Out of every 100 employed people in Pakistan, 72 work for micro, small and medium enterprises (MSMEs), according to the Asian Development Bank (ADB), and out of every 100 MSME workers, 23 are female.

The MSMEs must, then, be a top policy priority during a democratic or hybrid regime, even for purely domestic political reasons — promoting MSMEs may create enough jobs and widen the government’s voter/supporter base. Sadly, every government in Pakistan conveniently ignores MSMEs and keeps its focus on the big businesses that fit well into the ‘economy of the elite’ concept.

According to the latest State Bank of Pakistan report of December 2023, bank financing offered to small and medium enterprises (SMEs) accounts for only six per cent of the total credit for the private sector — and the number of SME borrowers totals 172,292 — or just 3.3pc of the MSMEs population.

However, even if bank financing offered to micro-enterprises is included, and total financing made to all MSMEs is then calculated, that too would remain a small part of overall bank financing for the private sector.

The lack of government effort to resolve private sector grievances has made it difficult for MSMEs to survive

In 2023, the gross loan portfolio of microfinance banks and institutions stood at around Rs491 billion. Even if we assume that half of that was owed by microenterprises — an overestimation — we are talking about Rs245bn against the total stock of private sector credit of around Rs9 trillion at that time.

But yes, if the number of microenterprises receiving bank finance is included, the number of overall MSME borrowers would dramatically rise. As of September 2023, active borrowers of microfinance banks and institutions in Pakistan stood around nine million, and it is safe to assume that a million or two of them were microenterprises.

Formal bank financing is just one powerful window through which MSMEs can get enough support for survival. Apart from that, they need an enabling environment for survival and growth.

It is true that the current push for taxing retailers and professionals has come against the backdrop of the International Monetary Fund’s conditions for broadening the tax base and is, thus, unavoidable.

However, had our past governments made serious, gradual efforts to broaden the tax base, the current move would not have been as harmful to retailers and professionals (who make up a significant part of MSMEs).

Similarly, had past governments been more serious in handling the energy crisis in the making, the current crisis would not have become as harmful for MSMEs and large-scale industries alike.

Now, on the one hand, several-fold increases in energy prices in the past two years or so have made it too difficult for most of the businesses to survive, particularly the MSMEs. On the other hand, the current push for taxing retailers on energy consumption is sure to force many of them to close shop.

There is an urgent need to review taxation and energy pricing policies for MSMEs, and some incentives can be offered to them in line with the incentives recently announced for best-performing exporters. The government must speedily identify the SMEs in the active supply chain of export sectors and incentivise them in one way or the other.

The authorities must speedily identify small businesses in supply chain of export sectors and incentivise them in one way or the other

At the same time, it must also listen to the grievances of industrial and trading SMEs catering to domestic markets and resolve as many of them, and to as much extent as possible, so that the SMEs can play their due role in the economy.

As the external sector continues struggling, the only way to save economic growth from experiencing a wider and sharper decline is to help the domestic economy grow. MSMEs, with some solid policy and management support, can help boost the growth of domestic output of goods and services.

If part of the incremental output can be exported, for example, through incentivising export-linked MSMEs, that can also help address our balance of payments problems.

In December last year, the ADB approved $155.5m in financing for Pakistan, of which $100m will support policy and regulatory reforms required to improve women borrowers’ access to formal bank financing and $50m will be used to lend to female entrepreneurs running MSMEs through participating local banks. The government must ensure this financing facility is used effectively and precisely for the specified objectives.

For the current fiscal year ending in June, no less than Rs361.5bn have been budgeted — out of a total of Rs471bn of the Benazir Income Support Programme (BISP) — for the Benazir Kafalat programme covering 9.3m families. Under this programme, deserving families receive Rs10,500 every quarter. Why not redirect part of this amount to help the very same families that qualify as recipients of this consumptive aid to set up micro-enterprises?

If that is not possible, for any reason, at least a separate window can be opened for this purpose and part of the BISP’s annual budget could be redirected to enabling deserving families (especially women) to set up and run their own micro-enterprises particularly in rural areas — easier to do as verified data of 9.3m families is available with the BISP that can be filtered further to identify how many can be offered “financial empowerment” funds and for how long.

In Balochistan and Khyber Pakhtunkhwa, provinces that normally remain and are currently under the grip of increased terrorist activities, financial empowerment and greater female labour participation can work wonders in the long run.

Poverty and a sense of deprivation play a crucial role in breeding terrorism. In the long-term, this aspect of extremism and terrorism can only be handled with speedy female and financial empowerment and a quicker and wider spread of quality education to prevent the development of extremist mindsets.

Published in Dawn, The Business and Finance Weekly, April 1st, 2024

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