SME clinics

Yesterday’s piece on SME flagged the need for better understanding of demand side of SME finance – especially from motivational aspects – and the need for an updated census of economic establishments. In today’s space, this column would like to make four specific policy suggestions to bring about improvements in the SME sector.

First, there is a need to study the mindsets, the problems, the peculiarities and so forth of the third-generation owners of SMEs. There is a growing realization that third-generation SME owners are on the rise. There is no data or estimates for it. But examples abound. Some of them are wise enough to formalize and clean up; others not so much.

The problems of SMEs underperforming in the informal web of family ownership, and the culture thereof was also lately touched upon by central bank economists in an opinion piece published elsewhere in Pakistani media earlier this week. This column had also dwelled on the subject on April 7, last year in its piece titled ‘The father is always right’, where we touched upon how family dynamics keep Pakistani SMEs from growing wings.

The third-generation SME owners may provide a window of opportunity to bring about SME reforms. The policymaker community would do well to understand their motivations and create appropriate incentives and solutions.

Second, and betting on the third-generation SME owners, the HEC should nudge business schools to come up various models of MBA focusing on entrepreneurship and SME management. This could be offered under a taught programme, or a research-based programme. Or even better, a project-based programme, where third-generation SME owners can work towards reforming their businesses under advisory of the academia and mentors in an SME hub or clusters of sorts within the university after clearing some basic level of examinations.

When Pakistani universities can build clusters for IT start-ups, they can also build SME business clusters. The concept of ‘MBA in Entrepreneurship and SME Management’ is not exactly new; some of the world’s leading universities, especially in Europe offer such programmes.

Third, explore the idea of SME clinics for various areas of business management, just as hospitals have consultant clinics for various specialized problems. In a soon-to-be published interview with BR Research, the management of Employers Federation Pakistan (EFP) said they will soon be launching the concept of consultative clinics under their umbrella to help their members in a wide range of issues: from compliance with labour laws and safety standards to legal advisory, report writing and conducting feasibility studies.

The EFP claims their members have expressed an active interest for these soon-to-be launched clinics. Kudos to them for thinking creatively! And if their plan works out then it wouldn’t hurt to explore how the model can be replicated or improvised specifically for the SMEs.

Lastly, fill the information gap for the SMEs. For instance, a recent World Bank study found that 62 percent of available duty exemptions were claimed by top 100 firms. This is in part because bigger firms do bigger business, and therefore bigger the size of their claimed exemptions. But it is also because the SMEs do not have the right human capital to keep track of the changing set of incentives offered by the government. Hence the need for a portal that is timely updated with the all the list of incentives that SMEs can benefit from. To that end, the launch of SME Pakistan.net by the SBP, SMEDA and the SECP is a step in the right direction.