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(SMEs) sector. Small and medium enterprises play an important role in the development of a country. SMEs contribute to economic development in various ways: by creating employment for rural and urban growing labor force, providing desirable sustainability and innovation in the economy as a whole .In addition to that, a large number of people rely on the small and medium enterprises directly or indirectly. Most of the current larger enterprises have their origin in small and medium enterprises. SMEs are different from large scale enterprises in three main aspects; uncertainty, innovation and evolution. The SME sector itself can be classified into micro enterprises, small enterprises and medium enterprises. SMEs are the starting point of development in the economies towards industrialization. However, SMEs have their significant effect on the income distribution, tax revenue, and employment, efficient utilization of resources and stability of family income. According to the United Nations Industrial Development Organization UNIDO, for developing countries, integration into the global economy through economic liberalization, deregulation, and democratization is seen as the paramount way to triumph over poverty and inequality. Important to this process, is the development of an animated private sector, in which small and medium enterprises can play a central role. SMEs have a propensity to employ more labor-intensive production processes than large enterprises. Consequently, they contribute significantly to the provision of productive employment opportunities, the generation of income and, eventually, the reduction of poverty. According to the statistics, in industrialized countries, SMEs are major contributors to private sector employment. Empirical studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high income countries .SMEs and informal enterprises, account for over 60% of GDP and over 70% of total employment in low income countries, while they contribute about 70% of GDP and 95% of total employment in middle income countries. SMEs play significant contribution in the transition of agriculture-led economies to industrial ones furnishing plain opportunities for processing activities which can generate sustainable source of revenue and enhance the development process. SMEs shore up the expansion of systemic productive capability. They help to absorb productive resources at all levels of the economy and add to the formation of flexible economic systems in which small and large firms are interlinked. Such linkages are very crucial for the attraction of foreign investment. Investing transnational corporations look for sound domestic suppliers for their supply chains. SMEs are the major growing force behind the fastest growing economy of China, in terms of contribution to the national GDP (accounting for 40%), scale of assets, diversification of products, and the creation of employment. Similarly, the role of SMEs is well acknowledged in other countries such as Japan, Korea, and all other industrialized economies in terms of creating employment, reducing poverty and increasing the welfare of the society. Experts and economists are unanimous about the role and importance of small and medium enterprises in the development of Pakistan economy. The statistical data and empirical studies about SMEs highlight the bulk share of SMEs in the economy.
There are also some hidden and apparent obstacles in the path of growth of small and medium enterprises in Pakistan. lack of coordination and regular information exchange mechanism among institutions. It is levelheaded to say that Pakistan economy is an economy of SMEs. SME remain subject to unequal treatment. and their share in the annual GDP is 40%. SMEs bolster an entrepreneurial spirit and put forward suppleness in the economy. financial constraints. efforts had remained restricted focusing on the large enterprises. Central Board of Revenue (CBR). as claimed by government and well accepted by international raters and financial institutions. especially in the scenario of globalization and openness of the economies. Export Promotion Bureau (EPB). which distorts the competitive environment for business. employ 80% of the nonagricultural labor force. are far less capable of adjusting and carrying on successful business. etc. Large scale firms can cope and solve their hurdles due to possessing sound experience and financial position. taxation problems.4% growth but small and medium enterprises (SMEs) is the core issue in the country’s progress and especially for the . Third. However. and neglecting small and medium enterprises which are the bone back of the economy. law and order situation. SMEs are more efficient in resource allocation as compare to that of large scale industry from a social point of view. The most important are. Pakistan has emerged as the second rapidly growing economy in Asia after China in 2004 – 2005. labor issues. the milieu for SME is incessantly changing. SME due to their small size and the resulting peculiarities. have been focused their efforts on large scale industry. energy crisis. Above all. such as cotton weaving and surgical instruments. etc. Therefore. According to Economic Survey 2004-05 this increase in real GDP is the courtesy of robust performance of large scale manufacturing and services sector. While spared direct statutory or administrative discrimination. SMEs emanate the fastest growing export sub-sectors. SMEs are a distinctive mainstay of the economy that requires owing attentiveness. Furthermore. Second. What it requires is to pursue the precise policy and regulatory reforms to turn SMEs into an effectual instrument for the enhancement of economic growth and employment. they can support the poverty alleviation endeavors through employment generation process. approximately?. They provide and facilitate the more number of people as compare to that of large scale industry. The significant role of SME is plainly indicated by research and statistics. institutions established to facilitate business activities.According to the Small and Medium Enterprises Development Authority (SMEDA). like Board of Investment (BOI). The evidence shows that small firms are discriminated against relatively large firms. There are a number of factors responsible for the importance of SMEs in Pakistan. Even though the large scale manufacturing registered 15. "SMEs constitute nearly 90% of all the enterprises in Pakistan. First. For instance. political instability. the course of action for SMEs should be set for long-run period keeping in mind the predictable behavior of all stockholders.
