SMALL AND MIDSIZE ENTERPRISES - SME'

A business that maintains revenues or a number of employees below a certain standard. Every
country has its own definition of what is considered a small and medium-sized enterprise. In the
United States, there is no distinct way to identify SME; it typically it depends on the industry in
which the company competes. In the European Union, a small-sized enterprise is a company with
fewer than 50 employees, while a medium-sized enterprise is one with fewer than 250
employees.
IMPORTANCE OF SMES:
Developing a group of diverse and competitive small and medium enterprises (SMEs) is a central
theme towards achieving sustainable economic growth. SMEs are crucial to the economic
growth process and play an important role in the countrys overall production network.
Some advanced economies have succeeded because SMEs form a fundamental part of the
economy, comprising over 98% of total establishments and contributing to over 65% of
employment as well as over 50% of the gross domestic product.
Although the numbers might be lower in Malaysia, SMEs have the potential to contribute
substantially to the economy and can provide a strong foundation for the growth of new
industries as well as strengthening existing ones, for Malaysians future development.
The contribution of small and medium enterprises (MSME) sector to manufacturing output,
employment and exports of the country is quite significant.
The SME sector employs about 42 million persons in over 13 million units throughout the
country. There are more than 6000 products, ranging from traditional to high-tech items, which
are being manufactured by the Indian SMEs.
Institute of Cost and Management Accountants of Pakistan (ICMAP) and the Federation of
Pakistan Chambers of Commerce and Industry (FPCCI) have made a joint research on the role of
SMEs in economic uplift of the country.

The report was presented to Fazlur Rehman Dittu, president, FPCCI at the Federation House on
October 12, 2000 by Jalal Ahmed Khan, Executive Director and Syed Jamil Ahmed Rizvi,
Director Research, ICMAP. Engineer M.A Jabbar, Member Managing committee, FPCCI,
Chairman FPCCI Standing Committee Legal Affairs and Chairman, FPCCI, Standing
Committee, WTO was the moving spirit behind the project. He floated this idea and persued with
M.H. Asif, ICMAP president and the directors of the Institute to prepare the report on SMEs.
The report has been prepared in view of the significant role of SMEs in Pakistan, which provide
employment to about 65 per cent of work force in the industrial sector. They contribute to the
GDP around four times as much as the large scale industries.
The Director Research of ICMAP briefed on this occasion that revolutionary support from the
government will be needed for the development of SMEs in the country. He further added that
the government should make strategic policy decision to provide both technical and financial
assistance to the SMEs sector. Developing as well as developed countries hare spent large
amounts of money for the promotion of SMEs.
There are three focal points in which SMEs are different from large scale enterprises. These are
uncertainty, innovation and evolution.
The SME sector itself can be desegregated into micro enterprises, small enterprises and medium
enterprises. SMEs are the starting point of development in countries desiring industrialization.
Most of the larger enterprises today have their origins in small and medium enterprises. SMEs
lack the research capacity, the ability to take substantial risks, or any other advantage of
expansion. SMEs have their effect on the GDP income distribution, tax revenue, employment,
efficient utilization of resources and stability of family income.
Efforts are necessary to boost this sector for both employment, GDP growth and to organize its
financial behavior. SMEs are vital for world prosperity. Collectively they we the largest
employers and greatest creators of wealth.

Small industry can be set up with small capital, and can produce goods for domestic
consumption by using labor intensive technology.
The report highlighted about the successful experience of SMEs in Bangladesh and China. The
Government of Bangladesh had taken up different financial assistance programs with a view to
extending finance to small industries at relatively favourable conditions.
SMEs have played a very important role in the economic development of China. At present,
there are more than 10 million of SMEs comprising 99 per cent of the total number of enterprises
in China. SMEs contributed 60 per cent of industrial output volume and 40 per cent of the total
taxes and profits realized by enterprises in China. SMEs of China provide 75 per cent of the
Total Township and urban employment and as such they play an important role in releasing the
employment pressure and maintaining social stability.
It has been reported that SMEs are capable of creating most of the one billion new jobs the world
will need in the new millennium. In developed countries, SMEs have constituted a significant
portion of GNP and total employment.
SMEs account for between 55 per cent and 80 per cent of total employment in Western Europe,
Japan and USA. Their contribution in output in Japan is 65 per cent, Germany 48 per cent and
USA 45 per cent.
According to the economic survey of 1998-99, SMEs with a mere 20 per cent investment and
resource to less than 10 per cent of the total formal credit, generated 80 per cent of the country's
total employment. Various types of loans available are small loans for business and industry,
small loans for industrialists, lending for small and medium industries.
If strategic planning for development of SMEs is made successful; middle class entrepreneurs
may play an effective role in the economic recovery of Pakistan.
In Pakistan adult literacy rate is 48 per cent and majority of entrepreneurs operating small
businesses and industry are not educated and as such they hesitate in approaching small and
medium enterprises development authority and banks for loans.

High interest rate is the main hurdle facing SMEs. Credit may be offered to such enterprises at
subsidized rates, the study said.
The research report proposes the setting up of a 'small business and cottage industries Bank' with
an authorized and paid-up capital of Rs. One billion to boost the development of existing and
developing new small and medium enterprises.
The bank could be sponsored by IDB, FPCCI, leasing companies, investment banks, modarba
companies, various associations of exporters, NIT, insurance companies and general public.
It has been suggested in the report that the State Bank of Pakistan should seriously consider
reducing interest rate to 10 per cent for SMEs and all commercial banks should also re-shape
their credit policies for promoting the SMEs and achieving self-sustaining economic
development.
The report concludes that unless and until the SMEs are promoted, the dream of economic
revival may not come true.