MGT601 - SME Management - Lecture Handout 07

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This lecture will throw light on the efforts of government towards SME development and the role of institutions in public sector.

The government of Pakistan keeping in view the importance of SMEs has adopted multi -pronged approaches at the regional, sub regional and national levels. Initiatives at the regional and sub-regional levels include efforts to strengthen economic integration and cooperation. At the national level, structural adjustment programs have been in operation along with attempts at restructuring and diversifying the production base, integrating the informal sector into the economic mainstream and stimulating the increased participation at the enterprise level.

Over the years the government has developed a wide network of numerous support institutions for the development of small-scale enterprise in the country. The development process was initiated in the sixties and the concept of development derived its origin from the “Indian Model” of small enterprise development. The basic idea behind the model is to develop infrastructure facilities such as industrial estates, common facility centers and vocational training institutes, which would, to a great extent the problems faced by the SMEs. Based on this model numerous provincial level organizations were set-up mostly with the help of foreign assistance in the shape of grants and soft loans.

Financial sector organizations also are of great importance to the SME development in the country. The government has also established some institutions, which cater to the financing needs of the small firms. Some of these institutions are meant exclusively for the small sector. Besides the efforts of the Government the non-governmental organizations have also been actively participating in the micro and small enterprise development. The role of these organizations is also discussed here. Some of these NGO’s design programs to address social needs on a community basis which have a positive impact on employment generation at a micro level, the functions of NGO’s have been discussed very briefly.

Provincial Level Institutions

  1. Punjab Small Industries Corporation (PSIC)
    In the province pf Punjab PSIC was established in 1972 as an autonomous body for the promotion and development of the small-scale industries in the province. The PSIC covers the critical areas of investment promotion and provision of credits for setting up new industries and modernization of the existing ones. It also promotes the common facility center, technology transfer, guidance, handicrafts development and design facilities.
    • Financing and Loans:
      PSIC is providing two types of loans to its clients, working capital and capital investment loans. The maximum limit of loan is RS. 7.5 Lac. There are district officers appointed for monitoring the loan recovery and in the case of unrecoverable loans, they are transferred to the revenue authorities. PSIC has managed to recover 81.6% of all loans given out. Disbursing Rs. 1768.537 million to 6339 units through its 8 regional offices ( till 31-02-2001). The debt equity ration for loan up to Rs. 7.5 Lac is 70:30.
    • Industrial Estates
      PSIC has developed 14 industrial estates in various areas of the Punjab. The costs of land within these industrial states have been subsidized to allow the development of the small-scale sector.
    • Services and Programs:
      PSIC has also launched “Rural Industrialization Program” to control unemployment and strengthen the marginal household income through stimulation of industrial growth in the urban and rural areas of the Punjab.
      PSIC has established various types of service centers e.g. metal industries development center, Sialkot, Engineering service centers. Gujranwala, institute of pottery development, Shahdara etc
  2. Sindh Small Industries Corporation (SSIC):
    SSIC was established in 1972 having motives to indulge into promotional activities of small-scale industries in Sindh. The objectives of SSIC include financial assistance, education of craftsman, census and survey of cottage and small industries, procurement and distribution of raw materials to artisans and craftsman. SSIC was also involved in the Prime Minister’s self-employment scheme for the dispersal of the micro credits.
    • Industrial Estates and Colonies:
      The SSIC has established 17 industrial estates in Sindh. Total number of plots developed there are 1938 and there are 302 units working utilizing 571 plots. There are six different craftsman colonies established having 92 shops.
    • Financing Schemes:
      The SSIC also launched a credit scheme in 88,89. The rate of markup was 7% for industrial estates and 11% for factories outside the industrial estates. The scheme was discontinued in 1993 due to shortage of funds although SSIC has created already 526 jobs and disbursed 20.6 million rupees. In October 1992, a self-employment scheme was started for locally manufactured machinery (LMM). The loan ceiling is 1 million with the markup rate of 14%. The total amount disbursed to 171 units is rupees 98 million. The recovery rate is 47%.
  3. Small Industries Development Board (SIDB) NWFP
    The SIDP was established in 1972. It is playing a promotional role to support and assist the development of small and cottage industry in the province. The SIDB is an autonomous body, focusing on manpower training, model projects and industrial infrastructure. It has 14 regional offices in the different cities of NWFP.
    • Training Centers
      SIDB has established carpet centers in five cities of NWFP and has trained 1327 number of trainees. The SIDB has established “Patti” training centers, textile training and “gabba” training centers which has trained 151 trainees.
    • Development Programs and Model Projects
      SIDB has also launched various women development programs, which has trained 2062 women trainees in a number of fields of work. The SIDB is also involved in establishing other various kinds of model projects for wood working, leather goods, wool spinning, ceramic device etc. The total number of trainees trained is about 8000.
    • Industrial Estates
      SIDB has established 9 industrial estates. There are a total of 1620 plots and the total jobs created are 4405.
    • Financial Assistance
      SIDB is also managing different credit schemes for small industries. To date, a total number of 198 million rupees have been disbursed to 452 enterprises. SIDB is also disbursing credit under the self-employment scheme.
  4. Directorate of Industries (Balochistan)
    The directorate of industries was formed in 1976 and it looks after all the promotional schemes for SMEs. Further more, the directorate is also involved in providing various kinds of advisory and consultancy services.
    • Training Centers:
      The directorate operates sixty-three training centers in various trades, one service center, 5 sales and display shops and one small-industries estate. Of the 63 training centers, about third are carpet centers, seven are embroidery centers and the others cover areas like tailoring, wood work, marble work, mazri and durree production.
  5. Financial Institutions
    In order to meet this financing requirement, a number of institutions have been formed. These are:
    • Small Business Finance Corporation (SBFC)
    • Youth Investment Promotion Scheme (YIPS)
    • Regional Development Finance Corporation (RDFC)
    • Industrial Development Bank of Pakistan (IDBP)