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. 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.2 million enterprises 95% are those who possess 99 employees in private industrial sector and employ about 78% of non agriculture labor force. 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. 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. Medium Enterprises should possess thirty six to ninety nine employees with twenty to forty million capital intact in equity. Out of Pakistan’s 3. 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. SME contributes 25% export of manufacturing goods and 30% of GDP is the outcome of business efforts of SMEs. Firstly we have to talk about the main potential we have to boost the progress and efficiency of SMEs. It simply . reality is that Pakistan’s whole economy is highly dependable on the pace and productivity of SMEs. They can produce billion of dollars worth items that is why SMEDA is quite right in stating its mission as “Turning potential into profits”. In Pakistan SME sector is not only the minor sharer till yet. When we think about SMEs. The assessment of the role of SMEs in Pakistan is of vital importance. 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.prosperity of masses that are surviving with low scale income due to which Pakistan ranks 135th out of 174 countries on Human Development Index. Turning potential into profits gives us a truer and fair picture of the role of SMEs in Pakistan. Here we have to see the role SMEs have in the progress and well being of masses in Pakistan.
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. Exploring a specific niche product is another way to boost SMEs sector. 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. Niche is a unique product that we can produce at low cost with an absolute advantage. Financing concerns have two issues. Secondly. While developing a well integrated SME sector in the country. But the real problem associated with their will and dreams is finance and technical assistance. In early stages the board of SME companies (as they would not be able to . Stock markets in the country are in deprivation of number of newly listed companies. first is availability of finance and second is the rate plus the terms on which the finance is available. 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.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. their lending amount will be distributed to a number of clients that will increase the probability of recovery. By advancing to SMEs they can have two advantages. The movement of masses from rural to urban areas is another hot slot of the time. In this regard Prime Minister’s program of ONE VILLAGE ONE PRODUCT is of high importance. First when they advance to many small and medium enterprises as compare to large ones. 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. 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. 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. Even it will be a factual probability that through SMEs we can convert our villages into new towns and sources of revenue and progress. In Pakistan we are producing Niche from Wazirabad by producing the international quality surgical instruments and Saialkot is there for sport goods.
led to political rebellion. That rebellion also culminated in the dismemberment of the eastern part of the country. accounting for much of the country’s assets and capital. The upheaval also generated a parallel economic thought. were basically economic in nature. The thing that really needs serious attention is to remove the unnecessary bureaucratic procedures. THE DEVELOPMENT OF SMES IN PAKISTAN This lecture is about the history of industrial growth in Pakistan and its related factors. Government could achieve its goal for poverty reduction. Assistance to SMEs is not enough. the institutional support of government in the shape of long term and short-term policies. exclusive to the peculiarities of Pakistan’s economy. 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.pay handsome amount to experts) should consist of experts of Federal. Provincial governments and specialized financial institutions and the small and medium enterprises. The feeling among the masses is that a few families control 70 to 80 percent of the country’s assets. 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. This is the only way that can make sure the poor masses of Pakistan shall not live poor anymore. The Development of SMEs in Pakistan The Industrial History of Pakistan Pakistan’s industrial history has been dominated by a single-minded emphasis on industry and that too of large-scale enterprises. 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. That economic thought advocated across the board nationalization of economic assets as a vehicle for ensuring social justice in the society. economic progress and above all the value creation process by promoting the culture of SMEs. this is the only way that the financial institution can recover their funds with yield. The fall out of that development strategy was formally adopted in the 60’s as conscious policy step in the start of second policy plan period (1960-1965) has been large scale industrial holdings. The primary causes for that tragedy. the factors for adopting an SME based industrial system. . the government and specialized financial and technical institutions should stand as partners of small and medium entrepreneurs.
