SME Sector

What Are SMEs

As defined by SME Bank…

Significance of SMEs
Find out how Small and Medium Enterprises contribute to a country’s economy…
Problems Faced by Pakistan’s SME Sector
Mostly, the small and medium entrepreneurs in Pakistan are facing problems like
lack of a sound collateral & bankable business plan, absence of adequate business
service providers, weak marketing links, etc. …

SME Financing and Hand-Holding

Pakistan’s 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 employee
more 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’ and
‘c’ as relevant:
(a) A trading / service concern with total assets at cost excluding land and buildings
up to Rs 50 million.
(b) A manufacturing concern with total assets at cost excluding land and building up
to Rs 100 million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs
300 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 SMEs
than 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.
 • 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 indigenous
raw 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 Pakistan’s 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 scale
industries 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 to
adverse 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 need
of ‘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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