SMEs in Pakistan, small and medium enterprises development authority

(SMEDA) was created in October 1998 as an autonomous corporate

body at the federal level with the Prime Minister as its head. The terms
of reference of SMEDA are that it will be the apex policy making body
for SMEs provide and facilitate services generating massive employment
opportunities and drive industrial growth and kick start the economy
through aggressive launch of SMEs supporting program.

SME definition
SMEDA defines Small & Medium Enterprises, as approved in SME Policy 2007, as an
enterprise that has up to 250 employees, or a paid up capital of 25 Million PK Rupees, or an
annual sale of up to 250 Million PK Rupees. The Federal Government, in line with the economic
development of Pakistan may, from time to time modify the eligibility criteria as it sees fit. All
providers of services receiving funding from the Government may define more narrow scopes
for specific targeting purposes. For detailed information see SME Policy 2007

Below is an article of mine that won the Inter University Article Contest in 2005. The
article is published in Pakistan & Gulf Economist Sep 19 – 25 2005. I am sharing it with you
for your interest.

 
Pakistan has emerged as the second rapidly growing economy in Asia after China in 2004 –
2005, as claimed by government and well accepted by international raters and financial
institutions. According to Economic Survey 2004-05 this increase in real GDP is the courtesy of
robust performance of large scale manufacturing and services sector. Even though the large scale
manufacturing registered 15.4% growth but small and medium enterprises (SMEs) is the core
issue in the country’s progress and especially for the prosperity of masses that are surviving with
low scale income due to which Pakistan ranks 135th out of 174 countries on Human Development
Index.
 
When we think about SMEs, we consider it as one person manufacturing enterprise but
according to SMEDA Small Enterprises should possess ten to thirty five employees with two to
twenty million rupees capital intact in equity. Medium Enterprises should possess thirty six to
ninety nine employees with twenty to forty million capital intact in equity. Here we have to see
the role SMEs have in the progress and well being of masses in Pakistan.
 
The assessment of the role of SMEs in Pakistan is of vital importance. Sometimes we have
shinny figures and data regarding economy like GDP growth or per capita income but these can
be misleading because the earners of these massive growth are not masses but the capitalists in
the country. SME produces the income stream for masses located in the countryside and the
capitalists associated with this activity that is generally medium or small as the name suggests.
 
In Pakistan SME sector is not only the minor sharer till yet, reality is that Pakistan’s whole
economy is highly dependable on the pace and productivity of SMEs. Out of Pakistan’s 3.2
million enterprises 95% are those who possess 99 employees in private industrial sector and
employ about 78% of non agriculture labor force. SME contributes 25% export of manufacturing
goods and 30% of GDP is the outcome of business efforts of SMEs.
 
The vital question is not “what SMEs have produced?” But, what they are capable to produce?
The simple answer is if they produce on their full potential and capacity Pakistan would be way
ahead on economic racetrack of the world. They can produce billion of dollars worth items that
is why SMEDA is quite right in stating its mission as “Turning potential into profits”. Turning
potential into profits gives us a truer and fair picture of the role of SMEs in Pakistan. Now we
will see what potential we have and the threats associated with it and how we can turn potential
into profits by overcoming existing threats.
 
Firstly we have to talk about the main potential we have to boost the progress and efficiency of
SMEs. The real potential of SME growth in the country is the deprived people of this country
who are quite keen to raise their standard of living.  It simply means the future of SMEs is
associated with the temptations of highly talented but deprived masses of Pakistan and their will
to turn their dark days in to glittering ones. But the real problem associated with their will and
dreams is finance and technical assistance. Financing concerns have two issues; first is
availability of finance and second is the rate plus the terms on which the finance is available.
 
Financing SMEs in heavy liquidity period for banks is not a burden but an opportunity because
bank can utilize their liquidity by advancing finances to SMEs. By advancing to SMEs they can
have two advantages. First when they advance to many small and medium enterprises as
compare to large ones, their lending amount will be distributed to a number of clients that will
increase the probability of recovery. Secondly, the contribution in national economic growth via
utilizing their liquidity that is excess due to great activity in economy in the period after 1999
and especially after 2001 that will further expand the activity in banking sector in near future.
 
Exploring a specific niche product is another way to boost SMEs sector. Niche is a unique
product that we can produce at low cost with an absolute advantage. In Pakistan we are
producing Niche from Wazirabad by producing the international quality surgical instruments and
Saialkot is there for sport goods. SMEDA and other concerns like EPB have to come up to
explore more niches that are sure available in this country of highly skillful workforce. In this
regard Prime Minister’s program of ONE VILLAGE ONE PRODUCT is of high importance.
Even we could not achieve economy of scale through this niche but available glittering demand
in international market can offset the cost burden and causes the inflow of foreign exchange.
 
The movement of masses from rural to urban areas is another hot slot of the time. While
developing a well integrated SME sector in the country, it is the clear cut advantage that we can
stop this mobilization that certainly is creating the urban problems and increasing the urban
development overheads and cost of maintaining big cities like Karachi. Even it will be a factual
probability that through SMEs we can convert our villages into new towns and sources of
revenue and progress.
 
Stock markets in the country are in deprivation of number of newly listed companies; I think it is
for the sake of well being of stock markets and SMEs that SMEs should be authorized to get
listed in shape of a venture of 3 to 5 SMEs on stocks on relatively smaller amount of capital that
is how the SMEs could muster the very capital and while becoming a part of corporate culture
that can give way for them to have good management. In early stages the board of SME
companies (as they would not be able to pay handsome amount to experts) should consist of
experts of Federal, Provincial governments and specialized financial institutions and the small
and medium enterprises. Small and medium entrepreneurs should possess the majority shares
and the shares of these stakeholders have to be to the extent of their support and inline to
compensate nominal through the profitability of the companies.
 

SMEs will be the main source of poverty reduction in Pakistan that will create the value and
innovation for the country in the days to come. The thing that really needs serious attention is to
remove the unnecessary bureaucratic procedures. It is essential to make it possible that the
opportunities for small entrepreneurs should not be wasted through excess processing of finance
applications or other official terms. Assistance to SMEs is not enough; the government and
specialized financial and technical institutions should stand as partners of small and medium
entrepreneurs, this is the only way that the financial institution can recover their funds with yield.
Government could achieve its goal for poverty reduction, economic progress and above all the
value creation process by promoting the culture of SMEs. This is the only way that can make
sure the poor masses of Pakistan shall not live poor anymore. 

importance
Small and medium enterprises (SMEs) must undertake continuous improvement of their existing
processes, products and services. They must introduce products and services with extended
capabilities to create more value for their customers. In a knowledge based economy, use of
quality measures and tools is bound to bring the same competitive advantage to small and
medium sized enterprises as brought to large enterprises worldwide. Use of information and
communication technologies (ICTs) to drive the quality initiatives is required as a key parameter
to define the SME's strategic objectives. This paper focuses on quality initiatives implemented
by SMEs in Pakistan and explores potential for their implementation using information
technology. Data has been collected from 38 SMEs and state of ICT adoption is studied.
Measures of quality and use of quality tools are investigated for both their importance and
practical use through ICT.