The fall out of that strategy was two pronged: • Inefficient labor • Shaken Business Confidence. Lesser pressure on the banking system 3. industry towards sickness and individual units towards default. The IMF conditions and poor recovery rate of huge borrowings played a major role in creating a negative point for the progress curve. Vendor based development 6. The development of SMEs suits the current situation on account of the following factors. Expansion of large-scale enterprises. It was due to dis-involvement that medium scale and small-scale enterprises has got the attention of the stakeholders i.e. Entrepreneurial development 5. All these factors precipitated the rethinking of a strategy to revive the growth of economy. Development of large-scale industry on firm basis 7. 2. Low overhead cost. Promotion of large-scale units. Employment generation 4. low level of financing 2. 3. A more just distribution of resources and profits The pre-requisites for the development of SME sector rest heavily on an infrastructure tuned to support such development that includes: A banking system customized for SME development One window operation . Banking sector turned to cater to large loans. These constraints further pushed the economy towards recession. the economic managers and the private sector. The reaction to that policy mix in the early 1980’s was reverting to the Ayubian model of economic development. 1. The model was characterized by: 1.
besides technological development. the financial sector’s general response has been influenced by the security issue. Yet they made it big. As a result a large section of society benefits from the available resources. Despite talk of SME development under the auspices of SMEDA and development of SME Bank and Khushali Bank. the SME never seeks to totally control the market. rather. In the absence of a customized banking setup. The modus operandi of most of the vendors in the auto sector is like this. which was presented by individuals or a set of individuals with not so privileged backgrounds. it is the outcome of the initiative of the single individual or asset of individual. rather. Bill Gates was not a Kennedy scion. Unlike the development of family concerns. The turning up of the system for development of the SME also includes an enabling environment. the development in the SME sector so far has been evolutionary and not the result of any conscious activity.e. rather anyone with a idea and plan can create a place for himself. . it only identifies its place in the market and sustains it.Currently. The availability of resources for the SME unit means that the opportunity to develop are not confined to a restricted section of society. What they are doing is to maintain their share as a sustainable vendor. In the process the above-mentioned advantage of technological development as also been realized. the SME development does not depends upon the expansion of the family enterprises. i. Linux owe their development to the practical implementation of the idea. against which asset the bank would be advancing loans to the small and medium scale business entity. The development of SME hold within its mechanics of expansion the growth of economy coupled with a more just distribution of wealth. but the opportunity to develop from a SME allowed him enough room. A conscious effort by the state to reform the banking setup and the attitude of the government functionary and the bureaucracy will set into motion the mechanics of change in the development strategy priorities of our economy. They do not control a major chunk of the market. Even today. where the investor does not have to go from pillar to post to get his task done. our banking system continues to be the large sector banker. The small overheads involved in fixed and running cost structure of a SME unit means that each unit does not need excessive financing. The success of venture capital in the United States and the likes of Yahoo and Hotmail are indicative of the development of SME as a vehicle for equal opportunity. where the emphasis on the particular group’s interests. where people are able to derive the needed benefit. developers jointly own Microsoft. The social justice aspect of it ensures that the development will not compromise the distribution of wealth issues. Though the need for an enabling environment is not exclusive to the SMEs and is a pre-requisite for all types of economic activity. That includes a one-window operation culture. The other success stories like Microsoft. There is no accumulation of wealth in few hands and the money circulates in a fashion. Thus the market is not blocked for the new entrant unless there is saturation point already experienced by the industry. To begin with.
A more just distribution of wealth and prospects of technological development set the pace for the growth of economy. That is not exclusive to developed countries. Vendors are identified and the production process takes off. The recipe of SME development infects does two things. which are ensured in this setup. but for the rewards. peace and almost no records of militant trends have characterized the developed societies like Japan. However. This inherent . unlike large enterprises in the formal sector. Small and Medium enterprises development (A recipe For development and just distribution) A research paper by SMEDA Research cell 2. the profits are naturally divided according to the contribution to the process. The debate in the support of the SME can be unending. The prescriptions for the societies and economies like Pakistan in the context of the best possible economic solution are simple. New technologies generate economic activity on industrial scale. As small-scale vendors characterize most of the development. it is the matter of fact stages of production line. SMEs constitute nearly 90% of all the enterprises in Pakistan. The development of IT sector had a more egalitarian character to its credit allowing professionals to prosper. if the results are to be realized. These societies are characterized by the dignity of work. Reference 1. employ 80% of the non-agricultural labor force. which are identified. the worker sheds. There is a need to retune the priorities of the state. There are no new big families appearing in the process. We have experienced in the context of the Information Technology that it did generate economic activity in the affiliated sectors and provided employment opportunities to many hardware engineers and software developers. The vendor knows the respect he earns and the rewards he is insured. For that very cause. The Japanese and Italian economies are increasingly modeled on the basis of SME development. in the absence of which our efforts would remain devoid of any tangible results. The A to Z of healthy small business by Amer Qureshi (international edition Australia) 3. and their share in the annual GDP is 40%. rather. 3-50 years of Pakistan’s economy (traditional topics and Contemporary Concerns by Shahrukh Rafi Khan (Oxford Press) tate of SMEs in Pakistan In the industrial development of a country the importance of the SME sector cannot be overemphasized. not for the huge amount of sweat. On one hand the processes are developed at a grass root level. approximately. without having to be a large enterprise or scions of big families. a small and medium enterprise is constrained by financial and other resources.
