asim malik presentation sme's pakistan
TRANSCRIPT
SMALL AND MEDIUM SMALL AND MEDIUM ENTERPRISESENTERPRISES
GROUP MEMBERSGROUP MEMBERS
M ASIM MALIKM ASIM MALIKZAMAN AHMAD ZAKIZAMAN AHMAD ZAKIFARHAN HABIB QURESHIFARHAN HABIB QURESHISIKANDAR GHANISIKANDAR GHANIM RAMZAN M RAMZAN M ZAIN MALIKM ZAIN MALIK
OBJECTIVEOBJECTIVEWhat is enterprises and entrepreneurshipWhat is enterprises and entrepreneurshipWhat is SMEs What is SMEs SMEs in PAKISTANSMEs in PAKISTANClassification ,characteristic, challenges Classification ,characteristic, challenges of SMEsof SMEsSources and regulatory frame work.Sources and regulatory frame work.Best practices in different country. Best practices in different country. SMEs polices and SMEs development- SMEs polices and SMEs development- policy statement.policy statement.
EnterpriseEnterprise……involves measures to encourage individuals to involves measures to encourage individuals to become entrepreneurs with the necessary skills to become entrepreneurs with the necessary skills to make a business successful make a business successful (Mason, 2000)(Mason, 2000)
In essence, enterprise is about spotting opportunities, In essence, enterprise is about spotting opportunities, creating new ideas and having the confidence and creating new ideas and having the confidence and capabilities to turn these ideas into working realities capabilities to turn these ideas into working realities (Nixon, 2004)(Nixon, 2004)
Define EntrepreneurDefine Entrepreneur
“ “ Is a person who organized and manages a Is a person who organized and manages a business undertaking assuming the risk for the business undertaking assuming the risk for the sake of profit ”sake of profit ”
“ “ Its mean who takes the risk of converting a new Its mean who takes the risk of converting a new idea into reality ”idea into reality ”
SME DefinitionsSME Definitions
SMEDA SME DefinitionSMEDA SME Definition
Small & Medium Enterprises are defined as follows, as approved inSmall & Medium Enterprises are defined as follows, as approved in
SME Policy 2007SME Policy 2007
Enterprise CategoryEmployment
Size (a)Paid Up Capital
(b)Annual Sales
(c)
Small & Medium Enterprise (SME)
Up to 250Up to Rs. 25
MillionUp to Rs. 250
Million
The Small And Medium Enterprises The Small And Medium Enterprises Development Authority - SMEDADevelopment Authority - SMEDA
Premier institution of the Govt. of Pakistan under Ministry of Premier institution of the Govt. of Pakistan under Ministry of Industries and Production, SMEDA was established in October 1998 Industries and Production, SMEDA was established in October 1998 to take on the challenge of developing Small & Medium Enterprises to take on the challenge of developing Small & Medium Enterprises (SMEs) in Pakistan(SMEs) in Pakistan
SMEDA VisionSMEDA Vision
Growth of globally competitive SME sector through a conducive and Growth of globally competitive SME sector through a conducive and facilitating environment and support services as an engine of growth facilitating environment and support services as an engine of growth and sustainability to national economy.and sustainability to national economy.
SMEDA ObjectivesSMEDA Objectives
Formulate Policy to encourage the growth of SMEs in Formulate Policy to encourage the growth of SMEs in the country and to advise the Government on fiscal and the country and to advise the Government on fiscal and monetary issues related to SMEs. monetary issues related to SMEs.
Facilitation of Business Development Services to SMEs. Facilitation of Business Development Services to SMEs.
Set up and manage a service provider’s database Set up and manage a service provider’s database including machinery and supplier for SMEs.including machinery and supplier for SMEs.
Facilitation of SMEs in securing financing. Facilitation of SMEs in securing financing.
Strengthening of SMEs by conducting and facilitating Strengthening of SMEs by conducting and facilitating seminars, workshops and training programs. seminars, workshops and training programs.
