egypt and Iran are good prospects for Pakistan as they import Halal meat. The
volume of the meat market at present in Pakistan is 2,185,000 metric tons. Meat
demand is growing at almost 6% per annum while supply is growing at 1.8%
7
. SMEDA
is working towards the upliftment of meat export sector. They are introducing healthy
measures to make local industry compete with the international sector.


Figure 1

Fisheries Sector:
Major fish exporting countries incorporate Thailand, China, Norway and Canada. On the
other hand, major fish importers are Japan and USA. In terms of Pakistan, the majority
of the fishes produced are exported and not consumed domestically. Major buyers for
Pakistani fish species are US, Japan, Europe and Middle Eastern countries. According
to the news, the exports of fish surged by 14.69% during (2011-12) against the
corresponding period of last year. The fish exports were around at $195.284 million
during (2011-12).
Dairy Sector:
The Livestock/Dairy sector plays a vital role in the economy of Pakistan. According to
SMEDA, milk production is the single-largest commodity with value of around 160bn
rupees. When it comes to production, Pakistan ranks 7
th
however, we have to import
powered milk to meet local needs. Even with more animals, we lack the specialties to

7
SMEDA
15 Small & Medium Enterprises

product more liters of milk as compared to Western nation. SMEDA has recommended
setting up Punjab Dairy Authority (PDA).
Furniture Sector:
During 1996 to 2001, the exports of Pakistan increased by more than 130%. The office
furniture exports only accounted for $24000 in 2000-01 whereas the bedroom furniture
exports were $9000 and the kitchen furniture accounted for $607000.
8

Horticulture
Horticulture has a great likelihood of growth. Due to our ignorance, the exports and
quality are suffering. SMEDA has developed a broad horticulture export strategy in
which the research work is included. The finalized plan in association with the EPB is
made. SMEDA, in collaboration with EPB, has started working for the formation of a
Horticulture Export Board (HEB). SMEDA is also working for establishment of cold
storage facilities.

Textile Sector:
Pakistan has one of the largest shares of bed ware and linen in International market. In
the year 1999, bed wear & linens accounted for $681 million in foreign exchange
earnings. The bed wear & linen market has increased by an annual average of 16% in
last five years. In the year 2000-01, the exports rose to $752.53million.
In 1999, the revenue from blankets were $9.92million. This market has increased by
annual average of 20%.
The Apparel accounted to $1.74bn exports which were 34% of total textile exports for
the year 1999-2000. In apparel segment, the total number of small units in 2000-01 was
3600. This sector also has a huge potential. Back in 2000-01, it employed around
700,000 people as it was labor-intensive.
Spinning:
In turning fragment, Pakistan ranks the third biggest. Pakistan's turning limit is 5% of the
aggregate planet and 7.6% of the limit in Asia. Pakistan's development rate has been
6.2% and is second just to Iran around the real players. Pakistan is the fourth biggest
maker of cotton yarn in the world.





8
SMEDA
16 Small & Medium Enterprises

Employment in SMEs
According to the Economic Census of Pakistan (2005):
There were 2.96 million SME units in Pakistan and a total of 6.58 million persons
got employment due to these SME units. The employment pattern was as
follows:
2.85 million (96.6%) units employed 1-5 persons,
0.079 million (2.67%) units employed 6-10 persons,
26,000 (0.87%) units employed 11-50 persons; and
1617 (0.054%) units employed over 50 persons.
Out of total employment of 6.58 million persons:
Around 5% (0.34 million) persons got employment in the Household SME
units; and
Remaining 95% (6.24 million) persons were employed in the
Establishment SME units in Pakistan.
Around 0.46 million (i.e. 7%) females were given employment out of the total of
6.58 million persons employed. Among these 0.46 million females:
15% females were self-employed/proprietors,
30% females were unpaid family helpers; and
The remaining 55% females were employees.
SME FINANCING PRODUCTS
The State Bank of Pakistan (SBP) has played a vital role in the development of
SMEs in the country by promoting financing to the SMEs through Commercial
Banks. The Commercial Banks in Pakistan offer different types of SME financing
products according to the needs of the business of SMEs.
The SME financing products offered by the banks are classified into three major
categories which are then further sub-divided as follows:
Working Capital Financing Needs
In order to meet the running day to day affairs of business working, the SMEs
can obtain a number of number of financing facilities from the banks. The
17 Small & Medium Enterprises

following financing facilities/products are designed by banks for the SMEs to
meet their capital requirements of business:
Running Finance
Demand Finance
Cash Finance
Factoring

Asset Acquisition / Business Expansion:
Every business requires different fixed assets in order to operate. The SMEs can
acquire fixed assets for their business by availing the following provided financing
facilities provided by the banks.
Term Loans
Leasing

