SMALL AND MEDIUM

ENTERPRISES
 GROUP MEMBERS
M ASIM MALIK
ZAMAN AHMAD ZAKI
FARHAN HABIB QURESHI
SIKANDAR GHANI
M RAMZAN
M ZAIN MALIK
 OBJECTIVE
What is enterprises and entrepreneurship
What is SMEs
SMEs in PAKISTAN
Classification ,characteristic, challenges of
SMEs
Sources and regulatory frame work.
Best practices in different country.
SMEs polices and SMEs development-
policy statement.
 Enterprise
…involves measures to encourage individuals to
become entrepreneurs with the necessary skills to
make a business successful
(Mason, 2000)

In essence, enterprise is about spotting opportunities,

creating new ideas and having the confidence and
capabilities to turn these ideas into working realities
(Nixon, 2004)
 Define Entrepreneur

“ Is a person who organized and manages a

business undertaking assuming the risk for the
sake of profit ”

“ Its mean who takes the risk of converting a new

idea into reality ”
 SME Definitions

 SMEDA SME Definition

Small & Medium Enterprises are defined as follows, as approved in

SME Policy 2007

Employment Paid Up Capital Annual Sales

Enterprise Category
Size (a) (b) (c)

Small & Medium Up to Rs. 25 Up to Rs. 250

 Up to 250
Enterprise (SME) Million Million
 The Small And Medium Enterprises
Development Authority - SMEDA

Premier institution of the Govt. of Pakistan under Ministry of

Industries and Production, SMEDA was established in October 1998
to take on the challenge of developing Small & Medium Enterprises
(SMEs) in Pakistan

SMEDA Vision
Growth of globally competitive SME sector through a conducive and
facilitating environment and support services as an engine of growth
and sustainability to national economy.
 SMEDA Objectives

Formulate Policy to encourage the growth of SMEs in

the country and to advise the Government on fiscal and
monetary issues related to SMEs.
Facilitation of Business Development Services to SMEs.
Set up and manage a service provider’s database
including machinery and supplier for SMEs.
Facilitation of SMEs in securing financing.
Strengthening of SMEs by conducting and facilitating
seminars, workshops and training programs.
Identification of service opportunities on the basis of
supply/demand gap
 SME Definitions
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.
 SME Definitions

Institution Small Medium

Total Assets of Rs. 20 M

SME Bank Total Assets of Rs. 100 M

Federal Bureau of
Less than 10 employees N/A
Statistics

Punjab Small Industries Fixed investment. up to Rs. 20

N/A
Corporation million excluding land and building

N/A
Punjab Industries Fixed assets with Rs. 10 million
Department excluding cost of land
 SME Sector in Pakistan
 3.2 million business units in Pakistan
 Over 90% business units employ less than 99 persons
i.e. 3.16 million SMEs
 Generate 80% of non-agri sector employment

 Direct Contribution to GDP over 40% approximately

 Generate 25% of Manufacturing Export Earnings

 Contribute 35% in Manufacturing Value addition

 SMEs contribute around Rs. 140 B to Exports.
 Characteristics of SMEs
 Owner is the manager & few employees

 Owned & operated independently

 Relatively small investment, production, sales, dealings

etc.

 Inadequate efficiency of business operations - no

relationship with other firms or parties for
 Investment
 Management, finance,
 Classification of SMEs
 SMEs have been historically classified as:
 Industry
 Trade; Wholesale, Retail & Services

Criteria For Definition: The criteria is based on:

 Fixed Assets
 Employment
 Turnover/sales

 Fixed Assets include Land Building, Machinery

 Employment Essence of SMEs is job creation.
 Turnover/Sales Sale have been researched to arrive at the
Annual Turnover/Sales
 Challenges & Issues in SME
Development
 Business Environment
 Relationship between Government and SME
 Taxation issues
 Labor issues
 Delivery of assistance and access to resources
 Finance
 Human Resource Development
 Technology Transfer and Up-gradation
 Market and Industry Information
 Literacy
 Law and Order
 Infrastructure
 Growth of SMEs vis-à-vis
Large Scale

year Large-Scale Small-Scale

Output Capital Output Growth Capital
Growth Rate Formation Rate Formation
Growth % Growth %

1970s 4.84 -2.28 4.4 5.5

1980s 8.16 8.15 4.7 10.5
1990s 3.6 -5.02 2.6 7.2
 World Bank Survey 2002
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 8%
 New Technology 8%
Issues in SME
Financing
Sources of Working Capital
for SMEs
Financial Sector Contributing 7% Working Capital

other Informal
8% 1%
Equity
12%

Trade Credit
5%
Retained
Earnings Banks/ FIs
67% 7%
Sources of Investment for
SMEs
Financial Sector Contributing 8% Investment

