Small and Medium Enterprises SMEs

Assignment
Subject:
Small & Medium Enterprises Finance
Topic:
SME Finance
Department:
BBA (Banking and Finance)
Submitted By:
MUHAMMAD WASEEM
Submitted To:
SIR. YASIR ALI RANA

GC University Faisalabad

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Small and Medium Enterprises SMEs

Small and Medium Enterprises Development Authority SMEs in Pakistan

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 non-agriculture labor force. Contribute over 30% to the GDP
Rs.140 billion to exports 25% of exports of manufactured goods besides sharing 35% in
manufacturing value.
In the industrial development of a country, the importance of the SMEs sector cannot be
overcome. About of SME’s 90% of all businesses in Pakistan. 80% of the non-agricultural labor
force; and their share of annual GDP is about 40%. However, unlike large corporations in the
official sector, a small and medium business is limited by financial and other resources. This
characteristic feature of an SME makes it imperative to play a role in many business operations,
including technical upgrading, marketing, training and the development of financial and human
resources.
SMEDA is the independent organization of Pakistan, which provides the necessary services to
help SMEs overcome the weaknesses that are endogenous by nature. It is an autonomous body
working within the Ministry of Industry and Production and contributes to the development and
growth of SMEs in Pakistan through:
(i) The creation of a conducive and enabling regulatory environment;
(ii) Development of industrial clusters;
(iii) The provision of Business Development Services to SMEs in all areas of business
management.
SMEDA, following a clear mandate and a sensible pathway to reach quantifiable targets,
conducts in-depth analyzes of international trends, national policies and other macroeconomic
factors affecting SMEs in Pakistan for gradual progress towards creating a favorable business
environment for key its clients - the media of Pakistan. At the same time, we interact with SMEs
working in industrial sectors such as agriculture, fishing, textiles, hand-woven, transport, leather,
marble and granite, carpets and lighting. This interaction takes place both individually and
collectively, to provide SMEs with preventive and responsive financial, technical, administrative
and commercial services.
Collectively, SMEDA addresses the problems and needs of SMEs in the form of an industrial
group - bringing together similar businesses in a geographical area. SMEDA collaborates with
operators operating in these groups on a regular basis and collects first-hand information on their
problems and needs. During this interaction, issues are prioritized and important problems are
selected for detailed of work through which the projects.

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Small and Medium Enterprises SMEs

SME support through cluster development program is provided on two fronts:

➢ Regulations and policy level support
➢ Institutional & networking support
Areas like business development services
▪ Qualified human resources.
▪ Marketing and technology require special attention to improve SMEs
competitiveness.
▪ Productivity and capacity for Employment generation.

Specialized Institutions for SME in Pakistan

▪ Small and Medium Enterprises Development Authority (SMEDA).
▪ Small and Medium Enterprise Bank (SME Bank).
▪ Business Support Fund (BSF).
▪ Provincial Small Industries Corporation (PSIC);
▪ Non-governmental organization (NGOs).

Contribution of Trade in Services Globally

▪ Growing component of world trade approaching 25%
▪ Representing approximately 60% of world foreign direct investment stock.
▪ In 2003, the dollar value of global commercial services exports expanded by 13%
▪ Services constitute at least 50% of employment in most economies and represent
a growing component of manufacturing and agricultural production.

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Small and Medium Enterprises SMEs

Trade in Services for small and medium-sized exporters

▪ Services represent at least 53% of GDP as well as its contribution in employment
generation is growing steadfastly.
▪ Pakistan’s total exports in services was US $ 3.77 Billion and imports US $ 8.20
billion during 2006.

Challenges Faced by SMEs in Pakistan

▪ Lack of proper infra-structure.
▪ Regulatory complexities – relaxation in prudential rules and easy access to loan.
▪ Shortage of skilled manpower.
▪ Quality control problems.
▪ Lack of entrepreneurial expertise.
▪ Shortage / irregular availability of financing facilities.
▪ Shortage of equity sources.
▪ Inability to meet credit criteria / credit conditions.
▪ Inadequate bargaining skills / options.
▪ Lengthy documentation procedure.

