The significance of SMEs cannot be denied and considered as the backbone of any economy. Its significance is also evident from the fact that over 90 percent of estimated 3.2 million business enterprises. Over 99% business units employ less than 99 persons i.e. 3.16 million SMEs, Generate 78% of non-agri sector employment, Direct Contribution to GDP over 30%, Generate 25% of Manufacturing Export Earnings, Contribute 35% in Manufacturing Value addition.
Pakistan has astounding potential of development to boost up the economy and standard of living of its people. However, the key problems or challenges not be addressed in past to progress of SMEs, it has been neglected till late 90s and the main focus remained on corporate sectors particularly in large scale manufacturing units. Banks and financial institutes emphasized more on the large sector than on SMEs. SBP started focusing on SMEs in 2004 due to this SMEs increased, however in the economic slow done since 2007-08, SMEs became less profitable and highly risky ventures for banks.
SBP has recently announced its SME finance promotion policy to provide financial support to SME sector of the country. Which is a positive sign for SME sector of Pakistan since SMEs are facing financial issues critically. SBP also sets key objectives to be achieved setting key objectives to be achieved by 2020, to increase SME share from existing 8 percent to 17 percent and number of borrowers from existing 174,000 to 500,000.
That numbers should segregate further and major portion should be given to small enterprises as they have more need of finance to develop their infrastructures, to enhance their capacity buildings. It contributes to local economy by bringing growth and innovation to the community. Small businesses also help stimulate economic growth by providing employment opportunities to people who may not be employable by larger corporations. If we further segregate it on micro level then we should promote non-agri based SEs, it would also decrease our dependency on agriculture and will export earnings.
SBP will also support SME financing in improving regulatory framework through revising prudential regulations, strengthening secured transactions framework and introduction of SME targets, market development through SME supportive subsidized refinance schemes, risk coverage scheme, Islamic SME financing, cluster surveys and non-financial advisory service and improving capacity building and awareness creation of bankers and SMEs.
Our SMEs are less productive as compared to other countries in the region. One of the main reason is unawareness from financial technology, they are not using digital framework for their daily business needs, and most of the work is doing manually which is costly and time consuming and effecting their productivity. SBP should also support SMEs to provide awareness about financial technology, they subsidize finance to develop their digital financial infrastructure, design different programs to provide them awareness about financial technology and how they can use it efficiently to strengthen their financial structure same as they are conducting financial literacy programs at different levels.
SBP also defines 9 key pillars of this policy which include improving regulatory framework, upscaling of micro finance banks, risk mitigation strategy, simplified procedures for SME financing, program based lending & value chain financing, capacity building & awareness creation, handholding of SMEs, leveraging technology and simplification of taxation regime.
These steps will definitely promote SMEs finance but improving regulatory frame work means should be easy, convenient and immediately available for SMEs to access finance from banks. Though microfinance banks are providing finance to SMEs easy accessible, fast processing and convenient process and SBP increases limit from PKR. 500,000/- to 1,000,000/- but their interest rates are on higher side, SBP should cap its upper limit or subsidized it so that SMEs could get fully benefit from it. Microfinance banks consider SMEs loan more risky, they need a complete risk mitigation strategy to provide clean SMEs finance. As I earlier discussed leveraging of technology will be the game changer in SME sector of Pakistan. We have huge potential and skill set for SME but they have two mean issue one is finance and other is leveraging of technology. I hope with the efforts of SBP promotion policy SME sector in Pakistan will grow while only SBP efforts will not be enough, for it government, banks, business community and civil society need to play together.
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