Engaging SMEs to stablize the economy

While observing development trends in diverse economically- robust nations worldwide, it is manifest that the stimulus behind their rapid development and sustainability is the industrious performance of their Small and Medium Enterprises Sector. Small and medium enterprises (SMEs) are widely recognized today as the backbone of national economic development. Though small individually, this sector as a whole has gradually emerged as a dominant economic player. There are 3.2 million economic establishments in the country of which more than 90% are SMEs. It employs 75% of the non-agricultural workforce and contributes 30% towards the national GDP.
SMEs stabilize economic growth and drive regional economic development in many developing and developed economies. Such businesses comprise a widely divergent spectrum of establishments. They engage in economic activities ranging from small-scale enterprises to modern industrial units using sophisticated technologies. Though recognized as a priority sector in almost all countries, small businesses often have difficulties financing growth and innovation. SME financing is considered by many financial providers to be a risky activity that generates high transaction costs and low returns on investment.
In order to provide SMEs access to financial services, financial intermediaries have to operate quite differently than in their mainstream banking operations. The keys to success in this market include client-appropriate financial products, standardized cash flow and character based lending procedures. In addition, loan analysis tools, an adequate credit risk management framework, and effective internal control and audit procedures are essential. The SMEs sector is not only the most dynamic one in each economy, but it is one of the first to be hit by any serious external shock. SMEs are, at present, considered as the most sensitive sector and worst affected by the economic environment. The economic crises have adverse impacts on most SMEs, reducing the volume of sales and increasing the number of bankruptcies or closures.
Major stumbles in stable economic growth have resulted due to financial system problems. This was true of the Great Depression, true with the Asian financial crisis, and now again with the recent global financial crisis. Problems in financial sector have significant impacts on business activities, and especially affect the SMEs. The crisis has caught SMEs in a vicious circle of poor credit availability, impaired liquidity, rapidly aggravating terms and conditions of trade and discouraging business confidence. It hits SMEs in the following ways: drastic drop in demand for goods and services; tightening in credit terms, which is severely affecting their cash flows; increased payment delays on receivables which result in an endemic shortage of working capital and a decrease in liquidity; increase in reported defaults, insolvencies and bankruptcies. Thus, there is a need to focus on SMEs and their performance – and keep them engaged at all times in order to promote and maintain stability and sustainability in their operations.
SMEs have enriched many industries in Pakistan, including: Agriculture, Textiles, Handloom Weaving, Leather, Carpets, Marble, Light-engineering, Fisheries and many more. Numerous public and private initiatives are also being conducted by: SMEDA, IFC, FPCCI, SBP and Business Support Fund (BSF) to swiftly boost business operations and offer significant financial support and training to the competent SME clusters.
Growth in SMEs broadens and diversifies the foundations of an economy, by creating a large variety of self-sustaining business units. This helps to mitigate industrial risks and accelerate commerce towards novel business avenues, while encouraging innovation and differentiation among products.
The 6th Pakistan SME Conference 2012 has intrigued leading professionals, as we endeavor to provide a stimulating environment, where you can gain insight and exchange views with the key stakeholders, to explore the opportunities in this sector. The Conference constitutes two sessions: ‘What ails the SME Sector in Pakistan?’, ‘Cost/Impediments of Doing Business v/s Market Forces and Challenges’ and a panel discussion on ‘Public Sector Development Program and Sub-Sector Opportunities’. Through deep deliberation, immaculate planning and coordinated diligence, a revitalized robust economy of Pakistan is now within our reach.
Over the past decades, Pakistan has introduced several positive structural reforms in the commercial sector aimed at encouraging the proliferation of SMEs across the nation. The swiftness of these changes might be lingering, however the direction is progressive. Care must be taken to ensure that the evolving SME policy is based on fairness, opportunity creation, venture facilitation, global market insight and export potential. After identifying and satisfying the needs of each business-category, labor laws and taxation structures should be simplified to enhance sustainability, foster commercial diversity and maintain financial discipline.
There is a need to enforce ‘One-Window’ operations for investors and facilitate access to the European Union and untapped markets through unique incentives. Diplomatic initiatives in collaboration with neighboring countries are also needed, besides expediting the currency swap agreements with responsive countries. Support is needed for providing information, modernizing plants and educating SMEs about the latest technology for: Networking, accounting, higher productivity and stronger brand equity. The usage of modern technology has created ways and means to re-energize social and industrial performance within remarkably short phases. The Government seeks to realign its strategies for assisting infrastructural development of SMEs, in order to enhance the exports of this particular sector and help poverty alleviation in the country.
The challenges by economic crisis carry both risk and opportunity for SMEs. The main challenges the most of SMEs have to cope with are a marked decline in the demand for products and services, liquidity and credit related problems, sharp increases in the price of raw materials, considerable fluctuations in the exchange rate, and inflation pressure. Regulation and compliance are burdensome and hard to deal with as is competition and mistakes in business management carry heavier risks. Running a business without access to experts bears higher risk. This phenomenon is spreading quite rapidly to a growing number of smaller companies.
The Chief Guest of the 6th Pakistan SME Conference 2012 will be Mr. Kazi Abdul Muktadir, Deputy Governor, State Bank of Pakistan. Other renowned professionals who will be sharing their views and opinions regarding the vitality of the SME sector include: Mr. Samar Hasnain, Director SME, State Bank of Pakistan (SBP); Mian Abrar Ahmed, President, Chamber of Commerce & Industry (KCC & I); Mr. Sultan Tiwana, Director, Small & Medium Enterprises Development Authority (SMEDA) and Mr. Saquib Mohyuddin, CEO, Business Support Fund, Ministry of Finance. This platform is supported by: the State Bank of Pakistan, Business Support Fund, Union of Small and Medium Enterprises, Etihad Airways, Pakistan Today, United Bank Limited Ameen, Dubai Islamic Bank, Bank Alfalah, Tapal and Pakistan International Airlines.