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The Future of SMEs

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The Future of SMEs

Tax policy needed to encourage banks to enhance loan portfolio

Bilal Hassan

The small and medium enterprises (SMEs) sector is considered the backbone of any economy due to its role in accelerating economic growth, creation of jobs and taming inflation. SME sector is of utmost significance for lower-middle income countries like Pakistan. It is responsible for 60 percent of total jobs in Pakistan. Its contribution to GDP and export revenues is 30 percent and 25 percent, respectively. Being integral part of the supply chain, the SME sector plays a crucial role in achieving sustainable economic growth.

Unfortunately, the SME sector in Pakistan has not been given due attention in the past and remains one of the neglected areas even today. The principal manifestation of this neglect can be found in poor credit supply to this sector. This can be gauged from the fact that the share of SMEs in the total private sector credit declined from 17 percent in 2006 to 7.5 percent in 2018-19 – the share of SMEs in private sector credit in Bangladesh and Turkey is 20 percent and 29 percent, respectively. Sadly, access to formal finance remains restricted to 170,000 SMEs. Therefore, a large number of SMEs are facing massive financial constraints and it signifies that triple helix model is not being best utilized in Pakistan in promoting SME sector.

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