Sme's

Research Methods for Business

Research on

The role of SMEs in Pakistan

Table of Content

S # Contents Page #

01 Research Proposal

02 Observation & Broad Problem Area 01

03 Preliminary Data Collection 03

04 Problem Definition 08

05 Theoretical Frame Work Development

Relationship Of Dependent And Independent 09

Relation Ship Of Intervening Variable With

The Dependent And Independent Variables

11

Relation Ship Of Moderating Variable With

The Dependent And Independent Variables

12

Variables Model 13

06 Hypotheses 14

07 Elements Of Research Design 15

08 Relationship Of Independent Variables And Its Elements 16

09 Data Collection Method 18

10 Sampling 19

11 Interviewing Questions 20

12 Conclusion 25

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13 Recommendations 26

14 Articles

15 Appendixes

16 Bibliography

2

A

All praise to Almighty ALLAH, the most merciful

and compassionate, who enabled us to complete this

Project.

We express our gratitude to our kind course

coordinator Mr. Faisal Azeem Malik, who kept our

moral high by his suggestions and appreciation. He

was available to us whenever and for whatever we

consulted him. Without his precious guidance and

help we could never be able to complete this task.

We thankful to all interviewers who cooperate with

us and provide best possible information.

And at last but not the least, we would like to

acknowledge the support of our family members. We

would like to admit that we owe all our

achievements to our truly, sincere and most loving

family members who mean the most to us, and whose

prayers are source of determination for us.

CKHNOWLEDGEMENT


Research Proposal

Management QuestionManagement would like to investigate,

“What is the role of SMEs in Pakistan?”

Reasons of selecting research design:

We have made this type of research proposal because it suits

a lot to our problem. SMEs can only be determined through

only this type of research proposal. We have research

questions for which we will directly interact with loyal

customers and able to identify competitor position in

market. Data collection helps us in determining SMEs’ image.

We will apply statistical tools for acquiring desired

results. Professional report will be prepared. Hypothesis

tells us either our research fruitful, completion its

objectives or it fails.

Hypothesis

“Access to finance for SMEs capacity development and

enchasing their contribution in economy”

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Research Proposal for SMEs

Research Purpose

The purpose of the study is to analyze SMEs

contribution in our Economy. Specially

research objectives are to,

To have thorough analysis of working of

SMEs in Pakistan

How SMEs are attractive?

Role of SMEs in employment generation

What is the role of finance in development

of SMEs?

Research Design

The survey will be conducted by interview,

to a total of 10 -15 different small &

medium enterprise owners in Wah Cantt.

Secondary data is available on Web,

magazines, journals and we can have

telephonic survey also.

The questions covers wide range of issues

including

Image of the SMEs will clearly be peep

after the research

Research

Questions

In this section we have interview questions

which will support our research.

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Questions can be open ended or close ended.

Sample Selection

10 - 15 owners will select from Wah Cantt.

This type of technique is very much

successful in such type of surveys.

Data CollectionData will be collected to evaluate

interviews.

Project Report

A written report will be submitted and an

oral presentation of the findings can be

made in lecture hall.

Project Cost &

Schedule

Project will be completed with in a period

of 8 weeks from the time of submission of

proposal. Project Submission date is January

05, 2006. The cost of the project estimated

to be Rs. 3000, including the fare of buses

and other activities generated due to this

project.

5


6

R

TO UNDERSTAND THAT

WHO ARE THE SMEs?

WHAT ARE THEIR BASES OF DEFINATION?

WHAT IS THEIR CONTRIBUTION IN THE ECONOMY GROWTH?

WHAT LEVEL OF EMPLOYMENT THEY ARE PROVIDING?

WHAT ARE THEIR PROBLEMS?

WHAT IS THEIR MAJOR PROBLEM?

WHAT ARE THE CAUSES OF MAJOR PROBLEM?

HOW WE CAN ELEMINATE THAT PROBLEM?

esearch Objectives


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OPakistan's economy is an economy of SME. Policies in

the past have given a general perspective, direction

and defining broad parameters of activity within the

macroeconomic framework, but efforts have focused on

the large enterprises, neglecting SME which are at the

heart of our economy.

Our SME suffer from a variety of weaknesses which have

constrained their ability to adjust to the economic

liberalization measures introduced and to take full

advantage of rapidly expanding markets of the world.

But SME importance and contribution in the economic

activity suggests that there is a significant potential

to enhance their growth through appropriate regulations

and promotion.

