Submitted By: Khawaja Uzair Safdar

Roll #: 109
Class: BBA 8th
Subject: SME
Submitted to: Zaheer Alam
Q No. 1 Provide definition of SME given by SMEDA and state Bank of Pakistan and
characteristics of small and medium Enterprises.

Small and Medium Enterprises Development Authority - SMEDA, Premier institution of the

Government of Pakistan under Ministry of Industries & Production. SMEDA was established in
October 1998 to take on the challenge of developing Small & Medium Enterprises (SMEs) in
Pakistan. With a futuristic approach and professional management structure it has focus on
providing an enabling environment and business development services to small and medium
enterprises. SMEDA is not only an SME policy-advisory body for the government of Pakistan
but also facilitates other stakeholders in addressing their SME development agendas.
 Characteristics of small and medium Enterprises.

Not every small business eventually grows to the size of large corporation. Some businesses
are ideally suited to operate on a small scale for years, often serving a local community and
generating just enough profit to take care of company owners. Small-scale businesses display a
distinct set of identifying characteristics that set them apart from their larger competitors.

Lower Revenue and Profitability

Small-scale business revenue is generally lower than companies that operate on a larger scale.
The Small Business Administration classifies small businesses as companies that bring in less
than a specific amount of revenue, depending on the business type. The maximum revenue
allowance for the small business designation is set at $21.5 million per year for service
businesses.

Lower revenue does not necessarily translate into lower profitability. Established small-scale
businesses often own their facilities and equipment outright, which, in addition to other factors,
helps to keep costs lower than more leveraged businesses.

Smaller Teams of Employees

Small-scale businesses employ smaller teams of employees than companies that operate on
larger scales. The smallest businesses are run entirely by single individuals or small teams. A
larger small-scale business can often get away with employing fewer than one hundred
employees, depending on the business type.

Small Market Area

Small-scale businesses serve a much smaller area than corporations or larger private
businesses. The smallest-scale businesses serve single communities, such as a convenience
store in a rural township. The very definition of small-scale prevents these companies from
serving areas much larger than a local area, since growing beyond that would increase the scale
of a small business's operations and push it into a new classification.

Sole or Partnership Ownership and Taxes

The corporate form of business organization is not well-suited to small-scale operations.

Instead, small-scale businesses prefer to organize as sole proprietorships, partnerships or
limited liability companies. These forms of organization provide the greatest degree of
managerial control for company owners, while minimizing the hassle and expense of business
registration.

These businesses generally do not file their own taxes; instead, company owners report
business income and expenses on their personal tax returns.

Limited Area of Fewer Locations

A small-scale business, by definition, can be found only in a limited area. These companies are
not likely to have sales outlets in multiple states or countries, for example. A large number of
small-scale businesses operate from a single office, retail store or service outlet. It is even
possible to run a small business directly out of your home, without any company facilities.
Q No. 2 Explain the role of small and medium Enterprises in economic development of
Pakistan.

Small and medium-Enterprise (SMEs) play a critical part in the economic, modern and social
advancement of a nation. It assumes a vital part in the worldwide economy through its critical
commitment to the GDP and enhancing the general population's standard of living. Generally,
the advanced nations possess 90% of enterprises in SMEs part and one of the significant reasons
for financial development. The modern part of SMEs assumes an indispensable part in the
worldwide economy through fare of household items to different nations. As per the United
States International Trade Commission (2012) that American economy is additionally
considering the presence of SMEs, which contributes half to 70% in the GDP of the nation
through work creation and self-reliance. SMEs are considered as a vital method for work
creation and destitution lessening in the developed nations. The presence of SMEs brings the
successful usage of nearby assets and lifts up the economies everywhere throughout the world.
SMEs assume an indispensable part in developing the economies through import and fare of
merchandise, which prompts worldwide economic success. As indicated by Rohra and Panhwar
(2009), a large portion of the high-income nations yield the significance of SME segment in
helping their economies. SMEs assume an distinctive part in the advancement, as it has been a
wellspring of work creation and wage era. These contribute in the improvement of a country in
keeping up the standard of life by expanding the salary of the general population. SMEs have a
noteworthy commitment in the advancement and competitiveness of the economy (Dar, Ahmed,
& Raziq, 2017). Small and Medium Enterprise Development Authority (SMEDA) is the head
establishment of Government Pakistan which works under the elected service of ventures.
SMEDA helps Small and medium enterprise for to secure financing in the nation. It is Leading
workshop and preparing system to reinforce SMEs area in Pakistan by enhancing information
and specialized aptitudes. It also Encouraging the Small and medium enterprise in getting the
universal standard confirmation for their subjective item and procedures. The SMEDA
encourages development of mechanical group in and upgrades the SMEs productivity in Pakistan
(Chugtai & Alam, 2014).