Identification of service opportunities on the basis of Identification of service opportunities on the basis of supply/demand gapsupply/demand gap
SME DefinitionsSME Definitions
Defined by State Bank of Pakistan Defined by State Bank of Pakistan
SME (Small and Medium Enterprise) means an entity, ideally not a public limited company, which does not employee more than 250 persons (if it is manufacturing concern) and 50 persons (if it is trading / service concern).
And also fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant:
(a) A trading / service concern with total assets at cost excluding land and buildings up to Rs 50 million.
(b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.
SME DefinitionsSME Definitions
Institution Small Medium
SME Bank Total Assets of Rs. 20 M
Total Assets of Rs. 100 M
Federal Bureau of Statistics
Less than 10 employees N/A
Punjab Small Industries Corporation
Fixed investment. up to Rs. 20 million excluding land and building
N/A
Punjab Industries Department
Fixed assets with Rs. 10 million excluding cost of land
N/A
SME Sector in PakistanSME Sector in Pakistan
3.2 million business units in Pakistan
Over 90% business units employ less than 99 persons
i.e. 3.16 million SMEs
Generate 80% of non-agri sector employment
Direct Contribution to GDP over 40% approximately
Generate 25% of Manufacturing Export Earnings
Contribute 35% in Manufacturing Value addition SMEs contribute around Rs. 140 B to Exports.
Characteristics of SMEsCharacteristics of SMEs
Owner is the manager & few employees
Owned & operated independently
Relatively small investment, production, sales, dealings etc.
Inadequate efficiency of business operations - no relationship with other firms or parties for Investment Management, finance,
Classification of SMEs Classification of SMEs SMEs have been historically classified asSMEs have been historically classified as::
Industry Industry Trade; Wholesale, Retail & Services Trade; Wholesale, Retail & Services
Criteria For Definition: The criteria is based on:Criteria For Definition: The criteria is based on: Fixed AssetsFixed Assets EmploymentEmployment Turnover/salesTurnover/sales
Fixed Assets Fixed Assets include Land Building, Machineryinclude Land Building, Machinery Employment Employment Essence of SMEs is job creation.Essence of SMEs is job creation. Turnover/SalesTurnover/Sales Sale have been researched to arrive at the Sale have been researched to arrive at the
Annual Turnover/SalesAnnual Turnover/Sales
Challenges & Issues in SME Challenges & Issues in SME DevelopmentDevelopment
Business EnvironmentBusiness Environment Relationship between Government and SMERelationship between Government and SME Taxation issuesTaxation issues Labor issuesLabor issues Delivery of assistance and access to resourcesDelivery of assistance and access to resources FinanceFinance Human Resource DevelopmentHuman Resource Development Technology Transfer and Up-gradationTechnology Transfer and Up-gradation Market and Industry InformationMarket and Industry Information LiteracyLiteracy Law and OrderLaw and Order InfrastructureInfrastructure
Growth of SMEs vis-à-vis Growth of SMEs vis-à-vis Large Scale Large Scale
year Large-Scale Small-ScaleOutput
Growth RateCapital
Formation Growth %
Output Growth Rate
Capital Formation Growth %
1970s 4.84 -2.28 4.4 5.5
1980s 8.16 8.15 4.7 10.5
1990s 3.6 -5.02 2.6 7.2
World Bank Survey 2002World Bank Survey 2002Issues IdentifiedIssues Identified PercentagePercentage
Lack of financeLack of finance 55%55% Shortage of skilled labourShortage of skilled labour 39%39% Getting business siteGetting business site 38%38% BribesBribes 21%21% Orders/Marketing of ProductOrders/Marketing of Product 28%28% Lack of KnowledgeLack of Knowledge 12%12% Government interferenceGovernment interference 12%12% Raw MaterialRaw Material 10%10% License for workLicense for work 8%8% New TechnologyNew Technology 8%8%
