Promotion of Small and Medium Enterprises (SMEs) seeks to enhance the competitiveness of the economy and generate additional employment. SMEs normally have a disadvantage of size compared with large enterprises. The rationale for Government to assist SMEs in a market economy is that it is inefficient to have them go bankrupt when demand-driven, well targeted assistance may assist them in overcoming their size-related difficulties.

It is fair to say that our economy is an economy of SME. The significant role of SME is clearly indicated by various statistics. According to more recent estimates there are some 3.2 million business enterprises in Pakistan. Enterprises employing up to 99 persons constitute over 95% of all private enterprises in the industrial sector and SME employ some 78% of non-agriculture labour force. They contribute over 30% to GDP, Rs.140 billion to exports, and 25% of manufacturing export earnings besides sharing 35% in manufacturing value added.

It is understood that despite previous efforts the SME sector has not received due priority on account of segregated efforts and non-consolidation of programs to achieve well targeted results. In order to move forward, we need to develop a common vision for SMEs to be real engine of growth. Our vision also needs to be achievable so we may find motivation in implementing phase.

Implementing change requires the formulation of a Policy for SME development and assigning specific responsibilities for its implementation and continuous improvement. The Government of Pakistan has thus constituted the SME Task Force, by Notification No.1(68)/2003-Inv-III of 29 January 2004 of the Ministry of Industries and Production, which is to define the basic elements of our SME policy.

As there are many cross-cutting issues to be addressed, the SME Task Force is composed of diverse sectors and levels of Government and includes major stakeholders of the private sector, and SME in particular. Where the SME Task Force deems it necessary or useful, it may invite specific organizations or individuals to assist its work. It may also co-opt further members.

The Small and Medium Enterprises Development Authority (SMEDA) was established in 1998 under the Ministry of Industries and Production in order to foster the development of SME in the economy and was expected to take a key role in this process. Its functions include, inter alia, the facilitation on policy making and the provision of overall planning, programming, research and evaluation of matters related to SME in Pakistan; monitoring and evaluation; encouraging and facilitating development of SME and to protect their interests.

In order for the SME Task Force to be able to work effectively, four Working Committees have been setup to carry out technical analyses and deliberate the findings. All members of the SME Task Force are expected to assign staff or representatives to these Working Committees.

The proposed Working Committees will address the following core issues:

1. Creating a favorable business environment for SME in Pakistan's economy and eliminating unnecessary obstacles.
2. Increasing SMEs’ access to formal finance including equity financing while addressing the question of "lacking documentation" and banks' technical capabilities and improving SMEs' capacity to become bankable.
3. Improving the delivery mechanisms for assistance and the access to resources for SME in Pakistan, inter alia business development services, qualified human resources, and technology, so as to improve their productivity and capacity for employment generation.
4. Establishing appropriate and harmonized definitions for Pakistan of what are to be considered micro, small, medium, and large enterprises. Furthermore, the establishment of a sound mechanism by which their development of the SME sector and the effectiveness of the assistance provided to SME can be monitored.

In the first meeting, the Task Force constituted for policy was briefed about current issues of SMEs in its meeting held in Islamabad on April 6, 2004 as covered in the annexed Issues Paper. A plan of action for the process was also discussed.

Government of Pakistan has negotiated a loan with the Asian Development Bank (ADB) under the SME Sector Development Program (SDP) for the development of a comprehensive SME Policy. The process of development of SME Policy is likely to be completed by June 2005. It also envisages hiring consultants if necessary.

The broader objectives to be achieved by this policy exercise would be; across the board recognition for SMEs as a sector requiring separate policy & regulatory space, define SMEs that qualify for support, propose counterbalancing measures to eliminate disadvantage of size, remove unnecessary regulatory burden, institute SME support mechanism in both public & private sectors, improve support delivery mechanisms and establish policy evaluation and review systems. The participation of stakeholders will be the cornerstone of the policy development process. Nevertheless, the appropriate format of the SME Policy for Pakistan is to be decided by the Task Force on the recommendations of Working Committees.

Download SME Issues paper