While SME are being mentioned in some of our socio-

economic strategies and policy documents, measures are

not sufficiently specified and prioritized for us to be

able to speak of any coherent SME policy or approach.

The SME Sector Development Program seeks to improve

this situation by inviting all concerned stakeholders

to draft Pakistan's future SME policy.

verview of SME Sector in


1. OBSERVATION & BROAD PROBLEM AREA

The present phase of the industrialization in which the

large number of industries is growing and they are

contributing in the countries development more as compared

to the countries based on the agricultural economy because

the last century is the century the countries whose economy

is based on the industries leave far behind in the race of

the development as compared to the agricultural based

economies.

There is no single example of any single agricultural

economy which is in the list of developed countries. Even

with the help of industrialization the developed countries

are trying to rule also in the agricultural sector. Because

of the expertise in the production of the agricultural

equipment which is making them superior in the agricultural

sector production.

As Pakistan is also agriculture based economy where more

than 60% population is engaged with the production of

agricultural products and agricultural sector is

contributing only 14% o 20% in the economy and if we divide

the industrial sector in different sub parts then

agriculture is the 2nd largest sector in the economy

contribution and the 1st largest in employment. As for our

concern is only with the contribution in the economy. This

poor performance of the agricultural sector can not boost

the Pakistani economy so if we take the industrial sector

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which is lifting up the Pakistani economy it is

concentrating upon the different sub sectors like Textile,

leather, Electrical, Surgical equipment sector, sports and

lot of different sectors. In the classification of the

industrial sector we can not regret the role of Small and

Medium Enterprises (SMEs) in the economy because the SMEs

are prevailing in every sector of the economy.

The development of small and medium size enterprises in

Pakistan means elevation of the poverty in Pakistan because

promotion of the SMEs increases the number of job. SMEs in

the Pakistan are providing the 78% jobs to those persons who

are not employed with the agricultural sector. The SMEs are

contributing the 30% to the GDP of the Pakistan and it’s

around the Rs.140 billion. This contribution of the SMEs in

the economy development is only with out the development of

the SMEs policy and still the SMEs don’t have the status of

the SMEs sector.

So if we want to boost the Pakistani economy then it is

important to encourage the SMEs and also eliminate the

hurdles from the growth of the SMEs. Those hurdles may be

financial, knowledge based, cooperation, and technology etc.

There are two nature of problems first currently

existing and second situation requiring improvement. In

our case it is the problem existing in the present

scenario.

Problem currently in the SMEs sector is, they have lack

of finance that’s why they don’t grow and as well

export

There is need to solve the problem, because if this

problem would be solved so there are other related

problem would be solved

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2. PRELIMINARY DATA COLLECTION

Introduction

The development of small and medium size enterprises in

Pakistan means elevation of the poverty in Pakistan because

promotion of the SMEs increases the number of job. SMEs in

the Pakistan are providing the 78% jobs to those persons who

are not employed with the agricultural sector. The SMEs are

contributing the 30% to the GDP of the Pakistan and it’s

around the Rs.140 billion .The government of Pakistan is

developing the SMEs policies which is likely to be completed

by the June 2005.

Back Ground of SMEs in Pakistan

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Pakistan has the very rich fertile land and because of the

fertile land it is an agricultural country. It means not

that there is no industry in Pakistan, it have different

small, medium and large industries. Because of the feudal

and beurocratic rule systems the agricultural sector

receives great attention of the government in the past. The

industrial sector was completely ignored even till now there

in no policy for the SMEs. At that time we don’t have the

exact figure of the SMEs and it estimated that at that time

more than 220,000 SMEs are working in Pakistan.

Definition

The definition of the SMEs varies from country to country,

and also from the period of one government to another

government, but in different places they are defined against

different criteria’s like number of employees, total

investment, sales, and production. In Pakistan SMEs are

defined against two criteria’s 1) no of employees and 2)

investment. A small industry is that in which 10-35

employees are engaged or it have the investment from Rs.2-20

million. And a mediums industry is that which have the 36-99

employees are engaged or investment from Rs.20-40 million.

SMEs contribution in the economy

SMEs plays vital role in the development of any country and

their contribution can be defined in two terms. First in the

shape of socially (by generating the jobs) and the

economically (by generating the revenue).