Issues in SME Issues in SME FinancingFinancing
Sources of Working Capital Sources of Working Capital for SMEs for SMEs
other8%
Informal1% Equity
12%
Trade Credit5%
Banks/ FIs7%
Retained Earnings
67%
Financial Sector Contributing 7% Working Capital
Sources of Investment for Sources of Investment for SMEsSMEs
Trade Credit2%
Banks/ FIs8%
Equity17%
Informal2%other
12%Retained Earnings
59%
Financial Sector Contributing 8% Investment
Our understanding of the Our understanding of the SituationSituation
Most SMEs operate through Self-Financing or Retained Earnings
SMEs do not make use of Trade Finance for Expansion
Fear of regulations discourage them to come in the formal fold
The size of SME in credit market is estimated to be 250 to 400 billion
Legal Structure of Business UnitsLegal Structure of Business Unitsin Pakistan in Pakistan
Corporates & Others
8%
Proprietorships &
Partnership85%
Public Sector7%
Regulatory FrameworkRegulatory Framework
Missing links between SMEs and the financial
institutions – Credit Guarantee and Insurance (Laws
& Institutions)
Tax Related Laws – SMEs unwilling to share
operations related data and information on accounts
Inconsistent government policies – S Tax 300
amendments
No policy or legal support for business Start-ups or
projects backed by only sound business plans
International Best Practices International Best Practices Countries Studied Countries Studied
Developed CountriesDeveloped Countries– Germany Germany
– JapanJapan
Neighboring CountriesNeighboring Countries– ChinaChina
– IndiaIndia
Developing CountriesDeveloping Countries– Thailand Thailand
– TurkeyTurkey
International Best Practices –International Best Practices –SME Financing Infrastructure SME Financing Infrastructure Separate legislationSeparate legislation
Specialized Institutions for :-Specialized Institutions for :-
– Promotion of SMEs- Advisory role-SMEDAPromotion of SMEs- Advisory role-SMEDA
– Products development for risk mitigation in respect of financing Products development for risk mitigation in respect of financing
by financial institutionby financial institution Credit Guarantee Mechanism- in all countries studied by the groupCredit Guarantee Mechanism- in all countries studied by the group
Credit BureauCredit Bureau
Securitization and Reconstructions of financial assets- India & Korea Securitization and Reconstructions of financial assets- India & Korea
Separate ActSeparate Act
Mechanism for redressal of grievance- Ombudsman for SMEs (India)Mechanism for redressal of grievance- Ombudsman for SMEs (India)
Banks for channelizing the resources to end usersBanks for channelizing the resources to end users
Venture Capital arrangementsVenture Capital arrangements
International Best Practices - International Best Practices - Laws for SMEs Laws for SMEs
These laws vary directly with respect to the stage These laws vary directly with respect to the stage
of development of SME sector e.g. of development of SME sector e.g.
– laws focusing on the promotion of the SME Sectorlaws focusing on the promotion of the SME Sector
– laws focusing on the risk mitigation regime e.g. SME Credit laws focusing on the risk mitigation regime e.g. SME Credit
Insurance Law (Japan), Credit Guarantee Association Law Insurance Law (Japan), Credit Guarantee Association Law
Institutions are the outcome of these laws e.g. Institutions are the outcome of these laws e.g.
Credit Guarantee Corporations is the outcome of Credit Guarantee Corporations is the outcome of
Credit Guarantee Association Law in JapanCredit Guarantee Association Law in Japan. .