Inf o rma l
o t he r 2%
12 % Eq uit y
R e t a ine d
17 %
Earning s
59 % Tra d e C re d it
2%
B a nks / F Is
8%
 Our understanding of the
Situation
 Most SMEs operate through Self-Financing or Retained
Earnings

 SMEs do not make use of Trade Finance for Expansion

 Fear of regulations discourage them to come in the formal fold

 The size of SME in credit market is estimated to be 250 to 400

billion
Legal Structure of Business Units
in Pakistan

C o rp o rat e s & P ub lic S e c t o r

Ot he rs 7%
8%

P ro p rie t o rs hip
s &
P art ne rs hip
8 5%
 Regulatory Framework
 Missing links between SMEs and the financial
institutions – Credit Guarantee and Insurance (Laws
& Institutions)
 Tax Related Laws – SMEs unwilling to share
operations related data and information on accounts
 Inconsistent government policies – S Tax 300
amendments
 No policy or legal support for business Start-ups or

projects backed by only sound business plans

International Best Practices
Countries Studied
 Developed Countries
– Germany
– Japan
 Neighboring Countries
– China
– India
 Developing Countries
– Thailand
– Turkey
 International Best Practices –
SME Financing Infrastructure
 Separate legislation
 Specialized Institutions for :-
– Promotion of SMEs- Advisory role-SMEDA
– Products development for risk mitigation in respect of financing
by financial institution
 Credit Guarantee Mechanism- in all countries studied by the group
 Credit Bureau
 Securitization and Reconstructions of financial assets- India & Korea
Separate Act
 Mechanism for redressal of grievance- Ombudsman for SMEs (India)

 Banks for channelizing the resources to end users

 Venture Capital arrangements
International Best Practices -
Laws for SMEs
 These laws vary directly with respect to the stage

of development of SME sector e.g.

– laws focusing on the promotion of the SME Sector

– laws focusing on the risk mitigation regime e.g. SME Credit

Insurance Law (Japan), Credit Guarantee Association Law

 Institutions are the outcome of these laws e.g.

Credit Guarantee Corporations is the outcome of

Credit Guarantee Association Law in Japan .
 International Best Practice -
Japan
 National Federation of Credit Guarantee Corporation
(NFCGC) - Insurance arrangement for SME financing
through Credit Guarantee system under JASMEC

 Credit Guarantee Corporation with 52 offices in all

prefecture - funded by the Govt. of Japan

 Shoko Chu-kin Bank(102 Branches), Japan Finance

Corporation & National Life Finance Corporation are
exclusive institutions for SME Financing Besides, City
banks (Commercial Banks)
International Best Practice –
China
 Special Funds in Federal Budget for SME
Development Fund
– Sources of funds: federal budget, all governments above
county level, profits from operation of fund, donation, donors
– Usages: Credit Guarantee fund, Services for SMEs,
Technology, specialization for integration with Large
Enterprises
– Central Bank support banks for SME financing

 State to provide direct channels for SME Finance

 All commercial banks will provide SMEs loans,

financial consultation and investment
management
International Best Practice –
India
 Reserve Bank provides Guidelines for
directive credit for SMEs
 Small business financing is binding for all
financial institutions
 Banking Ombudsman for Small Enterprises
 Penalty system
 Credit Guarantee upto Re.2.5 million
 Operational Strategy
Building a Conducive Environment
• Proposing and facilitating changes in Policy
and Regulatory Environment
• Reducing the Cost of Doing Business
• Facilitating Government-SME Interface

Developing Sectors and Clusters

• Sector Studies, Strategies and
Implementation
• Cluster Development
• Common Facility Centers (CFCs)

Provision and Facilitation of Services

• Investment Facilitation
• Technology, Training, Finance, Business
Information, Marketing, and legal support
• Productivity and Competitiveness
Improvement
 Priority Sectors
 Gems & Jewelry
 Marble & Granite
 Dairy
 Sports Goods
 Furniture
 Fisheries
 Light Engineering
 SME Policy
 Business Environment

 SME Financing

 Access to Resources & Services

 Human Resource Development

 Technology

 Market and Industry Information

 SME Definition, Feedback, Monitoring & Evaluation Mechanism

 Over 1000 stakeholders consulted
 12 Workshops
SME Development – Policy Statement

“The Government of Pakistan is committed to develop the SME

sector for achieving higher economic growth leading to creation of

jobs and poverty alleviation. SME development will be achieved by
providing conducive business environment, greater access to formal
financing and through provision of support in technical up gradation,
human resource development, marketing and innovation. The
Government will facilitate establishment of new businesses by
developing policies that help in unleashing the entrepreneurial
potential of the people of Pakistan”
THANKS