A few commercial banks such as Allied Bank Limited and First Women Bank Limited have also started schemes to provide loans to low-income clients who are generally not able to access the formal source of financing.

1. Small Business Finance Corporation (SBFC)

It was established in 1972 as a federal entity. The main aim was at the time of establishment, to assist small entrepreneurs for self-employment and setting up cottage industry. The mark up was kept lower; the majority lending was towards self-employment leaving only 2% for small industries.

Restructuring SBFC
The management took over in year 2000 and restructured the entire corporation. The restructuring was based on the facts that SBFC has deviated from its main aim resulting in a weak balance sheet. 70% of its credit portfolio was infected by non-performing loans. Usage of information technology was non-existing and the management was ineffective. There were 1400 employees at 96 branches. The internal control and management was highly ineffective with poor quality of human resources, poor work ethics, poor infrastructure and non-existence of training and development culture.

Restructured SBFC
The total number of branches has been reduced to 63 around 270 people opted for golden handshake. Separate human resource department has been setup, a separate information technology department was established to spread IT knowledge among SBFC employees, and a treasurer division has been setup in Karachi, which is responsible for management of cash and surplus funds.

Financing Programs
SBFC is financing various types of projects such as Gem Stones, cotton ginning, textile apparel, and marble processing etc. currently SBFC can disburse up to rupees 1.5 million for a project having total cost of five million and lend up-to 50% of the total project cost of small businesses but for that total project cost should not exceed 50 million. It can also share up to 30% of total projected cost for a medium sized industry where the total project cost does not exceed rupees 100 million.

2. Regional Development Finance Corporation

The Regional Development Finance Corporation was established in 1985 having paid up capital of Rs. 172,500 million and with the specific objective of promoting the industrialization of the less developed areas of the country. RDFC is a multi-product financial institution. It participates in money market, capital market and micro credit delivery. The head office of RDFC is located at Islamabad and a network of 14 branches carries out its operations across the country. Besides financing of medium to large sized industrial concerns RDFC has been involved in disbursing micro and small sized loans. However, over the last few years the organization has restrained from forwarding long-term project loans and currently is in the process of recovering loans from the borrowers.

3. Youth Investment Promotion Scheme (YIPS)

Various schemes have been initiated with credit lines from local as well as foreign sources. It has also started a micro credit scheme called the Credit for Rural Women (ICRW) under which small loans ranging from Rs. 25000 to Rs. 200,000 are disbursed to women entrepreneurs on subsidized interest rates of 10%. The total disbursements under the scheme stand at Rs. 2.5 million. RDFC was allocated a credit line of Rs. 167 million for the self-employment schemes out of which a total of Rs. 80 million was disbursed.

4. Industrial Development Bank of Pakistan

IDBP is Pakistan’s one of the oldest development financing institution created with the primary objective of extending term finance for investment in the manufacturing sectors in the economy. Over the years however, the bank has emerged as an institution fostering the growth and development of SME sector stimulating industrial progress in the rural or less developed regions of the country. As a part of its services the bank offers business development assistance through providing information on potential small-scale investment projects. In this regard numerous pre-feasibility studies have been developed for identification of viable sub sectors.

Key Terms

  1. Muti-pronged (Having different branches)
  2. Revenue authorities (The provincial authorities normally act through TEHSILDAR under the Punjab revenue act for the recovery of Punjab revenue taxes like malya, abyana, takavee etc)
  3. Gabba (Usually the terms is used for a thick traditional carpet knit with local spun and dyed wool)


  1. reseach cells SMEDA/LCCI
  2. Small industries and the developing economy in India by R.V.RAO
  3. The essence of small business by ADRIAN BUCKLEY

Book recommended

  1. Small Enterprises in developing coutries By Dr. Asghar s . Nasir
  2. Small industries and the developing economy in India by R.V.RAO

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