The meaning of SMEs in Pakistan lies on the quantity of representatives up to 250 individuals,
paid-up capital up to Rs.25 million and yearly deals up to Rs.250 million (Kureshi et al., 2009).
This definition was a result of a consultative procedure of spreading over more than two years
taken after by investigation and refining at different levels of government prior to its finish and
endorsement by the Federal Cabinet in 2007 (SMEDA, 2007). For the most part one of the
defects in the definition is the nonappearance of isolating line amongst Small and Medium and
among Assembling, Trade and Service segments. In this way, the definition of SMEs couldn't be
concluded.

SME ‘s contributes to over 55% of GDP and over 65% of total employment in high-income
countries. SME ‘s and informal enterprises, account for over 60% of GDP and over 70% of total
employment in low-income countries, while they contribute over 95% of total employment and
about 70% of GDP in middle-income countries. Small and medium-sized enterprises (SMEs) are
non-auxiliary, autonomous firms which employ less than 250 number of workers in Pakistan or
having paid-up capital up to Rs.25 million & sales up to Rs.250 million per annum. Moreover,
SME segment is the foundation of Pakistan's economy as far as its commitment towards GDP,
work era and fare improvement. economy related access is a key driver in building up the SME
division which thusly prompts economic growth of the country. SMEs constitute about 90% of
the considerable number of ventures in Pakistan; utilize 80% of the non-rural work constrain;
and their contribution in the yearly GDP is upto 40%, roughly it has proportion of 30% in
Pakistan's all exports. SMEs are spread in all areas of Pakistan with a noteworthy fixation in
Punjab (65.4%). The contribution of Balochistan in the nation's SME part happens to be the
littlest (2.3%) while those of Sindh and Khyber-Pakhtunkhwa are 18% and 14.3%, separately.
Despite of significant contribution of SMEs to the economic growth of Pakistan, more than 90%
young people in the biggest city i.e. Karachi, believe they do not have enough economic
opportunities for their professional growth. The studies reveal that, SMEs not only impacts GDP.
It also helps to enhance the livelihood of people of the country by creating more economic
opportunities.

According to economic survey (2005) of Pakistan more 30% exports of Pakistan rely on output
produced by SMEs. Nearly 3.2 million workforces are engaged in SMEs. It has become major
employment generation sector in Pakistan. It is playing an important role in economic and socio-
economic development of Pakistan. SME sector has become backbone of industrial sector in
Pakistan but in comparison with neighboring countries i.e. China and India it is much far behind
in contributing GDP of the country. SMEs sector has contributed more 40% in India and more
than 60% in China (See Figure 1). Studies also reveal the fruit of SMEs in Pakistan has not been
transferred to people by true means. So, it is not causing significant impact on socioeconomic
life of countryman. Pakistan is ranked at 139 in prosperity index of People that is much behind
with its neighboring countries. Government need to prepare more flexible policies that can give
relief to new entrepreneurs. Since 2009 Pakistan has ranked after 100 countries in ease of doing
business reports. That reveals it is not easy to start new business venture in Pakistan.

Q.3 What are the problems small and medium Enterprises are facing 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
• 25% of exports of manufactured goods besides sharing 35% in manufacturing value
added.

Problems faced by SMEs in Pakistan

• 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.

Financing Policies of Banks for SMEs

• 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.

Suggestions

• Loan application processing time should be 15 days.

• SME sector should be offered 5% interest rate with one-year 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.
Q No. 4 Explain the role of microfinance banks in development of small and medium
Enterprises.

SMEs all over the world play a strong role in national development. This is attributed to the
massive employment it provides to the citizenry of the country where it exists. The financing of
these ‘’goose’’ which have being laying so many golden eggs has come under scrutiny by
academics and practitioners. Due to the recognition accorded this very important sector, the
Nigerian government established microfinance banks in the year 2007 to serve as mechanisms
for financial sources for various SMEs. This study explored the roles of these micro finance
banks and institutions on small and medium enterprises as well as the extent to which the small
businesses have benefited from the credit scheme of microfinance banks.

Micro financing, according to Conroy is the delivery of financial services to poor and low
income households with limited access to formal financial institutions. Microfinance is can also
be described as banking for the underprivileged. Rolando opines that microfinance is an
excellent way of assisting entrepreneurs. It provides the underprivileged with maintainable
revenue through low interest loans. However, Jegede is of the opinion that small business owners
fancy personal savings and credits from cooperative societies to microfinance banks and
commercial banks fund stating reasons of non-accessibility, exorbitant collaterals and high
interest rates. Microfinance lending in Nigeria has not been positive as shown in the formal
model approach examined by Arogundade.This is in accordance with the CBN Report that the
formal financial institutions grants services to approximately 35% of the working population as
the remaining 65% are usually provided by the informal sector .Orodje stated that before the
CBN’s involvement, microfinance in Nigeria was taking a fast decline into the abyss. The sector
was perforated with deceit and mismanagement of funds.