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Small and Medium Enterprises SMEs

Facts and Figures of SMEs in Pakistan

YEARS PARTICULARS PERCENTAGES
%
1950-2003 Large scale manufacturing growth rate 8.78%
Small-scale sector too registered an impressive 5.06%
growth rate
2004 2 million micro and small & medium enterprises
▪ Manufacturing units = 400,000
▪ Service sector units = 600,000
▪ Trade sector units = 1 million
29%
Value: one third of the total value of manufacturing in
the country.
70%
Employment: Total labor force in the manufacturing
sector.
Number: total number of manufacturing units. 98%
units less than 10,000

2005 2.96 million units in Pakistan

▪ 2.8 million Establishments units 93.9%
▪ 0.18 million Household Units 6.1%
Total Establishments in Province:
▪ Punjab 65.26%
▪ Sindh 17.82%
▪ Khyber Pakhtunkhwa 14.21%
▪ Balochistan 2.09%
The highest of manufacturing sector 66.5%
2009 Overview of SMEs sectors
▪ SMEs sector in Pakistan contributes in the 30%
GDP. 90%
▪ Agriculture sector provides Jobs. 80%
▪ The non-agricultural workforce. 35%
▪ Value addition in the manufacturing industry. 25%
▪ Exports Earnings.
2010-2011 The Manufacturing Sector of SMEs Overall Growth 18.7%
Rate

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Small and Medium Enterprises SMEs
2015-2016 SMEs one of the largest and the most important
sector of Pakistan's economy.
▪ 3.2 million business enterprises
▪ 3.16 million units have less than 99 persons
▪ Private enterprises in the industrial sector 90%
▪ The non-agriculture labor force 78%
▪ Contribute the GDP 30%
▪ Exports of manufactured goods 25%
▪ Manufacturing value 35%

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Small and Medium Enterprises SMEs

Theoretical framework for promotion of SMEs development

The framework proposed a market-oriented economy based on a stable legal and regulatory
framework, where businesses can move freely. In this way, the risk dislike characteristic of SMEs
would be diminished. Training on business and business activities will also contribute to the
development of this sector and, lastly, the government's support and assistance program for access
to finance and the adoption of new technologies would also enhance SME growth.
The framework includes marketing challenges that focus on the appropriate marketing needs
of all SMEs for globalization to acquire exchange rates. Government support is referred to as
policies and regulations that promote SMEs development. The assistance program includes easy
availability and access to finance as well as the adoption of new technologies. The legal and
regulatory framework includes control of corruption and political stability to support SMEs.

Managerial Skills

Marketing Challenges

Government Support SMEs Development

Technology

Financial Access

Education

Theoretical framework for promotion of SMEs

development
Hypothesis
H1: Marketing challenges are positively affecting SMEs development.
H2: There is positive relationship between adoption of new technology and SMEs
development
H3: Financial access positively and significantly effects SMEs development.
H4: Managerial skills positively and significantly effects SMEs development.
H5: There is positive relationship between government support and SMEs
development.
H6: There is positive relationship between education and SMEs development.

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Small and Medium Enterprises SMEs

Small and Medium-Sized Enterprises (SME’s) In Economic Growth

The role of small and medium-sized enterprises (SMEs) in economic growth, industry and
enterprise innovation, Gross Domestic Product (GDP) and entrepreneurship is clear to all; in a way
that the Global Entrepreneurship Observatory (GEM) measure the rate of entrepreneurship in
countries based on newborn and death rates. These enterprises, which account for 80% of global
economic growth, are not at all stages of the life cycle and a large percentage of them fail in the
first years after the establishment.

The failure of SMEs to transform business activity is one of the greatest concerns. Thus,
the aim of this analytical narrative and reflection is the factors that study the views of the various
SME researchers from the comparative table and the similarities and differences based on the
previous studies summarized in a comparative table and finally an integrated three-phase model
new perspective to facilitate the simplification of the factors affecting the development of SMEs.

Growth is a phenomenon that happens necessarily over time. Hence, the development of a
business should be studied over time, and the recognition and evaluation of predictors precedes
their assessment results as size changes. Considering the change-in-amount, growth can be has
evaluated many various indicators, including sales, recruitment, assets, physical output of market
share.

