Pakistan needs to grow SME finance. That is the oft cited mantra at various public and private forums where they discuss business and economic affairs. But how many SMEs does Pakistan have, and whether most SMEs even need finance through banks or capital markets is a question that has no definite answer. Only conjectures and assumptions masquerading as educated estimates!
If Islamabad does not have the wisdom to conduct an SME survey or at least update its now-irrelevant twelve-year-old Census of Economic Establishments 2005, then what’s stopping the provinces to do their own. Following the devolution, provincial statistical was expected to grow. They haven’t. And are well advised to conduct an SME survey or provincial census of economic establishments for their own interest, if they are any serious to grow their GST on service collection beyond the cash cows of telecom, banking, etc. Service sector has growth considerably in the last decade, and that’s where a big cluster of SMEs will be found.
Onto the subject of SME finance; most studies on the subject talk about the supply side issues in SME finance. Each new study validates the already known problems. New data to prove the existence of an age-old problem is not exactly a eureka moment. Even studies that look at demand side problems look at the operational factors – such as lack of collateral to meet bank loan requirements.
It is simply assumed that the SMEs have an intrinsic motivation to take a loan from the bank, whereas that may not always be the case. If it were, wouldn’t the Karachi, Lahore, Rawalpindi and Islamabad chambers that are dominated by the SMEs have made the supply side of SMEs finance a key agenda item?
BR Research’s voxpopuli in the MSME sector over the last many years informs that a huge number in the micro and small sector (noticeably in the medium sector as well) would rather take an expensive loan informally than take a relatively cheaper loan from a formal institution. The reason: avoiding the tax man, and the documentary complications of formality. A voxpopuli of MSME sector isn’t exactly a survey insight. But sometimes anecdotal evidence provides a good pulse reading of the economy.
There is no denying the importance of supply side factors, fixing which can lead to growth in SME finance. But stakeholders are also advised to study the demand side of SME finance from motivational aspects, whereas the tax man and regulatory bodies should re-think their policies and procedures for the SMEs. Just fixing the tax policy could possibly shift the demand curve upwards for SME finance, especially now as third generation of owners have begun to take the reins!
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