Trade Financing:
The Commercial Banks also provide financing facilities to the SMEs involved in
the business of import and export of products or raw materials. These financing
facilities are as follows:
Bank Guarantee
Letter of Credit
Export Credit financing
Bills of Exchange Purchased
Trust Receipts
The SME Financing Products provided by the big 5 banks of Pakistan are
discussed below.
HABIB BANK LIMITED
The Habib Bank Limited (HBL) provides the following facilities to the SMEs
operating in Pakistan:
i. Running Finance facility,
ii. Demand Finance facility, and
iii. Cash Finance facility.
18 Small & Medium Enterprises

These facilities are targeted towards all the sectors and any type of SME in
Pakistan can avail these facilities. The amount of finance provided in these
facilities ranges from 0.5 Million to 75 Million and the tenure of this financing is
maximum 1 year. The time period required for the approval of these facilities is 9
days. All these financing facilities are Cash Flow based or Collateral based. The
Cash Finance is paid back on Revolving basis. The Running Finance is paid
back on Quarterly basis or in Flexible modes of repayment. Whereas, the
Demand Finance is paid back on Quarterly or Monthly basis, or in Equal
installments, or in Flexible modes of repayment.
MCB BANK LIMITED
The MCB Bank Limited (MCB Bank) provides the following facilities to the SMEs
operating in Pakistan:
i. Demand Finance facility,
ii. Lease Financing facility, and
iii. Working Capital facilities
These facilities are targeted towards all the sectors and any type of SME in
Pakistan can avail these facilities. The amount of finance provided in these
facilities ranges from 0.5 Million to 75 Million. The tenure of loan is 1 year to 5
years in case of Demand Finance facility, 3 years to 5 years in Lease Financing
facility and maximum 1 year, on the basis of renewal, in Working Capital
Facilities. The time period required for the approval of these facilities is maximum
37 days. All these financing facilities are Cash Flow based or Collateral based or
Program based except for Lease Financing facility which is only Cash Flow or
Collateral based. The mode of repayment in Working Capital facility varies
according to different facilities. The Running Finance is paid back on Quarterly
basis or in Flexible modes of repayment. The Lease Financing is paid back on
Quarterly or Monthly or Half-yearly basis, or in Equal installments. Land, Building,
Inventory, PGs, Current Assets etc can be kept as collateral.
UNITED BANK LIMITED
The United Bank Limited (UBL) provides the following facilities to the SMEs
operating in Pakistan:
i. NICF/FAPE facility,
ii. NIDF facility,
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iii. Rice/Paddy Advances facility,
iv. Cotton Ginners Advances facility,
v. Credit facilities against Liquid Securities, and
vi. Running Finance facility
The above facilities, except for Rice/Paddy Advances and Cotton Ginners
Advances facility, are targeted towards all the sectors and any type of SME in
Pakistan can avail these facilities. Rice/Paddy Advances facility is only targeted
towards Rice growing sectors and it can be availed by only manufacturing SMEs
in this sector. Similarly, Cotton Ginners Advances facility is only targeted towards
Cotton growing sectors and it can be availed by manufacturing as well as trading
SMEs in this sector. The amount of finance provided in these facilities ranges
from 0.5 Million to 75 Million except for Rice/Paddy Advances facility where the
maximum amount of loan is 20 Million. The tenure of loan provided is 1 year in
case of NICF/FAPE facility and Running Finance facility, 3 years to 7 years in
case of NIDF facility and Rice/Paddy Advances facility, 1 year to 3 years in case
of Credit facilities against Liquid Securities and only 9 months in case of Cotton
Ginners Advances facility. The time period required for the approval of
NICF/FAPE and NIDF facilities is 4-5 weeks, 2 weeks for Rice/Paddy Advances,
Cotton Ginners Advances and Credit facilities against Liquid Securities and only
40 days in case of Running Finance facility. NICF/FAPE and NIDF facilities are
Cash Flow or Collateral based. Running Finance facility is Collateral based and
the remaining 3 facilities are Collateral or Program based. Rice/Paddy Advances,
Cotton Ginners Advances, Credit facilities against Liquid Securities and Running
Finance facilities are paid back on Quarterly basis. The mode of repayment in
case of NICF/FAPE facility is flexible. The repayment mode in case of NIDF
facility is either Quarterly basis or as allowed by the business cash flows.
BANK ALFALAH LIMITED
The Bank Alfalah Limited provides the following facilities to the SMEs operating
in Pakistan:
i. Alfalah Karobar Finance facility, and
ii. Alfalah Milkiat finance facility
These facilities are specifically designed for the SMEs. The Alfalah Karobar
Finance facility is designed for working capital requirements and the Alfalah
Milkiat finance facility is designed for the purpose of infrastructure capacity
20 Small & Medium Enterprises

