The vital role of SMEs in driving economic growth

Small and Medium Enterprises (SMEs) are the backbone of thriving economies across the world. There is need for the policymakers in Pakistan to recognise the vital role of the SMEs sector to drive economic growth – especially now that the government is focusing on economic growth after having successfully pursued its economic stabilisation policy.

It is satisfying to note that the sitting government is taking steps to place SME development at the centre of its economic agenda. Towards this end, a National Steering Committee for SMEs, operating under the Prime Minister himself, meets regularly to assess progress and shape strategy.

One of its first major actions taken is reactivating the long-dormant board of Small and Medium Enterprises Development Authority (SMEDA) and task it with developing a comprehensive business plan for SME growth. That plan, now approved, covers a wide range of strategic initiatives - from improving access to finance to boosting export potential.

A major focus of the new strategy is to make SMEs more bankable, enabling easier access to loans and financial products. Recognising the importance of the vendor and subcontracting sectors, SMEDA has proposed measures to strengthen supply chains and create new market linkages. Climate resilience and promotion of women-led enterprises have also been prioritised.

While SME access to finance has long been a challenge, recent initiatives are yielding results. Under the SBP's guidance and with SMEDA's support, SME financing is on the rise. Dedicated SME divisions have been set up within many commercial banks, and loan application processes have been simplified.

In a landmark move, priority banking desks for women entrepreneurs are being established. SMEDA is also providing training and advisory services to help SMEs meet lending criteria. Both low-interest and interest-free loan schemes are currently being implemented at federal and provincial levels.

A special task force has been created to modernise SMEDA's internal systems and expand its manpower. An institutional needs assessment - conducted in collaboration with the International Trade Centre - has led to a performance improvement roadmap, which is now in the implementation phase.

The definition of SME has always been a controversial issue among various institutions and banks. However, during the formulation of the SME Policy 2021, a consensus definition of SME has been formulated which has been accepted by all economic institutions of Pakistan including the SBP and SECP. According to this definition, businesses with an annual sales turnover of Rs40 million to Rs150 million fall under the small category, while businesses with an annual sales turnover of Rs150 million to Rs800 million fall under the medium category.

But the latest addition to this definition is that, micro businesses have also been included in the SME sector so that they can also benefit from the facilities and incentives provided for SMEs. Therefore, micro businesses with an annual sales turnover of up to Rs40 million have been made part of the SME sector.

The SME Policy 2021, backed by a detailed action plan, is being implemented at pace. Key milestones include the development of a one-page loan application, the introduction of a collateral-free loan scheme and the launch of large-scale skill development programmes. Land has also been allocated for the establishment of SME Facilitation Centers in all four provinces.

To ensure policy oversight, a high-level national implementation committee led by the Ministry of Industries and Production is in place, along with provincial working groups headed by the Chief Secretaries of each province. Notably, over 170 outdated regulations that once hampered SME operations have been eliminated.

Moreover, SMEDA is taking concrete steps to support women entrepreneurship in close collaboration with Women Chambers of Commerce and other women-based association. The most groundbreaking development is the drafting of a dedicated Women Entrepreneurship Policy, now awaiting approval from the federal cabinet. Once approved, the PM is expected to announce the policy himself. This will mark a transformative step in enabling women to play a stronger role in SME development and the broader economy.