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The SME Bank was formed and incorporated as a public limited company under the

Companies Ordinance 1984. The Government of Pakistan is the major Shareholder of the
bank. As part of financial sector restructuring program of Government of Pakistan,
Regional Development Finance Corporation (RDFC) and small Business Finance
Corporation (SBFC) were amalgamated into SME Bank Ltd effective January 1, 2002.

SME bank Ltd was established to exclusively cater to the needs of the SME sector. it was
created to address the needs of this niche market with specialized financial products and
services that will help stimulate SME development and pro poor growth in the country.

Corporate Objectives

The objectives of the SME Bank are as follow:-

• To support, develop and promote Small & Medium Enterprises (SMEs) by

providing them the necessary technical and financial assistance.

• To concentrate on value addition and export oriented SMEs

• To enable SMEs to play a vital role in stimulating GDP growth, create job
opportunities and reduce poverty.


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-

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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.



A Review of the Effects of Financial

Incentives on Performance in
Laboratory Tasks: Implications for
Management Accounting
Management accounting information plays an important role in motivating individuals to
improve performance (cf., Atkinson, Banker, Kaplan, and Young 1997). This role tends
to be operationalized by linking compensation to performance, typically through the
provision of financial incentives. Theoretically, financial incentives motivate people to
exert additional effort, which in turn should improve task performance. However, a large
body of empirical evidence indicates that financial incentives frequently do not lead to
increased performance (e.g., Young and Lewis 1995; Jenkins et al. 1998). Consequently,
it is important to examine variables that may interact with financial incentives in affecting
task performance. This paper presents an extensive review of laboratory studies on
financial incentives and examines the relations between type of task and type of incentive
scheme, respectively, and task performance. We posit that performance in tasks of
varying types (which we view as a surrogate for the gap between task complexity and
skill) is differentially sensitive to the increases in effort induced by financial incentives
and that not all incentive schemes elicit the same level of effort. Our review reveals that
incentives improve performance in only about one half of the experiments. Further, as
tasks become more cognitively complex, and thus as the average subject's skill level
decreases, it is less likely that incentives improve performance. Finally, quota schemes
have the highest likelihood of evincing positive incentive effects, followed by piece-rate
schemes, tournament schemes, and fixed-rate schemes. Overall, our findings suggest that
the type of task being performed and the type of incentive scheme being employed affect
the efficacy of financial incentives and therefore may influence the design of management
accounting and control systems. ©2000 American Accounting Association

Are financial incentives related to performance? A meta-analytic review of empirical

Jenkins, G. Douglas, Jr.; Mitra, Atul; Gupta, Nina; Shaw, Jason D.

Journal of Applied Psychology, Vol 83(5), Oct 1998, 777-787.

The relationship of financial incentives to performance quality and quantity is cumulated
over 39 studies containing 47 relationships. Financial incentives were not related to
performance quality but had a corrected correlation of .34 with performance quantity.
Setting (laboratory, field, experimental simulation) and theoretical framework moderated
the relationship, but task type did not. (PsycINFO Database Record (c) 2010 APA, all
rights reserved)

Individual Monetary Incentives

A Review of Different Types of Arrangements Between
Performance and Pay
Authors: Barbara R. Bucklina; Alyce M. Dickinsona


Studies in three thematic lines of research have manipulated parameters of individual

monetary incentive systems to determine whether those parameters were functionally
related to performance. Studies have examined: (a) the size of the percentage of total pay
and base pay earned in incentive pay; (b) various ratio schedules of monetary
reinforcement; and (c) linear, accelerating, and decelerating piece rate pay. The review
revealed that individual monetary incentives plus feedback improved performance in
comparison to hourly pay plus feedback in studies in all three thematic research lines.
However, performance levels were not functionally related to (a) the size of the
percentage of total pay or base pay earned in incentive pay for percentages that ranged
from 3% to 100% of a person's total pay and base pay; (b) the per piece incentive amount;
(c) the amount earned in total pay or total incentive pay; (d) the ratio schedule of delivery
for CRF, FR3, VR2, VR3, and VR4 schedules; or (e) linear, accelerating, or decelerating
piece rate pay. Taken together, the data suggest that, at least for the parameters
investigated to date, the most critical determinant of performance is the ratio schedule
contingency between performance and pay; that is, a relationship in which individuals
earn a specified amount of money for the number of work units they complete. They also
suggest that once a ratio relationship exists, variations in the parameters of individual
monetary incentive systems may not greatly affect performance. Relatively few studies,
however, have been conducted and further research is required.
Keywords: Individual monetary incentives; literature review; performance-based
monetary incentives; proportion of monetary incentive pay to wage-based pay












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