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Range of economic growth under small business development

Published on 17th Oct, Edition 42, 2016

 

The development of small and medium-size enterprises plays a pivotal role in the growth and prosperity of nation. Although, the large-scale corporations mainly industrial concerns contribute sizably to the GDP and other economic variables of prosperity but the significance of SMEs is widely recognized around the world.

In any economy, SMEs make a substantial contribution towards GDP, revenue collection in the form of taxes, fostering entrepreneurship income generation, skills development of human resources, culture, employment opportunities, poverty alleviation, and enhancing the life standard.

The main economic advantages of SMEs development include encouraging perfect competition and fair distribution of wealth. If there are only large-scale corporations either, then there would be a monopoly in an industry, or oligopoly, or monopolistic competition, then the major portion of national income and wealth would move within the hands of big capitalists.

However, SME sector begets fair competition and equitable distribution of wealth. SMEs help in regional and local development as they accelerate industrialization in rural regions through linking them with the more organized urban sector and assist attain fair and equitable distribution of wealth by regional dispersion of economic activities.

SMEs have played key role in development of economies like Japan. It has also been playing key role in offering impetus to the development of some of the world’s best economies like China, Korea, Taiwan and Hong Kong. Countries in South America and India have also been focusing their efforts in developing the SME sector.

Pakistan is not an exception to this as both the Government of Pakistan and the SBP has been trying to give impetus to their attempt aiming to develop SME sector in Pakistan in more faster and better ways. In this regard government has restructured the key support institutions like SMEDA and SME Bank. However, the issues of small businesses differ than that of medium size businesses. Experts revealed that the small business has a big issue that is access to finance. Access to finance usually means access to bank finance, because SMEs are usually too small to access bond and equity markets. Access to finance is one of the most important issues for the creation, survival, and growth of SMEs. There appears a mushroom growth of SMEs throughout Karachi counting the SMEs in leading industrial estates, cottage industrial regions, industrial parks, EPZs, trade plazas, malls, and small business units scattered in the city and its surrounding villages.

Previously, many SMEs thrived in Karachi and across Pakistan because of appropriate entrepreneurial skills and spirit, managerial and labor skills, access to finance, access to technology, marketing skills, innovative production, dedicated client services, and the drive and capability to meet the customer expectations and opportunities better than the competitors. But unluckily, all the SMEs and micro enterprises in Pakistan and Karachi as a whole are unable to enjoy access to finance and chiefly to the predicted level of finance and not all of them possess appropriate level of managerial and technical skills to thrive and excel in the market place.

Since the independence of the country in 1947, the nation has witnessed the tremendous growth of thousands of micro, small, and medium enterprises in Karachi and all across the country. More recently SMEs in Pakistan can grow their share in the global by developing brands for their products. It is said that the presently developed customers’ focus on brands and existing competition in the global market had propelled the businessmen to market exclusive brands.

 

SME cluster development

Cluster development is mainly supporting and strengthening the clusters through creating networking among the stakeholders to decline the cost of doing business, bringing them on a single platform for more voice among strategy makers, create new business opportunities, declining risk of doing business and capacity building of the enterprises. Cluster development has also proved its contributing in employment generation and poverty reduction globally.

Worldwide, one of the most broadly used practices to support industrial clusters is provision of CFC (Common Facility Centers). The establishment of CFCs is an integral part of SMEDA’s Cluster Development activities. So far SMEDA has been able to organize the CFCs with Chambers of commerce and industry and industry/trade associations.

ERKF & FATA

The Multi Donor Trust Fund (MDTF) project ‘Economic Revitalization of Khyber Pakhtunkhwa (ERKF) and Federally Administered Tribal Areas (FATA)’ is a joint initiative for both KPK and FATA to offer support to SMEs, attract Diaspora investment, and strengthen institutional capacities to foster investment and implement regulatory reforms.

The project is divided in 3-component like SME Development, Investment Mobilization and Capacity Building to Foster Investment and Implement Reforms.

PM’S youth business loan

PM’s youth business loan, for young entrepreneurs between the age group of 21-45 years, is planned to offer subsidized financing at 8.0 percent mark-up per annum for 100,000 beneficiaries, by designated financial institutions, originally through NBP and FWBL. Small business loan with tenure of up to 8 years, with first year grace period, and a debt/equity of 90:10 will be disbursed to SME beneficiaries across Pakistan, covering Punjab, Sindh, Khyber Pakhtunkhwa (KPK), Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and FATA. It has a 50 percent quota for women and 5 percent quota for families of Shaheeds, Widows and Disabled persons.

SMEDA has been tasked with an advisory role in the implementation of PM’s scheme by offering greater than 55 updated pre-feasibilities for referencing by loan beneficiaries and participating banks to optimally utilize their financial resources.

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