Small and Medium Enterprises (SME) Sector

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Current Situation

According to the report released by State Bank of Pakistan (SBP), SMEs’ contribute around 30pc towards country’s total gross domestic product, providing employment opportunities to more than 80pc of non-agricultural workforce and generate 25pc export earnings. Currently, due to many issues, Pakistan’s SME sector only 16 percent in GDP as compared to India 62 percent and Singapore 160 percent. The growth in SME sector hindering is hindered by factors that include (i) access to finance; (ii) access to inputs; (iii) access to markets for the products. Lack of enough large lead enterprises which could sustain an ecosystem of smaller SME clusters means that, most SMEs have to look towards foreign markets or compete with foreign goods in the local market for growth. Smaller businesses don’t know how to manage and scale their business beyond a very basic level. They have limited exposure to global best practices in design, production and quality. The problem is also compounded by the supply side constraints. Over the last five years, in spite of SBP efforts, commercial banks have reduced their investment in the SME sector. Further it is marred by electricity, corruption, court systems, crime, transportation and inadequately trained workforce. The Banks in Pakistan lend to SMEs reluctantly because 95 per cent of SMEs work in the informal sector and they are not documented. Lending to them is a risky business.

In order to take this sector to the level where it can contribute more to the GDP, the banks need to provide specialized rates for SMEs which can ease in SMEs that are looking for capital to grow their business. The contribution of SMEs to Pakistan’s economy, employment and poverty reduction can be seen from the fact that the SMEs employ some 78 per cent of non-agricultural labour force and therefore a solid support network has to establish. It is an established fact that SMEs play a vital role in generating wealth and due to their contribution to GDP, the government of Pakistan has to develop substantial policies to support them. Experts say that SME sector has potential of employment generation, so there is need to provide easy loans facility for the sector from commercial banks. Further, there is a need to ease the system through reforms and separate rules and regulations for the SME sector in order to bring it into the tax net.

Dr Ashfaque Hassan Khan, member of the Economic Advisory Council of the Government of Pakistan explains the critical role of small and medium enterprises in the economy of Pakistan.

Promises

1. We will establish pilot SME Incubators across Pakistan with improved access to funding, advanced technology, efficient transport & warehousing facilities, partners for joint ventures, cost sharing solutions, technical assistance on tax, legal and regulatory compliance.

2. We will launch a ten-year incentive plan for rapid growth of the SME sector.

Progress

18 September 2018

The State Bank of Pakistan (SBP) formulated a new SME Policy under its Vision 2020.

28 November 2018

Punjab Governor Chaudhry Muhammad Sarwar has said that development of SME sector is the top priority of present government and the government has planned to give a boost to the economy by making interventions in key areas of economic importance with a special focus on small and medium enterprises (SMEs) at  the inaugural session of the 3rd SME Conference organized by the Small and Medium Enterprises Development Authority (SMEDA). The conference was about bringing SMEs and researchers at one platform in an effort to bridge the industry-academia gap and to determine the value of research and translate it into tangible action.

6 December 2018

The Ministry of Industries and Production Secretary Azhar Ali Chaudhry said that government is keen to initiate policies that will make Pakistani small and medium enterprises (SMEs) competitive in international markets and fulfil the multiple agenda of employment creation, new enterprise development, increased exports and enhanced contribution to value addition.

The Federal Minister for Planning, Development and Reform Makhdoom Khusro Bakhtiar said that the government is taking various measures to create an environment conducive for local industries, enabling them to grow and enhance their capacity to boost the national economy. He said that the five million housing project will also generate economic activities through the creation of jobs as well as giving a boost to the sectors associated with that.

25 December 2018

The PTI government prepared a 10-point economic strategy to increase growth and that entails shift of trade policy formulation’s power to commerce ministry from the Federal Board of Revenue as well as support to SMEs to create jobs and boost export. The ministry of finance presented a 12-point action plan, including establishment of a pilot garment city, improving SMEs access to finance, enhancing SME-focused skills training program and simplifying business registration and improving access to markets.