In Pakistan SMEs are defined in two terms first in the human

capital shape and in the investment. A small industry is

that in which 10-35 employees are engaged or it have the

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investment from Rs.2-20 million. And a mediums industry is

that which have the 36-99 employees are engaged or

investment from Rs.20-40 million.

Where the agriculture and the other sector are playing the

vital role in the development of the country, we can not

regret the role of SMEs. After the agriculture it is the

second largest job providing sector in the Pakistan.

SMEs in the Pakistan are providing the 78% jobs to those

persons who are not employed with the agricultural sector.

The SMEs are contributing the 30% to the GDP of the Pakistan

and it’s around the Rs.140 billion .The government of

Pakistan is developing the SMEs policies which is likely to

be completed by the June 2005.

SMEs account for between 55 per cent and 80 per cent of

total employment in Western Europe, Japan and USA. Their

contribution in output in Japan is 65 per cent, Germany 48

per cent and USA 45 per cent. According to the economic

survey of 1998-99, SMEs with a mere 20 per cent investment

and resource to less than 10 per cent of the total formal

credit generated 80 per cent of the country's total

employment.

Various types of loans available are small loans for

business and industry, small loans for industrialists,

lending for small and medium industries. If strategic

planning for development of SMEs is made successful; middle

class entrepreneurs may play an effective role in the

economic recovery of Pakistan.

In Pakistan adult literacy rate is 48 per cent and majority

of entrepreneurs operating small businesses and industry are

not educated and as such they hesitate in approaching small

and medium enterprises development authority and banks for

loans. High interest rate is the main hurdle facing SMEs.

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Credit may be offered to such enterprises at subsidized

rates, the study said. The research report proposes the

setting up of a 'small business and cottage industries Bank'

with an authorized and paid-up capital of Rs.One billion to

boost the development of existing and developing new small

and medium enterprises.

The role of Small and Micro Enterprises in job creation is

well known and even in developed countries over 60%

employment is in this sector. Therefore, in order to develop

this sector expansion of infrastructure facilities,

deregulation and liberalization of economy, fiscal and

financial incentives are to be provided and promotional

activities such as skill development, industrial estates,

common facilities and marketing arrangements have to be

made. The Micro and Small Industry is considered as the

"back bone" in the economic development of a country. It

plays a pivotal role in contribution towards GDP and job

creation.

SMEs such as their need for less capital investment per

worker than is required by large enterprises. The abundance

of labor and the shortages of capital and foreign exchange

which are characteristics of developing countries are

compatible with the SMEs labor-intensive character. In

addition, SMEs mobilize local human and material resources

and utilize local raw materials more effectively than large

enterprises, and address more of the consumption needs of

slow income people. Their scale of production is more

appropriate to rural areas and small townships in developing

countries.

SMEs improve forward and background linkages among social

and economic activities of the economy. They promote and

enhance foreign exchange earnings, and offer wider

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opportunities to entrepreneurs and to low income and

minority groups. They are flexible in production, have the

potential as a training ground for managerial skills, and

provide rich personal relations. Their ownerships by the

residents of a community results in community based economic

decisions, greater stability of employment and better

community development. In the modern day structural

adjustment, SMEs constitutes a "labor sponge".

How government can improve their performance

Legal and Policy Framework

Access to finance

Technical support

Marketing support

Bringing the research institutions closer to the SMEs

Linkage with the international network

Compliances

SMEs present a strong case for government/donor incentives

and support. By contrast, large firms, especially in the

textile sector, are already well into the standards regime

and aware of the consequences of the MFA phase-out. The

exporting firms comply unequivocally with product standards

because non-compliance would mean a discontinuation of

orders. Process standards are more of a gray area. An

example of this is ISO 14,001 certification. Some firms have

secured such certification, even though they do not appear

to be fully compliant.

Literature survey

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We have conducted literature survey to narrow down our

problem, we have followed following points

Identify relevant sources ( we have adopted full-text

database)

Extract the relevant information from that articles

Writing the literature review

-------------------------------

We concise the above data which is taken from the site named. www.smeda.org.pk

3. PROBLEM DEFINATION

“Access to finance for SMEs capacity development and

enchasing their contribution in economy”

On the basis of different interviews and varied literature

we have come to know that the FINANCE is the major hurdle in

the growth of the SMEs. The credit will enable the SMEs to

acquire the new technology, improve quality of their

products. They will re-position them through the new

financing facilities that will help earn more profit. As

SMEs after Agriculture, were intensive employment sector, so

it would help mitigate the unemployment problem and high

profitability will make them pay more taxes. All this

exercise would benefit directly and indirectly to the health

15


of the economy,” If the income of the SMEs goes up, the

growth rate and employment ratio, vis-à-vis economy will

also be accelerated”.