International Best Practice - International Best Practice - JapanJapan
National Federation of Credit Guarantee Corporation National Federation of Credit Guarantee Corporation (NFCGC) - Insurance arrangement for SME financing (NFCGC) - Insurance arrangement for SME financing through Credit Guarantee system under JASMECthrough Credit Guarantee system under JASMEC
Credit Guarantee Corporation with 52 offices in all Credit Guarantee Corporation with 52 offices in all prefecture - funded by the Govt. of Japanprefecture - funded by the Govt. of Japan
Shoko Chu-kin Bank(102 Branches), Japan Finance Shoko Chu-kin Bank(102 Branches), Japan Finance Corporation & National Life Finance Corporation are Corporation & National Life Finance Corporation are exclusive institutions for SME Financing Besides, City exclusive institutions for SME Financing Besides, City banks (Commercial Banks)banks (Commercial Banks)
International Best Practice – International Best Practice – ChinaChina
Special Funds in Federal Budget for SME Special Funds in Federal Budget for SME Development FundDevelopment Fund– Sources of fundsSources of funds: federal budget, all governments above : federal budget, all governments above
county level, profits from operation of fund, donation, donorscounty level, profits from operation of fund, donation, donors– Usages:Usages: Credit Guarantee fund, Services for SMEs, Credit Guarantee fund, Services for SMEs,
Technology, specialization for integration with Large Technology, specialization for integration with Large EnterprisesEnterprises
– Central Bank support banks for SME financingCentral Bank support banks for SME financing
State to provide direct channels for SME FinanceState to provide direct channels for SME Finance
All commercial banks will provide SMEs loans, All commercial banks will provide SMEs loans, financial consultation and investment financial consultation and investment managementmanagement
International Best Practice – International Best Practice – IndiaIndia
Reserve Bank provides Guidelines for Reserve Bank provides Guidelines for
directive credit for SMEsdirective credit for SMEs
Small business financing is binding for all Small business financing is binding for all
financial institutionsfinancial institutions
Banking Ombudsman for Small EnterprisesBanking Ombudsman for Small Enterprises
Penalty systemPenalty system
Credit Guarantee upto Re.2.5 millionCredit Guarantee upto Re.2.5 million
Operational Strategy Operational Strategy
Building a Conducive Environment
• Proposing and facilitating changes in Policy and Regulatory Environment
• Reducing the Cost of Doing Business• Facilitating Government-SME
Interface Developing Sectors and Clusters
• Sector Studies, Strategies and Implementation
• Cluster Development • Common Facility Centers (CFCs)
Provision and Facilitation of Services
• Investment Facilitation • Technology, Training, Finance,
Business Information, Marketing, and legal support
• Productivity and Competitiveness Improvement
Priority SectorsPriority Sectors
Gems & JewelryGems & Jewelry
Marble & GraniteMarble & Granite
DairyDairy
Sports GoodsSports Goods
FurnitureFurniture
FisheriesFisheries
Light EngineeringLight Engineering
SME PolicySME Policy
Business EnvironmentBusiness Environment
SME FinancingSME Financing
Access to Resources & ServicesAccess to Resources & Services
Human Resource DevelopmentHuman Resource Development
TechnologyTechnology
Market and Industry InformationMarket and Industry Information
SME Definition, Feedback, Monitoring & Evaluation MechanismSME Definition, Feedback, Monitoring & Evaluation Mechanism
Over 1000 stakeholders consultedOver 1000 stakeholders consulted
12 Workshops12 Workshops
SME Development – Policy StatementSME Development – Policy Statement
“ “The Government of Pakistan is committed to develop the SME The Government of Pakistan is committed to develop the SME
sector for achieving higher economic growth leading to creation of sector for achieving higher economic growth leading to creation of
jobs and poverty alleviation. SME development will be achieved by jobs and poverty alleviation. SME development will be achieved by
providing conducive business environment, greater access to formal providing conducive business environment, greater access to formal
financing and through provision of support in technical up gradation, financing and through provision of support in technical up gradation,
human resource development, marketing and innovation. The human resource development, marketing and innovation. The
Government will facilitate establishment of new businesses by Government will facilitate establishment of new businesses by
developing policies that help in unleashing the entrepreneurial developing policies that help in unleashing the entrepreneurial
potential of the people of Pakistan”potential of the people of Pakistan”
THANKSTHANKS