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 11
The Dependent And Independent Variables

Relation Ship Of Moderating Variable With 12
The Dependent And Independent Variables

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
13 Recommendations 26
14 Articles

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15 Appendixes
16 Bibliography

A CKHNOWLEDGEMENT

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.

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Research Proposal
Management Question
Management 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
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
Research Purpose
 How SMEs are attractive?

 Role of SMEs in employment generation

 What is the role of finance in development
of SMEs?
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
Research Design
telephonic survey also.

The questions covers wide range of issues
including

 Image of the SMEs will clearly be peep
after the research
In this section we have interview questions
Research
which will support our research.
Questions
Questions can be open ended or close ended.
10 - 15 owners will select from Wah Cantt.
Sample Selection This type of technique is very much
successful in such type of surveys.
Data Collection Data will be collected to evaluate

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interviews.
A written report will be submitted and an
Project Report oral presentation of the findings can be made
in lecture hall.
Project will be completed with in a period of
8 weeks from the time of submission of
proposal. Project Submission date is January
Project Cost &
05, 2006. The cost of the project estimated
Schedule
to be Rs. 3000, including the fare of buses
and other activities generated due to this
project.

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R esearch Objectives

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?

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O verview of SME Sector in Pakistan

Pakistan'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.

1. OBSERVATION & BROAD PROBLEM AREA

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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
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.

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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

2. PRELIMINARY DATA COLLECTION

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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
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

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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
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

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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. 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.

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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
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

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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
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

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“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 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

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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
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

16


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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High interest
rate over the
credit

Less number
of financial
institutes

Access to finance
Terms and
conditions of
the financial
institutes

Entrepreneur’s
knowledge

Relation Ship of Intervening Variable with the
Dependent and Independent Variables

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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
elements can be eliminate by the good corporate culture in
the banking structure.

High interest
rate over the
credit

Less number
of financial
institutes
e en f
fi k o

c

Access to finance
on c
d
C La

Terms and
conditions of
the financial
institutes
Intervening Variable

Entrepreneur’s
knowledge

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

19


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.

High interest
rate over the
credit

Less number
of financial
institutes

Access to finance
Terms and
conditions of
the financial
institutes
e g
ar tin

s
s ne
Aw rea
C

Entrepreneur’s
knowledge
Moderating Variable

VARIABLES MODEL

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High interest
rate over the
credit

Intervening Variable
Less number
of financial
institutes

e en f
fi k o

c
Access to finance

on c
d
C La
Terms and
conditions of
the financial
institutes

e g
ar tin

s
s ne
Aw rea
C
Entrepreneur’s
knowledge
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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• 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
• Less number of financial institutes
 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

23


Dimension

Element # 01 Element # 02

Relationship

High interest rate over the credit

Credit with low mark up Some other steps by the government

Number of Financial Institutions

Financial Institutions start more branches Government Issue New Licenses

Entrepreneur’s Knowledge

Market knowledge Skill development

Terms and Conditions of the Financial Institutes

Make SMEs friendly policies

24


RELATIONSHIP OF INDEPENDENT VARIABLES AND ITS ELEMENTS

SMEs & Finance

High interest rate Number of financial Entrepreneur’s Terms and Conditions of the
over the credit institutions knowledge Financial Institutes

Credit with low mark Some other steps by Make SMEs friendly policies
the govt
up

Financial institutions start more Government Issue new
branches licenses

Market knowledge Skill development

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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

Data Analysis

Interpretation
of results

Discussion

Getting data Research
ready for analysis Goodness Question
of data Answered?
Editing data Hypotheses
Categorizing data Reliability testing
Writing literature validity
review

______________________________________________________.
Pattern design taken from research book (Umma S.)

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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.

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Question # 2
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.

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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

30


institutions working in Pakistan but only a limited number
of banks are providing the loan to the small businesses.
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

31


poverty elevation because the SMEs provides the job for the
job less persons.
Question # 5
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)

32


CONCLUSION

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.

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RECOMENDATIONS

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)

34


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 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

35


Bibliography

Books
Research methods for business
By, Uma Sekaran

Newspapers
The Daily DAWN
The NEWS
The Nation
The Pakistan Observer

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

Internet
www.smeda.org.pk
www.adb.org
www.dailytimes.com.pk
www.pdg.org.pk
www.pakistanlink.com
www.worldbank.org
www.sdpi.org
www.paktribute.com
www.smebank.org
www.pakboi.gov.pk
www.un.org.pk
www.nation.com.pk
www.comsats.org.pk
www2.uta.edu
www.pakobserver.net
www.smefund.tid.gov.hk
www.islamibankbd.com
www.ilo.org
www.pakistaneconomist.com
www.nust.edu.pk
RESONS FOR THE RESEARCH DESIGN:

36


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
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:

37


• 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:
• 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

38

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