SME Financing Needs, Knowledge, Access & Satisfaction [2019]

SME Financing Needs, Knowledge, Access & Satisfaction [2019]
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01 October 2019
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SME sector plays a significantly important role in Pakistan’s economy and constitutes more than 90% of all the economic establishments operating across the country. SMEs employ 80% of the nonagricultural labor force and their share in the annual GDP is 40%, approximately; generate 25% of export earnings. In Pakistan, an enterprise is defined as ‘SME’ if it consists of up to 250 full-time employees, paid up capital of up to PKR 25 million and generates annual sales of up to PKR 250 million.

SMEs in Pakistan have immense potential, which can be further tapped to generate higher economic and inclusive growth levels as the sector is currently not operating at full capacity because SMEs continue to face several bottlenecks to their growth. Access to finance is the most frequently cited challenge faced by the SMEs in Pakistan. The overall lending to the SME sector remains at a small share of credit available for the private sector and tends to be provided at significantly higher financing costs.

Given that one of the most critical determinants of SME success in the long-run is their ability to meet their financing needs; this particular study is aimed to assess the current financing needs, knowledge, access and satisfaction from the perspective of local SMEs in the Province of Punjab. The prime drive here is to identify the major hurdles faced by SMEs in access to finance and formulate recommendations aimed at increasing the number of SMEs borrowing from formal financial institutions. The primary data was collected through survey questionnaires. The questions were designed to identify how SMEs meet their short and long-term financing needs, mainly including 'Working Capital’, 'Medium- and Long-Term Financing’, ‘Leasing’ and ‘Equity Financing’.

A total number of 78 entrepreneurs / SME owners through convenience sampling methodology were approached for this quantitative survey. Around 69% of the respondents fall in the age bracket of 18 ~ 44 years followed by 25% who were 45 years old or older. Majority of the respondents (i.e. 58%) were classified under the legal ownership status of sole-proprietorship. 49% of the respondent SMEs were operating in the manufacturing sector whereas 29% were in services and 17% in retail / trade sectors. The participating entrepreneurs were fairly experienced in managing a business; with more than 57 % having an experience of running their present business for at least 6 years.

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