Sector-Specific SME Banks can help Build better Businesses

Small Medium Enterprises (SMEs) play a significant role in developing economies and account for most businesses worldwide. SMEs represent about 90% of companies and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of the national gross domestic product (GDP) in emerging economies (Express Tribune,2022). Experts estimated that the numbers would go significantly higher if informal SMEs were included. It is observed that there will be a global requirement of nearly 600 million jobs by 2030, making SME development a high priority for many governments worldwide, including Pakistan.

Recently, the Government of Pakistan has decided not to privatise and not to merge SME Bank with the National Bank of Pakistan. This move has increased the need to restructure the SME Bank and redefine its role in the development of the SME sector. Sector-specific SME banks can help small and medium enterprises (SMEs) across Pakistan to build back better from financial constraints. Earlier, the SMEs were bound by specific SBP rules and couldn’t borrow above the maximum limit of Rs10 million. These sector-specific SME banks will provide expertise for specialised SME financing required to strengthen the sector.

Currently, there are more than 5 million enterprises in the Pakistani market, including 90 per cent of all the enterprises being considered in the SMEs bracket. More than 21 million people are employed in the SME sector of Pakistan. Looking at the share of SMEs according to provinces, Punjab has the largest share with 65 percent, followed by Sindh at 17 percent, KPK at 14 percent, and Balochistan at 2 percent. SMEs work as an engine of growth for the Pakistani economy. They are a source of innovation and nurseries of entrepreneurship. They also work for improvements in many socio-economic indicators such as poverty, joblessness, and reduction in crimes and corruption.

In conclusion, SMEs are the backbone of the modern urban economy as they provide the highest level of employment in the region. Such financing policies and initiatives will revitalise the SMEs and help generate jobs and economic growth in the country.