building. These facilities are targeted towards all the sectors and any type of
SME in Pakistan can avail these facilities. The minimum amount of loan provided
in both the facilities is 0.5 Million but the maximum amount is 10 Million in the
case of Alfalah Karobar Finance facility and 20 Million in the case of Alfalah
Milkiat finance facility. These facilities are Cash Flow or Collateral based. The
tenure of Alfalah Milkiat finance facility ranges from 2 years to 12 years.
Whereas, the tenure of loan in Alfalah Karobar Finance facility is maximum 1
year. The time period required for the approval of Alfalah Karobar Finance facility
is 30 days and 45 days in the Alfalah Milkiat finance facility. The Alfalah Karobar
Finance facility is paid back on either Quarterly basis or in Flexible modes and
the Alfalah Milkiat finance facility is repaid in Equal Monthly Installments. These
financing facilities can be availed from the specific branches of Bank Alfalah in
different cities.
STANDARD CHARTERED BANK LIMITED
The Standard Chartered Bank (SCB) Limited provides the following facilities to
the SMEs operating in Pakistan:
i. Tana Bana facility,
ii. Rang Hi Rang facility,
iii. Kissan Card facility,
iv. Agri Deal facility,
v. Business Power facility, and
vi. Business Installment Loan facility
The Tana Bana facility is designed for Textile Weavers sector and the
Manufacturing concerns can avail this facility. The amount of finance provided in
this facility ranges from minimum 0.5 Million to maximum 20 Million. This facility
is Evergreen and renewed on annual basis. The time period required for the
approval of Tana Bana facility is 16 days. This facility is Secured Program or
Collateral based and the repayment mode of this financing facility is Monthly
Markup Payment.
The Rang Hi Rang facility is designed for Textile Dyers and Printers sector and
the Manufacturing concerns can avail this facility. The amount of finance
provided in this facility ranges from minimum 0.5 Million to maximum 20 Million.
This facility is Evergreen and renewed on annual basis. The time period required
for the approval of Rang Hi Rang facility is 16 days. This facility is Secured
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Program or Collateral based and the repayment mode of this financing facility is
Monthly Markup Payment.
The Kissan Card facility is designed for Agriculture sector and the Farmers can
avail this facility. The amount of finance provided in this facility ranges from
minimum Rs. 32,000 to maximum Rs. 125,000. This facility is Evergreen and
renewed on annual basis. The time period required for the approval of Kissan
Card facility is 16 days. This facility is Unsecured Program based and the
repayment mode of this financing facility is Bi-Annual Markup Payment.
The Agri Deal facility is designed for Dealers of Agricultural Inputs, Fertilizers,
Pesticides and the Traders can avail this facility. The amount of finance provided
in this facility ranges from minimum 0.5 Million to maximum 30 Million. This
facility is Evergreen and renewed on annual basis. The time period required for
the approval of Agri Deal facility is 16 days. This facility is Secured Program or
Collateral based and the repayment mode of this financing facility is Monthly
Markup Payment.
The Business Power facility is designed for all sectors and the any type of SME
in Pakistan can avail this facility. The amount of finance provided in this facility
ranges from minimum 1 Million to maximum 20 Million. This facility is Evergreen
and renewed on annual basis. The time period required for the approval of
Business Power facility is 16 days. This facility is Secured Program or Collateral
based and the repayment mode of this financing facility is Monthly Markup
Payment.
The Business Installment Loan facility is designed for all sectors and the any type
of SME in Pakistan can avail this facility. The amount of finance provided in this
facility ranges from minimum 0.5 Million to maximum 2 Million. The tenure of this
facility is 1 year to 3 years. The time period required for the approval of Business
Installment Loan facility is 14 days. This facility is Unsecured Program based and
it is a Clean Lending. The Business Installment Loan facility is repaid in Equal
Monthly Installments.



22 Small & Medium Enterprises

CEO Interview Regarding SME in Pakistan
A brief summary of interviews with CEOs regarding SMEs in Pakistan is given below:
According to President of SME Bank, Mr. Kaiser Naseem, the main reason for failure of Small
Business Finance Corporation (SBFC) and Regional Development Finance Corporation (RDFC)
were Government and political interventions, in adequate skills in the institutions, weak internal
controls and corruptions. He said SME bank is established to promote SMEs in Pakistan and
actions have been taken to address the above issues and to solve them. He also said that
private sector FIs failed to finance SMEs properly so Government of Pakistan took the initiative
to set-up SME bank under it to help it get access to credit on time. Also, this intervention by
GoP is short-term. According to him, SME Bank works closely with SMEDA to identify eligible
SMEs and enhance SMEs capacity.
According to Atif Bajwa, CEO Alfalah Bank, SME banking and agri-finance are the backbone of
economy of Pakistan. SME sector contributes to 30% Pakistans GDP. Also, it employs more
than 70% of non-agricultural workforce and it accounts to 35% of value-added in the
manufacturing industry and also generates 25% of foreign earnings. According to him, most
SMEs are informally managed thus faces issues like lack of formal business running skills, poor
maintenance of accounts and low business planning. Banks are undertaking a pilot project
together with IFC to make a new strategy for SME sector of Pakistan.

23 Small & Medium Enterprises

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