are advocated with the concerned authorities. SMEDA is the flagship organization of Pakistan which is providing the necessary services to help SMEs overcome the weaknesses that are endogenous to their very nature. Carpets and Light Engineering. Leather. At the collective level SMEDA addresses the problems and needs of SMEs in the form of an industrial cluster – a concentration of largely homogenous enterprises within a certain geographical area. SMEDA carries out comprehensive analyses of international trends. Transport. Institutional & networking support In the policy level support. Marble & Granite. (iii) and the provision of Business Development Services to SMEs in all areas of business management. This interaction takes place at the individual as well as collective level to provide proactive and responsive financial. . SME support through cluster development program is provided on two fronts: 1. These projects also include upgrading technology in a particular industrial sector and starting a program-lending scheme for this purpose in collaboration with the financial institutions. building a common facility centre. At the same time. national policies and other macroeconomic factors affecting SMEs in Pakistan for a gradual progress towards the creation of a favorable business environment for its key clients – the SMEs of Pakistan. At the institutional level. SMEDA interacts with the stakeholders operating in such clusters on a regular basis and collects first hand information about their problems and needs. Regulations and policy level support 2. the issues are prioritized and the important problems are selected for detailed working through which the projects/programs are identified. Such projects may include establishing a training institute. Adhering to a clear mandate and a logical path to achieve quantitatively verifiable targets. financial and human resource training & development. Textiles. Handloom Weaving. (ii) development of industrial clusters. During this interaction. building a model plant with state-of-the-art technology for SMEs to emulate through reverse engineering. management and marketing services to SMEs.characteristic of an SME makes it imperative that there should be a mechanism through which it may get support in different functions of business including technical upgradation. marketing. we also interact with the SMEs working in industrial sectors such as Agriculture. problems related to any Government department or Government policy/regulation are studied and. SMEDA provides support to SMEs by creating networking amongst the concerned stakeholders or by directly starting development projects in the clusters. if found valid. It is an autonomous body working under the umbrella of the Ministry of Industries & Production and contributes towards the growth and development of SMEs in Pakistan through: (i) the creation of a conducive and enabling regulatory environment. technical. Fisheries.
Credit for Auto Vendors. Marble & Granite. Five New Gem Mines To Be Operationalized (NWFP) 19. and Glass Bangles Cluster. Lapidaries Program Lending (NWFP) 20. Establishment Of Shrimp Farms 14.Up to now. Computer Aided Design Centre (Common Facility Centre-Sialkot) 4. Assistance to Set Up Horticulture Export Board 10. Cotton Ginning. Bangles Kiln Up-Gradation (Hyderabad) Agriculture 24. SMEDA has been involved in cluster development projects in the areas of Boat Modification in Marine Fishery Sector. Revitalization of Sunflo Cit-Russ for Citrus Cluster Development. Program Lending For Power Looms 3. Fish Processing Facility In Gwadar (Feasibility Study) Granite & Marble 15. Wooden Furniture. Accessories Sector Study 6. Ceramic Kilns. Ceramics Kiln Up-Gradation: Common Facility Centre. Development of Handloom Cluster Horticulture/Fruits and Vegetables 7. Export Warehouse Marble (Azakhel NWFP) 16. Gwadar District 13. Establishment of Cool-Chain Agriculture Export Processing Zone 8. Leather Garments. Establishment of 3 Private Sector Warehousing & Trade Promotion Facilities in Afghanistan The third area of SMEDA’s functioning is the provision of Business Development Services to SMEs. Some of the important cluster development projects undertaken by SMEDA are: Textile/Apparel 1. Agri-Mall – One Stop Shop for Agriculture Inputs 25. Glass & Ceramics 21. Sanitary Ware & Pottery Sector Kiln Up-Gradation 23. Support Services for Agricultural Credit (SSAC) 26. Apple Treatment Plant in Balochistan (Co-Ordination with EPB) Fisheries 12. Joint Ventures and Technology Transfer Arrangements (NWFP) Gems 18. 11. For this purpose we have set up Helpdesks in all four of our regional . Designing Institute for Garments (Peshawar) 5. Program Lending Boat/Engine Modification. Establishment of Model Quarry and Training Institute Marble 17. Gujrat 22. Dates & Apples Processing. Fruit Processing Facility (NWFP in Collaboration with EPB) 9. Carpet Weaving. Ginning Technology Up-Gradation 2.