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Small and Medium Enterprises SMEs

Perspectives and Assumptions Regarding Growth Factors

The new theory of growth suggests that investing in human capital plays an important role
in promoting growth and competitiveness. In addition to physical capital and labor supply, growth
is a function of investing in human capital. Education and training increase the absorption capacity
of businesses as research and development costs facilitate innovation and benefit from external
consultations and other activities that have access to new ideas such as knowledge transfer and
overflow, exports. The governance structure and governance are key factors shaping the business
development process. When a small company starts to grow, the capacity management needs to
address complex strategic and operational management tasks are also growing along with the
development of its products. Therefore, the management capacity and management structure of
SMEs can be a key factor in the development of SMEs.

Approach Factors affecting Assumption Perspective

Internal/external Random factors Growth Industrial

randomness economy
perspective
Internal Education and Growth is a Human capital
training function of Perspective
investment in
human capital
Internal/external ➢ Adopting the structure Management and
➢ Decentralized Sustainable growth governance
ownership requires structure
➢ Business consultancy appropriate perspective
and support by management
government structure
➢ Macro-economic
environment
➢ Management
competency

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Small and Medium Enterprises SMEs

Factors affecting the growth of SMEs

Factors include the variability of innovation, risk-taking and enterprise age, organizational
structure, business strategy, supply structure and government policies, business activities, and
business motivation. Based on the findings of the researchers, we conclude that all the factors
mentioned above are included in one of the three following factors:
❖ Structural factors: business processes, vision, clear strategy, the amount of innovation,
organizational learning, organizational risk-taking, age, organizational structure,
technical capacities.
❖ Behavioral factors: investment in human resources, management competence,
entrepreneurial judgment (knowledge of entrepreneurship, opportunity recognition and
growth motivation, proactivity).
❖ Contextual factors: governance structure and government support, industry-related
factors, environmental characteristics (dynamics, heterogeneity, hostility and
munificence), competing in the environment.

Structure Context Content

• Financing with the aim • Governance structure • Management

of growth and government support competency
• Business processes • Industry-related factors • Investment in human
• Vision of organization • Environmental factors capital
• Clear strategy and (dynamics, • Entrepreneurial
strategic management heterogeneity, hostility judgement
• Amount of and munificence)
organizational • Competition in business
innovation environment
• Organizational learning
• Organizational
risktaking
• Age of company
• Organizational structure
• Technological
• Capacity

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Small and Medium Enterprises SMEs

Finance for SMEs

Financing small and medium-sized enterprises (SMEs) is challenging for financial
institutions for many reasons, but especially because a lack of information makes assessing and
serving this sector difficult and expensive.
Many factors affect SME financing. Some developed countries take a capitalistic approach
with little government incentives for SME financing, while others use government guarantees and
other measures to reduce risks and costs.
This will involve, among other things, innovations in:

❖ Supply-chain financing and government procurement.

❖ Use of technology to reduce risks, enhance efficiency leading to lower costs.
❖ Securitization and other means of obtaining capital relief for traditional sources of finance.
❖ Introducing non-traditional sources of long-term capital.
❖ Capacity building for both financiers and SMEs.

Provides Finance for SMEs

SME's play a key role in the economic development of any country. SME's are the prime
engine for employment generation and poverty reduction in Pakistan. extensive network of credit
hubs across the country to reach out and serve our SME borrowing customers in an efficient
manner. We have also created a set-up of dedicated trade teams in key trade areas to better serve
trade based customers.
the needs of our customers through provision of the following services:
❖ Deposit and Savings Accounts
❖ Transaction Banking Services
❖ Working Capital Finance
❖ Trade Finance in both PKR and FCY
❖ Project / Expansion Finance
❖ Receivables Discounting
❖ Letters of Guarantee
❖ Cash Management Services
❖ Bulk Payments Solutions including Cash Over Counter
❖ Payroll Management Solutions

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Small and Medium Enterprises SMEs

The Potential Sources of Finance for SMEs

Business Financial Sources

The money available to a business for spending in the form of cash, liquid securities and
credit lines. Before going into business, an entrepreneur needs to secure sufficient financial
resources to be able to operate efficiently and sufficiently well to promote success. In which two
ways for sources:
❖ Primary Sources
❖ Secondary Sources
Primary Sources
▪ Self
▪ Family
▪ Friends
Secondary Sources
▪ Loan
▪ Banks
▪ Partnership

Business Financial Resources

Primary Sources
Secondary
Self Sources
Family
Loan
Friends Banks
Partnership
The Potential Sources of Finance for SMEs

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