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SME & Their Role in Development

SMEs play an important role in Pakistan's economy, representing over 90% of businesses, employing 80% of the non-agricultural workforce, and contributing 40% to GDP. Regulations aim to support SME financing through prudential regulations. Small enterprises are defined as having up to 50 employees and annual sales up to Rs. 150 million. Medium enterprises have 51-250 employees for manufacturing and services, and 51-100 for trading, with annual sales over Rs. 150 million up to Rs. 800 million. Regulations address exposure limits, audited accounts, repayment assessment, collateral valuation, general reserves, and loan restructuring. Turnaround times for credit approval should not exceed 15 days.

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41 views

SME & Their Role in Development

SMEs play an important role in Pakistan's economy, representing over 90% of businesses, employing 80% of the non-agricultural workforce, and contributing 40% to GDP. Regulations aim to support SME financing through prudential regulations. Small enterprises are defined as having up to 50 employees and annual sales up to Rs. 150 million. Medium enterprises have 51-250 employees for manufacturing and services, and 51-100 for trading, with annual sales over Rs. 150 million up to Rs. 800 million. Regulations address exposure limits, audited accounts, repayment assessment, collateral valuation, general reserves, and loan restructuring. Turnaround times for credit approval should not exceed 15 days.

Uploaded by

Rosenna99
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Regulations of SME and their role in

Economic Development of Pakistan


What are SMEs?

SMALL AND MID-SIZE ENTERPRISES (SMES) ARE THOUGH SMALL, SMES PLAY AN IMPORTANT
BUSINESSES THAT MAINTAIN REVENUES, ASSETS OR ROLE IN THE ECONOMY AS THEY OUTNUMBER
SEVERAL EMPLOYEES BELOW A CERTAIN THRESHOLD. LARGE FIRMS CONSIDERABLY, EMPLOY VAST
CERTAIN SIZE CRITERIA MUST BE MET AND NUMBERS OF PEOPLE AND ARE
OCCASIONALLY THE INDUSTRY IN WHICH THE COMPANY GENERALLY ENTREPRENEURIAL IN NATURE.
OPERATES IN IS CONSIDERED AS WELL.
Definition of SMEs?

based on criteria such as


In other • Number of Employees

countries • Asset Valuation


• Sales

• SBP - defines it based on the nature of business, number of employees,


amount of capital employed and net sales per annum
In Pakistan • SMEDA – defines SME based upon the number of employees and number
of productive assets
• SME Bank – uses total number of assets as criterion
Central role in economic growth,
technological innovation, sourcing to large
industries, cottage industries and promoting
economic renewal and social development.
SMEs in
Pakistan
Main sources for eradicating poverty and
expanding national economy
ROLE OF SMEs
Aiman Jamil
SME in Pakistan

Pakistan Economy – Reflected by the SME Sector.

Represent more than 90% of the private businesses.


4.5 Million SMEs in Pakistan. Employees 80% of Non-agricultural Labor force.
40% contribution towards GDP.

Contribute towards Economic diversification, Employment creation,


income generation and Poverty alleviation
Role of SME in Pakistan

PROVIDES LIVELIHOOD TO AT LEAST 80% OF REDUCTION IN TRADE DEFICIT CONTRIBUTES REPRESENTS MORE THAN 25% OF THE
THE NON-AGRICULTURAL PAKISTANI TO REDUCTION IN CURRENT EXPORTS OF MANUFACTURED GOODS
FAMILIES ACCOUNT DEFICIT AND WOULD SAVE
PRECIOUS FOREIGN EXCHANGE. I.E.,
RECORDED AT $1.97 BILLION IN 2019
Role of SME in Pakistan

Contributes to the per capita income of Pakistan.


REGULATIONS OF SMEs
Prudential Regulations –
General for Small & Medium
Enterprise Financing
Zoya Awan
SMEs play an important role in the economic and social
development of Pakistan.

They foster economic growth, generate employment and contribute


to the development of a dynamic private sector.

The whole economy of Pakistan is highly dependent on the pace and


productivity of SMEs
R-1: SME Specific Credit Policy

R-2: Electronic Credit Information Bureau (e-CIB) Report

R-3: Personal Guarantee

R-4: Limit on Clean Facility

General R-5: Proper Utilization of Loan

Regulations R-6: Restriction on Facilities to Related Parties

R-7: Translation of Loan Documents into Urdu Language

R-8: Securities and Margin Requirements

R-9: General Measures


Prudential Regulations for
Small Enterprise Financing
Muhammad Abdur Rehman
Small Enterprises

• Small Enterprise (SE) is a business entity, which meets the


following parameters:
Number of Employees Annual Sales Turnover

Up to 50 Up to Rs 150 million

• an entity must fulfill both the criteria of number of employees and sales
turnover for categorization as small enterprise
Regulations for SEs

R-1: Definition of Small Enterprise • Up to 50 employees and 150 million sales turnover

R-2: Per Party Exposure Limit  Up to 25 million form single Banks/DFIs or from all Banks/DFIs

R-3: Requirement of Audited Accounts  Only required if exposure is above 15 million

R-4: Repayment Capacity of the Borrower and  relevant/ practical cash flow estimation techniques and other proxies should be used to assess
Cash Flow Based Lending repayment capacity borrower
 valuation of securities for loans above Rs 5 million shall be by an evaluator on the approved panel
R-5: Collateral Valuation of PBA
 Adequate security and risk management measures must be in place to prevent fraud and
R-6: Recovery of Outstanding Dues misappropriation
R-7: General Reserve against Small Enterprise Banks & DFIs shall maintain general reserve equivalent to 1% of their unsecured SE portfolio to protect
Finance them from the risks associated with the economic and cyclical nature of the business

R-8: Classification and Provisioning for Loans/ • classification for program-based lending shall be done based on time-based criteria only, though
Advances banks & DFIs may also classify such portfolio on subjective basis
R-9: Restructuring/ Rescheduling of Loans/ • The banks & DFIs may reschedule/ restructure problem loans as per their own policy duly
Advances approved by their Board of Directors

R-10: Turn-Around-Time  Banks & DFIs shall not take more than 15 working days for the credit approval process.
Prudential Regulations for
Medium Enterprise Financing
Khadija Shah
Medium Enterprises

• Medium Enterprise (ME) is a business entity, ideally not a public


limited company which meets the following parameters:

Number of Employees Annual Sales Turnover

51-250 (Manufacturing & Service MEs)


Above Rs 150 million and up to Rs 800 million
(All types of Medium Enterprises)
51-100 (Trading MEs)
R-1: Definition of Medium Enterprise

R-2: Repayment Capacity and Cash Flow Based Lending

R-3: Per Party Exposure Limit


Regulations for
MEs
R-4: Requirement of Audited Accounts

Rescheduling/ Restructuring
R-5: Classification and Timing of Creating Provisions

Provisioning for Assets Reversal of Provision


Verification by the Auditors

R-6: Turn-Around-Time

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