Assignment prepared durign the course of SME. Teacher: Mr. Tahal Kumar.....

1. Problems with SME in Pakistan:
PRESENT STATUS OF SMEs
There is no single official definition of SMEs in use in different organizations of Pakistan. In particular,
the world of medium enterprises is a grey area. In fact, the CMI (Census of Manufacturing Industries) data
include all manufacturing units with 10 or more workers in the category of large scale manufacturing units.
Since the official statistics in Pakistan do not have information on the medium enterprises, therefore it is
not possible to know about their real size.
SMEs of Pakistan have been heavily hitted by slow down and down turn prevailing globally and are badly
affected due to it as compared with corporate sector which have better access to financial institutions. It
seems that development of SMEs has never been on the priority list for any government in Pakistan. If you
look at global trends, the world has shifted from an industrial management economy to a knowledge based
economy. However, we are still grappling with a knowledge deficit problem. Our human resource is still
not equipped to take on the challenges of globalization. We are surviving on the margins, where lack of
skilled labor, trained entrepreneurs and unavailability of marketing personnel has trivialized the small and
medium businesses issue. Common problems of both the SMEs and corporations are:
MAJOR PROBLEMS FACED:
 Severe electricity load shedding.
 Disconnection of Sui Gas supply for industries in winter season.
 Lack of Alternative resources as corporate sector has, like their own power generation houses.
 Presently finances classification criteria of SBP need major revision due to ailing health of SME
sector in Pakistan.
 Increasing trend in the cost of inputs.
 Deteriorating political, law and order situation in the Country.
 Bad policies of Government.
 Less of the investment ability of financial investor institute like SBP.
The SME, in particular the small industries of Pakistan, are known to rely on low and obsolete technology.
Associated with this is the lack of technical skills needed for producing quality products. There is a general
absence of information on opportunities for technological up gradation.
SHORT AND MEDIUM TERM PROBLEMS:
 TAXATION:
There is sufficient evidence that local tax authorities harass small firms regarding assessment of income
tax. This threatens entrepreneurs away from business and even causes revenue loss to the government.
 FINANCIAL INVESTMENT:
It is very difficult for a middle class entrepreneur to invest the capital and start a business due to higher
costs of resources and unavailability of capital.

2.  LACK Of MARKET INFORMATION:
Unawareness of market information and market status makes the entrepreneurs unable to launch new
products or innovate in present ones.
Main Problem of SMEs of Pakistan is the monitoring development. Pakistan has no across the board legal
definition of SME. This makes it extremely difficult to monitor the development of our SME economy.
Significances of SMEs:
Today, governments worldwide recognize the importance of SMEs and their contribution to economic
growth, social cohesion, employment and local development. SMEs account for over 95% of enterprises
and 60%-70% of employment, and generate a large share of new jobs in the economies. As globalization
and technological change reduce the importance of economies of scale in many activities, the potential
contribution of smaller firms is enhanced.
The role and importance of small-scale industries is very significant towards poverty eradication,
employment generation, rural development and creating regional balance in promotion and growth of
various development activities.
It is estimated that this sector has been contributing about 40% of the gross value of output produced in the
manufacturing sector and the generation of employment by the small-scale sector is more than five times to
that of the large-scale sector.
This clearly shows the importance of small-scale industries in the economic development of the country.
The SMEs have been playing an important role in the growth process of Indian economy since
independence in spite of stiff competition from the large sector and not very encouraging support from the
government.
MAJOR SIGNIFICANCES:
1 Engine for job creation:
The basic problem of Pakistan’s economy is unemployment due to increasing population. Small medium
enterprises solve this problem. They create the great opportunities for solution of unemployment.
Employment generation by this sector has shown a phenomenal growth. It is a powerful tool of job
creation.
A known feature of SME sector is its ability to create jobs. Pakistan faces the major challenge of
unemployment as its labor supply continues to grow rapidly. According to the Economic Survey 2004-05,
Pakistan’s labor force increased from 42.39 million to 45.23 million during 2001/02 – 2003/04
(GOP,2005)