Promotion. transparent and conducive regulatory environment for the businessmen. Accounting & Bookkeeping Services. Business Guidebooks). Pre-feasibility Studies.offices where any SME in need of SMEDA’s services can simply walk in and obtain over the counter products such as Project Briefs. based on global information and local wisdom achieved through cross-country analysis. envisions to become a model of public-private partnership for better facilitation of the small & medium enterprises in Pakistan through the creation of a more equitable. experience of indigenous entrepreneurs and constraints of the government. Project Briefs. & Regulatory Advice. Sales Tax. Marketing Advice (Branding. Labeling. Excise Duty. Databases. Project Identification. Business Matchmaking. SMEDA also provides Human Resource Training services by conducting extensive training need analysis of different SME clusters. Distribution. Business Plan Development. Export Registration. Packaging. SMEDA Helpdesk Services include: Assistance in Raising Finance. etc. As a part of its Business Development Services. Electronic Commerce Support. etc. Custom Duty. Pre-feasibility Studies and Regulatory Procedures. SMEDA believes in synthesizing home-grown solutions to the problems of SMEs.) Company Incorporation. Information Services (Library. SMEDA has so far conducted more than 230 training courses and workshops focusing on developing sector specific skills. SMEDA. Financial Advice. Technical Advice. About SMEDA Introduction SMEDA Offices SMEDA Services Consultant Database Facility . along with advice on specific problems.
Training Services Business Plan Dev. Financial Services Information Resource Centre (IRC) Policy and Planning Intellectual Property for Business Success Legal Services Business Development Pre-feasibility Studies Regulatory Procedures Sector Briefs SMEDA's Publications Commercial Contracts Templates Guidelines for SMEs on Compliance and ISO Certification SMEDA Projects Women Business Incubation Center Public Sector Development Programme (PSDP) Industry Support Program SME Policy Development Industrial Information Network (IIN) Cluster Development Sector Development Dairy Sector (brief) Gems & Jewellery Sector Agribusiness Services Business Opportunities .
. 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. ideally not a public limited company. 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. Have a positive effect on the trade balance since SMEs generally use indigenous raw materials. (c) Any concern (trading.International Business Opportunities Business Matchmaking What Are SMEs As defined by State Bank of Pakistan . service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.SME (Small and Medium Enterprise) means an entity. (b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million. 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. Back to Top Significance of SMEs SMEs are considered the engine of economic growth in both developed and developing countries. Assist in fostering a self-help and entrepreneurial culture by bringing together skills and capital through various lending and skill enhancement schemes.
SMEs have provided tremendous opportunities to financial institutions to design various tools for the sector's development (e. Program Lending Schemes. Back to Top SME Financing and Hand-Holding Research reveals that despite the lack of collateral. all being fuelled by the dynamism and vibrancy of small and medium enterprises. Credit Scoring. Murabaha. The impetus of all these endeavors was on the large scale industries and manufacturing concerns. Then there are clusters. insufficient and low quality production to meet the demands of local and international markets.) for this sector.com/doc/25773472/SME-Development-in-Pakistan . Back to Top Problems Faced by Pakistan’s SME Sector? Pakistan 's economy has amazing potential for development but sadly.g. http://www.). deficit in balance of payments and ever rising unemployment. owing to economic slumps. institutional malpractices. technology parks and industrial estates. High rate of failures. Ijarah etc. Pakistan 's SMEs are still unable to achieve their maximum potential and are in dire need of ‘hand-holding' and business support services. Banking institutions. SMEs are a better credit risk.scribd. left the formal lending institutions with huge infected portfolios.Impart the resilience to withstand economic upheavals and maintain a reasonable growth rate since being indigenous is the key to sustainability and self-sufficiency. etc. Throughout the world. political motives and damaging activities of labour unions in that sector. Venture Capital Financing. Mudarabah. we haven't been able to derive optimal benefits despite a series of efforts launched by various policy makers at different times. etc.g. as the default rate of this sector is much below that of large enterprises (LEs). are also experimenting with interest free financial instruments (e. in addition to adverse effects on the entire economy e.g. running on Islamic principles.
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