4. THEORETICAL FRAME WORK DEVELOPMENT

Relationship of Dependent and Independent

The dependent variable is Access to finance which is the

variable of the primary interest in which variance is

attempted to be explained by different independent variables

and those are

High interest rate over the credit

Less number of financial institutes

Unacceptable terms and conditions of the financial

institutes

Lake of entrepreneurs knowledge

The less the interest rates over the credit the higher the

investment in the enterprises which leads to the generation

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of the employment in the country and also increase the

government revenue in the shape of taxes.

There are also the less number of credit providing

institutes if we take the list of banks working in Pakistan

then we have lot of banks but these banks are working only

in the large cities like Karachi, Lahore, Faisalabad,

Hyderabad, Peshawar, Quetta etc., and in the tehsil taxila

and Wah Cantt there are only few banks those are providing

the credit to the SMEs like Bank Alfalah, PICIC commercial

bank, Habib bank.

Some banks require the very strict terms and conditions for

the entrepreneurs like the mortgage of equal value of

property, a huge list of documents required and attested

from different authorities and also the guaranty of

different persons who belong to the very high class. So if

an individual who is working on the small level and have the

bundle of skill but don’t have huge capital how he can

survive in the market where there are large giants are

working and a small or medium entrepreneur bring the

security of different upper class persons.

Some entrepreneurs who are running the business in any form

some time they don’t have the knowledge how to take the loan

or how to meet the banks criteria, and some entrepreneurs

also afraid on taking the loan from the banks they have

their on justifications like after the banks financing the

banks interfere in their businesses and they don’t want the

interference of the banks or any other in there affairs.

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Relation Ship of Intervening Variable with the

Dependent and Independent Variables

It is interesting to know that there lake of confidence of

the owners of small and medium enterprises over the

financial institutions. If the financial institutes build

their confidence over the entrepreneurs then can take risk

of high rate of interest, even if the institute is far from

the enterprise, if the terms and conditions are little bit

strict, and even the entrepreneurs have the less education

and the banking structure knowledge. All the above mentions

18

Access to financeAccess to finance

High interest rate over the

credit


credit



Terms and conditions of the financial

institutes


institutes

Entrepreneur’s knowledge



elements can be eliminate by the good corporate culture in

the banking structure.

Relation Ship of Moderating Variable with the Dependent

and Independent Variables

It is interesting to know that if the government and the

financial institutions want that small and medium sector grow

then it is important to build up the image of the financial

institutes in the mind of the entrepreneurs. And this image can

be increased by creating the awareness by using the different

modes of communication like TV program discussions, print media

awareness, seminars in which entrepreneurs, representatives of

the financial institutes, journalists and student should be

invited.

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credit


credit




institutes


institutes



Lack

of

Confi

denc

eLa

ck o

f

Confi

denc

e

Intervening Variable


VARIABLES MODEL

20



credit


credit




institutes


institutes



Creat

ing

Awar

enes

sCreat

ing

Awar

enes

s

Moderating Variable


-------------------------------------------------------

All the above diagram is design according to the book of research but data implemented by our own efforts and thinking.

5. HYPOTHESES

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credit


credit




institutes


institutes



Creat

ing

Awar

enes

sCreat

ing

Awar

enes

s

Moderating Variable

Lack

of

Confi

denc

eLa

ck o

f

Confi

denc

e

Intervening Variable


If the enough financial resources to SMEs then they can

grow.

If the SMEs are given the adequate resources, their

productivity can be improved.(if then statement)

The greater the access to finance, higher the SMEs

productivity.(directional hypotheses)

6. ELEMENTS OF RESEARCH DESIGN

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1.Dependent variable

Access to finance

2.Independent variables

High interest rate over the credit

Government ask the financial

institutions to provide the credit to SMEs

with low interest rates

Government make some other arrangements


Government asks banks to start more branches

Government issue more licenses to open new

financial institutions

Unacceptable terms and conditions of the financial

institutes

Make less strict terms and conditions for SMEs

Lake of entrepreneurs knowledge

Government make some some special arrangements

regarding the market knowledge

Government makes some arrangements regarding

SMEs skills improvement.