3. SMEs hire many times more employees than the corporations that supply those SMEs. For example; In
Japan, the company Toyota employs fewer employees than its vendors engaged in small businesses.
2. Huge Opportunities of Profit:
3. Equitable distribution of income:
4. Cover almost all (productive) sectors:
5. R&D betterment chances:
Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample
opportunities for the development of technology and technology in return, creates an environment
conducive to the development of small units. The entrepreneurs of small units play a strategic role in
commercializing new inventions and products. It also facilitates the transfer of technology from one to the
other. As a result, the economy reaps the benefit of improved technology.
6. Indigenization:
7. Increased Export:
SMEs have made a record increase in exports. Innovative tem of different cultures when come in the
market, get record business and mostly are liked and sold in export orders.
SMEs contribute about 35% India's total export. Thus they help in increasing the country's foreign
exchange reserves thereby reduces the pressure on country's balance of payment.
8. Supports the growth of large industries:
The small-scale industries play an important role in assisting bigger industries and projects so that the
planned activity of development work is timely attended. They support the growth of large industries by
providing, components, accessories and semi finished goods required by them. In fact, small industries can
breath vitality into the life of large industries.
9. Better industrial relations:
Better industrial relations between the employer and employees helps in increasing the efficiency of
employees and reducing the frequency of industrial disputes. The loss of production and man-days are
comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries
due to good employee-employer relationship.
Of course, increase in number of units, production, employment and exports of small- scale industries over
the years are considered essential for the economic growth and development of the country. It is
encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the output in
the manufacturing sector, about 80% of the total industrial employment and about 40% of total export of
the country.

4. SMEs of Pakistan (Financial Institutes):
There are 3 million SMEs in Pakistan; they constitute more than 90 percent of all private enterprises in the
industrial sector, employ nearly 78 percent of the nonagricultural labor force, and contribute over 30
percent to GDP. Small and micro enterprises have seen a worsening of access to finance; they internally
finance 90 percent of working capital and 81 percent of new investment. In contrast, medium-size
enterprises and those with a credit history have seen an improved access to finance. Studies estimate an
SME credit demand gap of Rs 277 billion (compared with current SME credit of Rs 400 billion). However,
enterprises do not seem to be excluded from financial markets because of poor performance. Instead, an
incomplete legal and regulatory framework and non-SME-friendly products and procedures hamper
increased SME lending. Indirect costs legal fees, collateral registration, and documentation make bank
lending expensive for SMEs. A typical small business loan requires up to 27 steps for the bank and nine
meeting with clients.
An enabling role has been played by the expansion of Credit Investment Bureau’s (CIB) scope in 2006; the
SME Policy 2007, which emphasizes SME access to finance; and, above all, the new SBP Prudential
Regulations for SMEs. However, banks continue to find it difficult to serve SMEs profitably for several
reasons. First, the legal framework (namely, the secured transactions regions and, to a lesser extent, the
credit information infrastructure) limits the pool of potential applicants. Second, bank products are not
tailored to SMEs, resembling instead corporate lending practices. Finally, banks do not have organizational
structures and monitoring tools conducive to achieving high efficiency. SME demand-side factors,
including limited SME accounting, budgeting, and planning capacity further constrain the market.
Continued promotion of an enabling environment for SME lending and a large-scale downscaling effort
involving both the public and private sectors can forge rapid growth in SME lending. Increasing access to
finance for SMEs could also be facilitated by attracting an institutional investor with a track record in SME
lending and assisting other banks to go down market.
Access to Finance for SMEs: Supply-side Evidence:
SMEs account for a substantial part of the economy, yet small enterprise lending remains limited. There
are about 3.2 million enterprises in Pakistan, of which about 3 million (93 percent) are SMEs. SMEs
spread across the economy with varying density: Most are in wholesale and retail trade and restaurants and
hotels (53 percent), followed by other services (27 percent) and the manufacturing sector (20 percent).
The SMEs census shows that SMEs contribute over 30 percent to the GDP and 25 percent to the country’s
total export earnings, and they employ close to 70 percent of the labor force in the manufacturing industry,
services, and trade. Their share in the manufacturing value addition is estimated to be around 35 percent.
Despite the importance of SMEs in the economy, as of December 2007 fewer than 200,000 borrow from
the banking sector and SME lending volumes (that is, loans of up to Rs 75 million) account only for 16
percent of total credit. Although no disaggregated supply-side data are available, demand-side data and
interviews with banks have shown that there is a particularly acute financing gap for loan sizes between Rs
100,000, the maximum loan size that Microfinance Institutions (MFIs) can offer, and Rs 5 million, the loan
size range