The role of Small and Medium
Oct 23 - 29, 2000
Institute of Cost and Management Accountants of Pakistan (ICMAP) and
the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) have made a joint
research on the role of SMEs in economic uplift of the country.
The report was presented to Fazlur Rehman Dittu, president, FPCCI at
the Federation House on October 12, 2000 by Jalal Ahmed Khan, Executive Director and Syed
Jamil Ahmed Rizvi, Director Research, ICMAP. Engineer M.A Jabbar, Member Managing
committee, FPCCI, Chairman FPCCI Standing Committee Legal Affairs and Chairman, FPCCI,
Standing Committee, WTO was the moving spirit behind the project. He floated this idea and
persued with M.H. Asif, ICMAP president and the directors of the Institute to prepare the
report on SMEs.
The report has been prepared in view of the significant role of SMEs in
Pakistan, which provide employment to about 65 per cent of work force in the industrial
sector. They contribute to the GDP around four times as much as the large scale
The Director Research of ICMAP briefed on this occasion that
revolutionary support from the government will be needed for the development of SMEs in
the country. He further added that the government should make strategic policy decision to
provide both technical and financial assistance to the SMEs sector.
Developing as well as developed countries hare spent large amounts of
money for the promotion of SMEs.
There are three focal points in which SMEs are different from large
scale enterprises. These are uncertainty, innovation and evolution.
The SME sector itself can be desegregated into micro enterprises, small
enterprises and medium enterprises. SMEs are the starting point of development in
countries desiring industrialization.
Most of the larger enterprises today have their origins in small and
medium enterprises. SMEs lack the research capacity, the ability to take substantial
risks, or any other advantage of expansion. SMEs have their effect on the GDP income
distribution, tax revenue, employment, efficient utilization of resources and stability of
Efforts are necessary to boost this sector for both employment, GDP
growth and to organise its financial behaviour. SMEs are vital for world prosperity.
Collectively they we the largest employers and greatest creators of wealth.
Small industry can be set up with small capital, and can produce goods
for domestic consumption by using labour intensive technology.
The report highlighted about the successful experience of SMEs in
Bangladesh and China. The Government of Bangladesh had taken up different financial
assistance programmes with a view to extending finance to small industries at relatively
SMEs have played a very important role in the economic development of
China. At present, there are more than 10 million of SMEs comprising 99 per cent of the
total number of enterprises in China. SMEs contributed 60 per cent of industrial output
volume and 40 per cent of the total taxes and profits realized by enterprises in China.
SMEs of China provide 75 per cent of the total township and urban employment and as such
they play an important role in releasing the employment pressure and maintaining social
It has been reported that SMEs are capable of creating most of the one
billion new jobs the world will need in the new millennium. In developed countries, SMEs
have constituted a significant portion of GNP and total employment.
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 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
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
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 bank could be sponsored by IDB, FPCCI, leasing companies,
investment banks, modarba companies, various associations of exporters, NIT, insurance
companies and general public.
It has been suggested in the report that the State Bank of Pakistan
should seriously consider reducing interest rate to 10 per cent for SMEs and all
commercial banks should also re-shape their credit policies for promoting the SMEs and
achieving self sustaining economic development.
The report concludes that unless and until the SMEs are promoted, the
dream of economic revival may not come true.
At the presentation ceremony of the report, those present were members
managing committee of FPCCI which included Engineer M.A. Jabbar, Shaikh Shakeel Ahmed,
Aziz Damji, Ubaidullah Qadri, Siddique Suleman, Muhammad Munsha Churra, Dawood Usman
Jakhoora, Ilyas Bari, Yousuf Abdul Rehman, Secretary General FPCCI Anwarul Haque, Senior
Joint Secretary Shahid Anwar and FPCCI Economic Advisor.
The ICMAP and FPCCI are also conducting joint research on preparing
another study entitled "Input Costs and Corporate Tax Structure An Analysis of
Trends in SAARC Region" whose draft will be released before the end of year for
review by FPCCI.
The report on the 'Role of Small and Medium Enterprises in GDP and
macro Economic development of Pakistan has already been submitted by FPCCI to the Chief
Executive, Finance Minister, Commerce Minister, Governor of SBP for active consideration