Promoting SMEs

09 Dec 2019

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PRIME Minister Imran Khan on Friday acknowledged the importance of small and medium enterprises in the country’s economic progress and their role in employment generation. He promised to enhance their access to banking credit and to reshape policies to create an environment to facilitate operations and doing business. Distributing cheques to the recipients of subsidised business loans under his government’s Kamyab Jawan Programme, he reiterated his commitment to promote SMEs. A few days ago, the economic affairs minister spoke of the government’s efforts to push the development of SMEs, saying it was formulating a new policy and planned to increase the number of SME borrowers from 170,000 to 700,000 by 2023.

The SME sector is considered to be the backbone of any economy. No country has achieved sustainable economic growth and created jobs without promoting SMEs. It is generally estimated that SMEs create nine out of every 10 jobs. They are an integral part of the supply chains in the economic sector. In Pakistan, they are responsible for 60pc of the total jobs, and contribute 30pc to GDP and around 25pc to export revenues. Yet the sector remains one of the most neglected areas, especially when it comes to access to formal finance. SMEs are facing a massive financial gap. Over the last one decade, the share of SMEs in the total private sector credit declined to 7.5pc — as compared to 20pc in Bangladesh and 29pc in Turkey — from a peak of 17pc in 2006. Governments have taken policy initiatives over the last two decades for resolving multiple issues facing the SME sector to create a favourable regulatory framework and increase their access to formal finance. But none has yielded the desired results because of the lack of a focused approach and political support. State Bank efforts to push the commercial banks to enhance their SME loan portfolios too have fallen through. No future policy or effort is likely to succeed unless these are backed at the highest level, just as Mr Khan is supporting his Digital Pakistan initiative.

Published in Dawn, December 9th, 2019