Master of Business Administration Executive

Faculty / School

Faculty of Business Administration (FBA)

Year of Award


Project Type

MBA Executive Research Project

Access Type

Restricted Access

Executive Summary

Today more and more literature has been devoted to Small & Medium Enterprises (SMEs) due to its vital role in the development of many developed and underdeveloped countries. SMEs are considered the locomotive of sustainable economic development, poverty alleviation and employment generation. In other words, SMEs run the lifeline of economies across the globe. There is no universal acceptable definition of SME. In some regions, it is defined in terms of revenue generation, some use employment as indicator. However, every definition includes Headcount, Annual Turnover and Annual Balance Sheet as parameters. State Bank of Pakistan also defines SME in terms of headcounts and annual turnover.

Literature express that SMEs plays key role in the structured transformation of economies - from low to middle and from middle to high income level countries. As per the theory of W. Rostow, there are five stages of economic growth. In each stage SME contribution towards development and growth is different. Moreover, it has been noted that importance of SME sector increases at low levels and high at middle to high income level but after this when economy enters into last stage i.e. high mass consumption stage its decline because services sector dominates.

Like many other countries, SME is a major part of Pakistan economy. SME comprise around 90% of private businesses and provide work for 99% of non-agriculture labor force. SMEs contribute more than 25% in GDP and US$ 2.5 billion towards exports. SMEs in Pakistan can be divided in the seven sectors viz. Engineering, Gems/Jewellery, Fisheries, Sports Goods, Agro Processing & Dairy, Marble/Granite, and Furniture.

Pakistan is also those countries where most of the population is deprived of financial services. not available to about 40% Only 14.3% population is formally served and financially services are of the population. Dominant part of our economy is being served by informal financial sector, There are around 3 million SMEs in Pakistan. Maximum number of SMEs exists in Punjab followed by Sindh. Most of the SMEs are attach with Wholesale & Retail Trade & Restaurants business. It is very shocking that more than 50% SMEs avail credit from informal sector at higher rate.

SME sector in Pakistan facing many problems including poor government strategies, inefficient human resouces lack of innovation and technological support, inadequate infrastructure support, lack of entrepreneurial expertise and insufficient financial support. However, problem regarding financial support has multi dimensional. It has demand as well as supply side issues.

As per statistics as of March, 2011, SME sector's outstanding credit from banking sector is PKR 303 billion constituting about 9% of total outstanding credit of banking industry. Unlike other sectors, banks are extra cautious to provide financing SME sector. Total NPLs of the banking industry in respect of SME portfolio is 19% of the total NPLs of the banking industry. Similarly, total SME borrowers of banking industry stands at 195,000 as compare to 3,828,000 of total number of borrowers.

Credit Guarantee Scheme or Risk Sharing Framework is operating in more than 100 countries. There are more than 2250 CGSs with similar objective of promotion of SME sector through financial assistance. There are arguments against CGS, but its favoritism exceeds its criticism.

We have assessed the performance of CGS in three countries i.e. Korea, Japan and United States. In all the said countries, CGSs are running very successfully. In all the three countries, financial assistance is provided by financial institutions and the guarantee is provided by an independent legal entity up to certain portion of default amount.



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