RELATIONSHIP OF INDEPENDENT VARIABLES AND ITS ELEMENTS

Criteria

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Relationship

24

Dimension Dimension

Element # 01Element # 01 Element # 02Element # 02

High interest rate over the creditHigh interest rate over the credit

Credit with low mark upCredit with low mark up Some other steps by the government

Some other steps by the government

Number of Financial InstitutionsNumber of Financial Institutions

Financial Institutions start more branches

Financial Institutions start more branches

Government Issue New LicensesGovernment Issue New Licenses

Entrepreneur’s KnowledgeEntrepreneur’s Knowledge

Market knowledgeMarket knowledge Skill developmentSkill development

Terms and Conditions of the Financial InstitutesTerms and Conditions of the Financial Institutes

Make SMEs friendly policiesMake SMEs friendly policies


RELATIONSHIP OF INDEPENDENT VARIABLES AND ITS ELEMENTS

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SMEs & Finance


credit

Credit with low

mark up

Some other steps by the govt

Number of financial institutions


Terms and Conditions of the Financial Institutes

Financial institutions start

more branches

Government Issue

new licenses

Market knowledge

Skill development

Make SMEs friendly policies


DATA COLLECTION METHOD

We have collected both primary and secondary data for our

research. Secondary data collected for refining & narrow

downing our problem and primary data collected for our

research problem to know whether finance is a hurdle in

growth of SMEs.

Interviewing

We have adopted interviewing mode for our research because

we believe by interviewing we can better able to unfold the

problem rather questionnaire. Our interviews were

structured. We have list of questions on which we have

measured many SMEs and find the result same. In interview a

person can answer more openly and explain the problems,

which have happened in our research.

SMEs owners give us detailed answers about problem and

accepted that finance is the major problem, SMEs are not

flourishing in Pakistan.

The Questioning Technique

The questioning techniques adopted are

Funneling (we start discussion with unstructured

question then we came to structured questions)

Face to face and telephonic interviews (face to face

interviews were more fruitful for us as compared to

telephonic interviews because in face to face we can

better able to identify the problem by questioning and

gesture & postures)

Taking Notes (notes were taken over the interviews, to

remember the main and sub points of the interview)

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SAMPLING

In our case we selected the sample area of Wah Cantt for our

research we have adopted,

Area Sampling

In probability sampling, area sampling was the best case in

our case. It a cluster sample in a specific area. Advantage

of it was it is cost-effective, define broad area of

problem.

DATA ANALYSIS PROCESS

______________________________________________________.

Pattern design taken from research book (Umma S.)

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Data AnalysisData Analysis

Getting data ready for analysis

Editing dataCategorizing dataWriting literature

review

Getting data ready for analysis

Editing dataCategorizing dataWriting literature

review

Goodness of data

Reliability validity

Goodness of data

Reliability validity

Hypotheses testing

Hypotheses testing

DiscussionDiscussion

Research Question

Answered?

Research Question

Answered?

Interpretation of results

Interpretation of results


INTERVIEWING QUESTIONS

Question # 1

Is the Financial resources are backbone of SMEs?

In majority of the interviews the professionals said that

with out the adequate financial resources no industry could

grow. Credit is constrained for SMEs, being limited to

certain forms of secured credit, along with family and

informal credit. Formal credit comes on very difficult terms

for SMEs, since the use of security in credit agreements is

highly inefficient, and non-real estate security is largely

in effective. For SMEs, neither unsecured commercial credit

or debentures equity capital in the form of publicly- traded

shares and private placements, nor NGO micro-credit is a

viable option. Banks and non-bank financial institutions

(NBFIs) such as finance and leasing companies require real

estate security for loans (land and buildings) the

exceptions being very large firms, firms with longstanding

client relations with the banks, or firms benefiting from

either political favor or a close relationship with a bank

director. SMEs almost universally start their operations

using own funds or family finance. Typically, these firms

face a significant operating capital constraint in the early

years of operation, and often become “sick” or lose their

investment. Expansion credit is also severely constrained.

They also said that as the financial resources have the

primary importance for establishing a business but with out

some resources like market knowledge, intellectual property,

and industry knowledge now small industry can grow.

Question # 2

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How government makes the easy access to the finance for

the SMEs?

