NAME

SHAHZAIB

ROLL NO:

23

DISCIPLINE

BBA 8th(finance)

SUBMITTED TO

MADAM BISMA

DATE

28/05/2015

INTRODUCTION
Small and Medium Enterprises (SMEs) are one of
the largest and the most important sector of
Pakistan's economy.
Approximately 3.2 million business enterprises in
Pakistan.
Enterprises employing up to 99 persons constitute
over 90% of all private enterprises in the industrial
sector and employ nearly 78% of the nonagriculture labor force.
Contribute over 30% to the GDP
25% of exports of manufactured goods besides
sharing 35% in manufacturing value added.
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ISSUES

There is a dire need to create a favorable business

environment for SMEs by eliminating unnecessary
obstacles to reduce cost of doing business.

Access to Finance is another major issue that requires

thorough consideration of concerned counterparts.

Lending money to SME is still a problem: SME Policy cannot be

successful or properly implemented without cheap and
readily/easily available financing

Banks shy away from lending to SME and as result have put in
place strict credit
criteria requiring a lot of detail and documentation.

Loaning criteria is very strict besides having a condition of

provision of collateral. Banks also demand accounting financial
statement before considering application for loan.
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Areas like business development services

Qualified human resources,

Marketing and technology require
special attention to improve SMEs
competitiveness,
Productivity and capacity for
Employment generation.

RECOMMENDATIONS

The FPCCI Regional Standing

Committee on SME Sector for the
year 2009-2010 has made efforts
through identifying the problems
Suggesting Workable solutions
recommendations ; Some of them
are listed the next.

RECOMMENDATIONS
Separate Definition
Industries

For

Cottage/Micro

There is a need to separate the cottage industry From SMEs.

The Government of Pakistan should Clearly define the
minimum number of employees, which small and medium size
businesses should have. In this respect, the house
recommended the minimum limit from 51 up to 250 employees.

Financing policy of Banks for SME

The banks should facilitate businesses through lending
money on easy terms & conditions. This aspect required
much more attention because businessmen having small
setup deserve facilitation in this respect to run their business
operations. The State Bank of Pakistan should formulate a
prudential regulation to facilitate the SME sector rather then
issuing an advice to banks for providing loans to SME sector
without clear instructions.
There is a need to make suitable monitory & regulatory
policy for SME sector. It is suggested that Banks should
provide good financial assistance according to the business
requirements besides providing following facilitation to the
SME sector.

Some Suggestions

Loan application processing time should be 15 days.

SME sector should be offered 5% interest rate with oneyear grace period.
Loan limit up to Rs. 5 million without any
collateral/guarantee should be provided to SME sector for
the period of one year. The loans may be granted up to Rs.
3 million to those, running a business for at least three
years.
Govt. of Pakistan and Bank of Punjab should establish a
equity fund, for which at least Rs.50 million should be
allocated.
There is a need to create a guarantee fund for SME Sector.
In loan sanctioning process, banks should put private
sector preventatives/stakeholders on board before making
any decision.
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Infrastructure for Industrial Estate

The Government should establish SME

industrial estate having an area not less
than 200 Kanals. It is suggested that
land for SME industrial area should be
allocated near the city area, enabling
SME sector to run their businesses
effectively and contribute their due role
in employment generation.
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Skill Development Center/Cluster

Technology parks may be

established near the SME
industrial estates so that the
small industry may be benefited
with the facility.

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SME FINANCE FOCUS POINTS

1.

Commercial banks have to make concerted efforts to

explore new avenues of business, especially financing to
small & medium-sized enterprises (SMEs), which play a
critical role in employment generation and poverty
alleviation.

2.

SMEs finance play an important role in the creation of

employment opportunities with relatively lower investment
levels, it would help in reduce poverty and boost economic
growth which remains one of the prime objectives of
Government of Pakistan. 3.2 million Economic
establishments in the country around 99 percent of them
employ 1-10 persons, clearly indicating that they fall under
the definition of SMEs, more specifically lower-end SMEs.