8 January 2019

The Tax Reforms Implementation Committee (TRIC) has proposed a simplified tax regime for small and medium-sized firms, suggesting a 20% income tax rate. The new proposed taxation system can help the government broaden the tax base by incentivizing the SME sector to come in the tax net. The proposed tax regime offers huge incentives to small firms. It offers to charge only 20% income tax rate as against the 29% for the big firms for the tax year 2018. For the next four years, the rate is proposed to be reduced by 1% every year and bringing it down to 15% by 2023.

14 January 2019

In December 2017, the State Bank of Pakistan (SBP) launched its policy to encourage financing for small and medium enterprises (SMEs). The policy now seeks to enhance the sector’s share in private-sector credit from 8.7 per cent to 17pc and increase the number of borrowers from less than 164,500 to half a million by 2020.

31 January 2019

Karandaaz a company funded by the UK’s Department for International Development (DFID), has signed an agreement with JS Bank to jointly make Rs1 billion available for small and medium enterprise (SME) financing. The finance increase would help in job creation and boost economic growth.

4 February 2019

The government is expected to offer a series of incentives to ensure the success of Special Economic Zones (SEZs) and mobilise overseas Pakistanis to invest in Pakistan.

8 February 2019

The Islamabad Chamber of Commerce and Industry (ICCI) in collaboration with Pakistan Stock Exchange (PSX) organized an investors and industry awareness program to educate potential investors about the dynamics and workings of the Stock Exchange. Ahmed Hassan Moughal, President of ICCI said that PSX has developed a specialized SME Board for listing and trading of SMEs shares and it should create maximum awareness about this facility to the SMEs across the country so that they could raise capital from capital market to fund their growth and expansion needs.

19 February 2019

According to the data released by State Bank of Pakistan (SBP), the banks have provided record financing to the small and medium enterprises (SMEs) in the calendar 2018 crossing the Rs500 billion mark. The SME finance went up 14 per cent and the growth was more prominent during the July-Dec period wherein it registered an increase of 25pc. The SBP said the policy to promote SME is aimed at enabling regulatory environment for finance, prescribing financing targets for banks and development finance institutions (DFIs). Under the policy so far, more than 2,500 bankers have been trained through focused trainings by the training institute of the central bank.

6 March 2019

At Lahore Chamber of Commerce and Industry (LCCI) Ambassadors Dinner– 2019, President Arif Alvi said that the government is negotiating bilateral and multilateral free trade agreements with a number of countries so that access of Pakistani goods could largely be ensured to target markets. Through different scheme, the exports of Pakistan would be facilitated to reach South Asian and European countries. LCCI president Almas Hyder said that both public and private sectors are collaborating to improve country’s Doing Business ranking and Global Competitiveness Index.

8 March 2019

Ministry of Industries and Production is preparing National SME policy in reduction in cost of doing business and rationalization of taxation regime with the assistance of Lahore University of Management Sciences (LUMS) with the initial draft to be shared with stakeholders for their input. The focus of the policy would be on job creation, export enhancement and increased contribution of SMEs in the national economy. A participatory process has been adopted for the formaulation of policy and focus group discussions, workshops and consultative sessions were held nationwide.

Dr Ashfaque Hassan Khan, member of the Economic Advisory Council of the Government of Pakistan, talks about the role of exports industry in the economy of Pakistan.

14 March 2019

State Bank of Pakistan (SBP) conducted meetings with manufacturers and exporters of cutlery, stainless steel utensils, water pumps and ceramics belonging to SME sector in Gujranwala to create awareness about SME finance policy and schemes. SME finance policy along with number of refinance facilities for the SMEs will pave way to enhance current share of SME finance of 8.5% of the total private-sector credit to 17% by 2023.

31 March 2019

The All Pakistan Business Forum (APBF) and the Pakistan Textile Exporters Association (PTEA) have agreed to make joint efforts for the promotion of trade and industry in the country. The APBF and the PTEA signed a memorandum of understanding (MoU), agreeing that both leading business associations would evolve a unified strategy on the issues of common interests.