SME sector has a huge potential estimated at Rs. 1.50

trillion but only 20-25 percent of it has been tapped for

providing finances. So far 18,000 enterprises have been

tapped for providing loans through programmed and structured

lending based on the new guidelines issued by the State Bank

of Pakistan.

The major change for financing the SME business has shifted

from the collateral to cash flow as the previous basis had

resulted in infected portfolio of Rs. 350 billion. So the

entire old concept has now changed to program lending

technology introduced through SME prudential regulations.

Banks are taking initiatives to shift emphasis from purely

collateral based lending to cash flow based while loaning

will be institutionalized.

The new strategy for SME loans as per definition of the SBP,

stresses for number of employees, total assets.

All interviewees ware agreed that at that time only the

banks are the source to provide the loan especially the

local bank and SMEs specialized banks like SME bank.

Khushaly bank, microfinance bank specialized in providing

the loan the small entrepreneurs and government should

encourage these banks to open more branches in other cities

and these banks should fast their lending system from

collateral based lending to cash flow based lending.

29


Question # 3

SME have lack of access to financial markets?

Although Pakistan has established significant market

infrastructure for financial services, the existing

institutions do not provide easy financing access for SME,

Most SME poorly document and disclose their business

activities, and are unable to provide the collateral

required for asset based lending and investments. The

reluctance to lend to poorly documented enterprise is

understandable especially in the context of the prevailing

poor credit culture.

Also many SME, especially family owned businesses, find it

difficult to grow beyond a certain point constrained by a

lack of financial and management resources and reluctance to

build partnerships to generate innovation, and to invest in

networks to improve market intelligence.

The solution of this problem should be tackled on two

levels. First: Financial institutions need to develop

standardized services, focusing on the cash-flow earning

capacity of their clients. These products should be

supported by credit enhancements such as guarantees and

collateral. Second: SME must develop simple but sound and

well documented plans for their operations to clarify and

monitor their direction, and to improve access to financial

services. This leads me to the forth issue.

Except the bankers all the persons said that there is less

number of banks those are providing the loan to small

businesses. In their views that less number of banks means

that there is very lengthy list of the financial

institutions working in Pakistan but only a limited number

of banks are providing the loan to the small businesses.

30


Question # 4

Do you think that present way of encouraging the small

businesses is good?

If we consider the agenda of the Pervaiz Musharaf

Government, which is based on the six, pillars the third

pillar of the present government of Pakistan is the SME

sector development, which shows the commitment of the

government with the economy development. SMES are a distinct

pillar of the economy that needs to be given due attention.

It requires specific policy and regulatory space to turn SME

into an effective tool for driving the economy and

increasingly contribute to economic growth and employment.

The Government of Pakistan has developed a number of

strategies for socio-economic development.

• Poverty Reduction Strategy Paper (PRSP)

• Micro Finance Sector Development Program

• SME Sector Development Program

• Education Sector Reforms 2001-05

• Reform of financial sector

• Reforms in Tax Administration

Presently the government is encouraging the banks to

provide the loan to SMEs like Habib bank, national bank,

etc., and one NGO which is agha khan foundation is

established a bank which is microfinance bank. So it is also

important for the government to encourage the other NGOs

start to some thing for the betterment and growth of the

small businesses which is the actual problem of our country

because this is the only and easy way for the poverty

elevation because the SMEs provides the job for the job less

persons.

Question # 5

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Do you think that banks role is good in the SMEs

growth?

Banks do not play a significant role in financing small

entrepreneurs only 14% of small entrepreneurs reported any

bank borrowing. Most Small Entrepreneurs are reluctant to

even contact banks. Among those who ever contacted a bank,

said they faced serious problems, which were the following

Bribery

Completion of Papers

Security Guarantees

______________________________________________________.

Answer of the questions taken from different faculty members

and employees of the companies (Detail In bibliography)

CONCLUSION

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We concluded that development of SMEs in Pakistan through

government bank, Islamic banks and private sector banks

there is a need for the SMEs development in the areas of

SMEs training, skills development, machinery installation

in the form of government grants. Based on the definition

of the SMEs in Pakistan the priority sector may also

determine for providing financial support and priority

sector for SMEs should be the following

Agro based and agro related industries like food

processing, poultry, dairy, nursery, horticulture and

flowery culture etc.

Hand looms, power looms weaving industry, different

type of handy crafts, leather and leather goods,

surgical equipment industry, electrical industry.

In case of lending from the financial institutions

following should be consider

In case of Islamic banks financing the

appropriate Islamic mode of finances to be

determined (Musharaka, Mudaraba etc.)