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SME FINANCE FOCUS POINTS:

3. Separate prudential regulations should be developed for
small enterprises as these small businesses have a huge
potential for growth compared with medium-sized
enterprises.
4. The focus of financial institutions should be on medium
entities. The reason for this skewed distribution is the
unorganized way of doing business of small entities. Major
issues faced by SMEs are lack of skilled labor, outdated
technology, weak governance, lack of management
hierarchy, absence of book keeping, taxation issues coupled
with limited access to formal sources of finance.

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SME FINANCE FOCUS POINTS:

5. Capacity-building of banks through launch of SME Finance
Grass Root Cluster Training Program for credit officers
based in SME Clusters in Lahore, Sialkot, Gujranwala,
Rawalpindi, Peshawar, Quetta and Karachi.
6. SMEs could help to achieve diversified economic growth,
employment generation, reduction in income inequalities
and poverty alleviation in developed and the emerging
economies like USA, Japan, Malaysia, Thailand and South
Korea.

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Challenges Faced by SME in Pakistan

1. Lack of proper infra-structure.
2. Regulatory complexities relaxation in prudential rules and
easy access to loan.
3. Shortage of skilled manpower.
4. Quality control problems.
5. Lack of entrepreneurial expertise.
6. Shortage / irregular availability of financing facilities.
7. Shortage of equity sources.
8. Inability to meet credit criteria / credit conditions.
9. Inadequate bargaining skills / options.
10. Lengthy documentation procedure.

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Challenges Faced by SME in Pakistan

11. Why should banks promote SME Financing.
12. Diversification of the loan portfolio.
13. Boosting the industrialization process.
14. Reducing unemployment.
15. Growth of the export sector.
16. Improving the balance of payment situation.
17. Low loan loss ratio on SME bank deposits / banking
services.

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Preferred sectors for SME financing:

Export oriented goods and services

establishments.
Largely using indigenous technology and
resources.
Choices of sub-sectors within each industry.
Up stream/ down stream serving to
medium / larger, cottage / heritage industry.

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Specialized Institutions for SME in Pakistan:

SMEDA
SME Bank
Business Support Fund
(BSF)
Provincial Small Industries
Corporation (PSIC);
NGOs.
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Sub-contracting for SMEs:

Special considerations to
evaluate finance proposal of
sub-contractor.
Measures to promote subcontracting system.

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Sustainable program for SME financing:

Banks to re-focus their financing

activities towards the SME sector.
Restructuring of lending
organization in banks to incorporate
SME financing.
Making finance available
conveniently and speedily.
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Marketing for SME loans:

Reluctance of SMEs seek bank

financing despite ability to meet credit
criteria.
Need for creating awareness of
desirability for and availability of
financing facilities.
Proper packaging & marketing of SME
financing proposals & developing SME
financing schemes / products.
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Creating a SME Venture Capital Fund

In this era when the SME sector has

been facing constraints and shortage of
working capital for running their
business cycle and that the banks are
also reluctant to finance this sector,
there is need that the Punjab
Government establish a Fund for the
revival and uplift of these thirsty units for
wants of working capital requirements of
about Rs100 billion.
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Financing without Guarantee Collateral

A fund for the purpose may be created to fill the GAP
of non financing to SMEs out of this Rs.100 billion
Fund for financing up to Rs3 Million without any
collateral and third party personal guarantee. Mark up
rate may be at reasonable affordable to the customers
not more than 13%.Preferably Small businesses or
even sick units may also be financed to revive them.
All the Small businesses running for the last 2 years
may be eligible for this financing. We urged that the
banks to develop collateral free cash flow based
lending products to meet the requirements of this
large segment of SMEs.
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Proportion
Issues Identified

Percentage

Lack of finance

55%

Shortage of skilled labour

39%

Getting business site

38%

Bribes

21%

Orders/Marketing of Product

28/%

Lack of Knowledge

12%

Government interference

12%

Raw Material

10%

License for work

08%

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Thank You

Q&A

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