The determining of the appropriate rare of

profit and services charges i.e. cost of lending

and borrowing from the commercial banks, Islamic

banks, and ultimate beneficiary entrepreneurs.

RECOMENDATIONS

33


1.For Banks

Most financial institutions have not put in place for the

effective assessment for the credit of SMEs, further more

inadequate transparency of their financial status and

management, SMEs often are unable to provide financial

institutions with sufficient information access the business

performance. So in this scenario the SMEs should follow

A. Lending Strategy

The banks those are providing the financing facilities to

the SMEs should provide the short ,medium and long term loan

facility including the leasing, leanding and risk sharing

and other all possible schemes.

B. Lending Modes

1) The minimum loan providing period should be 4-5 years

2) The grace period should be 01 year

3) In case of any loss recovery should be in

installments

4) Lending should be on competitive basis.

2.For Government

(Establishment of Funding Schemes)

The key recommendations for the government are that to

establish the funds for enhancing the competitiveness of

SMEs in Pakistan.

A.Equipment Installation lending Funding Scheme

Government start a guarantee equipment installation funding

scheme from which government create a guarantee fund for

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SMEs and SMEs secure a lending chance from the financial

institutions on behalf of the government to take at least

50% loan with the government.

B. SMEs Development Fund

Government develops the SMEs development fund to subsidize

the projects carried by social and welfare organizations,

research institutions to enhance the SMEs compositeness.

C. SMEs training Fund

Government create a fund for the SMEs training for

developing the skills of the SMEs like the salary management

of the employees, material management, quality management

etc.

-------------------------------

We wrote the above recommendations with the help of our H.O.D Mr.Mushtaq

Bibliography

BooksResearch methods for businessBy, Uma Sekaran

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NewspapersThe Daily DAWN The NEWSThe NationThe Pakistan Observer

Workshops, Seminars & ExhibitionsSMEs & Synergism Conference at Marriot Islamabad DAWS Exhibition “All About Life Style”

Internet www.smeda.org.pkwww.adb.orgwww.dailytimes.com.pkwww.pdg.org.pkwww.pakistanlink.comwww.worldbank.orgwww.sdpi.orgwww.paktribute.comwww.smebank.orgwww.pakboi.gov.pkwww.un.org.pkwww.nation.com.pkwww.comsats.org.pkwww2.uta.eduwww.pakobserver.netwww.smefund.tid.gov.hkwww.islamibankbd.comwww.ilo.orgwww.pakistaneconomist.comwww.nust.edu.pk

RESONS FOR THE RESEARCH DESIGN:

There are number of variables which effect the development of SMEs in several ways. These are;

I. Government Polices and Regulation

II. SMEDA’s role

III. Technological advancement

IV. Investment

36

http://www.nust.edu.pk/


V. Access to Finance

VI. High Interest rate over the credit

VII. Less number of Financial Institutes

VIII. Unacceptable terms and conditions of the Financial Institution

IX. Lake of Entrepreneurs knowledge

Government Polices and Regulation:

SMEs development depends upon the role of government, because in Pakistan the

bureaucratic environment is over here and the policies which are made by government

are not supportive for SMEs development.

Technological advancement:

Technology plays very important role in the development of SMEs, because in

large businesses the technology is not introduced very rapidly because of risk factor, but

if we will see Small Business it is introduced very rapidly so it plays very important role

as it increase the productivity, decreases the cost, increases the efficiency. So,

government should try to make some institution for the development training of

employees about technology.

Access to Finance:

Another big factor which influences the performance of SMEs in Pakistan is the

problem of Finances. The reason is interest rate is very high. So for he facilitation of

finance government have to take some steps for the development of SMEs. Some of them

are in the form of SMEs bank, SMEDA which is providing different types of finance

form the Small and Medium Enterprises.

High Interest rate over the credit:

Government ask the Financial Institutions to provide the credit to SMEs with low

interest rates.

Government make some other arrangements

Less number of Financial Institutes:

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Government asks banks to start more branches

Government issues more licenses to open new Financial Institutions

Unacceptable terms & conditions of Financial Institution:

Make less strict terms and conditions for SMEs.

Lake of Entrepreneurs knowledge:

Government make some special arrangements regarding the market knowledge

Government makes some arrangements regarding SMEs skills improvement

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Date post:	29-Jan-2015
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