1. definition of smes · 1.2. smeda definition of smes smeda gives the definition of small and...

Research Thesis on Small & Medium Enterprises

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Gujranwala Chamber of Commerce & Industry 1

1. Definition of SMEs

There are lots of definitions regarding small and medium enterprises and

different departments and organizations categorize them according to their

perspective, while few commonly used definitions regarding small and medium

enterprises are elaborated below.

1.1. SBP Definition of SMEs

State bank of Pakistan has defined the small and medium enterprise in the

following way:

An entity, ideally not being a public limited company, which does not employee

more than 250 persons ( manufacturing) and 50 persons (trade / services) and

also that institution should fulfills one of the following mentioned Criteria:1

Trading Manufacturing Services

No. of Employees up to 50 250 250

Total Assets at cost up to Rs.50 M Rs.100 M Rs. 50 M

Total Sales Turnover up to Rs.300 M Rs.300 M Rs. 300 M

1.2. SMEDA Definition of SMEs

SMEDA gives the definition of small and medium enterprises in the sme policy

2007 as given below;2

Enterprise Category Employment Size Paid Up Capital

Annual Sales

Small & Medium Enterprise (SME)

Up to 250 Up to Rs. 25 Million

Up to Rs. 250 Million

1 http://www.sbp.org.pk/bpd/Conference/Day_One/SBP_Initiatives_for_SMEs_Financing.ppt.

2 www.smeda.org.pk/main.php?id=2 - 34k -




1.3. PSIC Definition of SMEs

Punjab small industries corporation elaborate the definition of small and medium

enterprises in the following way;

“Fixed investment. Up to Rs. 20 million excluding land and building.”3

1.4. PID Definition of SMEs

Punjab industries department has given the definition of the small and medium

enterprise in following standpoint;

“Fixed assets with Rs. 10 million excluding cost of land.”4

From all of above mentioned definitions of small and medium enterprises I

followed the definition given by the state bank of Pakistan in this research study;

2. Intro & Historical Background of SMEs:

There is brief introduction of small and medium enterprises with regards to

Pakistan in which the importance and contribution of this sector is also

elaborated in concise way.

Today SMEs are widely regarded by experts as the panacea for many economic

problems confronting the LDCs. In particular, vibrant small-scale sector

incorporating the informal firms is expected to solve a variety of problems,

including unemployment, low growth and poverty. SAARC region countries too

have designed policies for the promotion of this sector, though with uneven

results. Yet their faith in SMEs is ever growing. The planners now realize that

since the modern production methods are generally more flexible, so

manufacturing can be undertaken anywhere, and at any level through inter-firm

3 www.smeda.org.pk/main.php?id=2 - 34k

4 www.smeda.org.pk/main.php?id=2 - 34k




linkages. At the same time individual country experiences in the SAARC region,

and also in other parts of the world, indicate that the real catalyst for the SMEs

growth is the general economic environment born of a pro-active industrial

Policy.

For a longtime the mainstay of Pakistan’s industrialization strategy was large

scale manufacturing which recorded 8.78% growth rate during 1950-2003 as it

was consistently supported by a set of macroeconomic policy measures. The

small-scale sector too registered an impressive growth rate of 5.06% during

1950-2003 and that too without benefiting directly from policy support. It virtually

existed in the shadow of the large scale-manufacturing sector. A distinct feature

of Pak manufacturing sector is its product diversification: textile (24.02),

Chemicals (15.17%), food (13.77%), followed by others. It needs to be

mentioned here that all these sectors comprise of large, medium and small firms,

except in cases where economies of scale do not permit small-scale production

e.g. automobiles, steel, fertilizer, heavy engineering, etc.5

The government statistics show that Pakistan’s SMEs sector recorded an

impressive growth of 14.7% during 1987/88 – 1996/97 when the estimated value

of its output increased from Rs. 19,683 million to Rs. 67,541 million. Meanwhile,

the number of Small and Household Manufacturing Industries recorded growth of

5.8% in that period. The contribution of SMEs to Pakistan’s economy,

employment and poverty reduction can be seen from the fact that 90% of all

private sector manufacturing units employ less than 99 workers and the SMEs

employ some 78% of non-agricultural labour force. They contribute about 30% to

GDP, Rs.140 billion to exports, and generate 25% of exported manufacture.6

5 www.gcu.edu.pk/publications/vc-sme.pdf

6 GOP 2005, P293




3. Banks Services for SMEs:

Almost every bank is offering specialized products and services to the small and

medium enterprises of Pakistan so in this regard I elaborate the details of

services provided by each bank separately and I start from the services and

efforts put by state bank of Pakistan in this aspect.

3.1. SBP’s Services for SMEs:

State bank of Pakistan has designed certain important policies and lay down

certain important rules in order to stabilize and support the sme sector of

Pakistan.

The most prominent steps in this regard are mentioned below;

• Issuance of a separate Prudential Regulation (PRs) for SME financing.

• Help in capacity building in human resource development of banks/DFIs in

the field of SME lending.

• Creation of a separate SME Department in State Bank.

• Enlarging the scope of Credit Information Bureau (CIB).

• Granting commercial banking license to SME Bank.

• Focus on SME lending in SBP Lending Schemes for banks.

The main Objectives of the Separate SME department in SBP are as follows;

• To help create conducive macro-prudential environment for banks/DFIs

thereby increasing the flow of credit to SMEs;

• To promote strategic focus on SMEs on the part of the banks/DFIs;

• To facilitate banks/DFIs in adopting best practices for the development of

their SME business lines through provision of capacity building and

training services;




• To induce banks/DFIs for up-front investment in people and technology.

• To coordinate with other SME stakeholders for matters relating to SME

financing.

Banks/DFIs are encouraged to lend to SMEs on the basis of asset conversion

cycle/cash flow basis.

Banks / DFIs are allowed to take clean exposure i.e., facilities secured solely

against personal guarantees on an SME up to Rs. 3 million provided that funded

exposure should not exceed Rs. 2 million.

State bank of Pakistan has also defined the exposure limit for smes as follows;

• Per SME limit Per Bank: Rs. 75 M

• Per SME limit From All Banks: Rs.150 M

• It is expected that SMEs approaching this limit should have achieved

certain sophistication as they migrate into larger firms and should be able

to meet the requirements of Prudential Regulations for Corporate /

Commercial Banking.

State bank is also performing certain important functions in this regard as

stated below;

• SBP has hired a foreign consulting firm, which will provide capacity

building support to a few commercial banks, including SME Bank, on cost

sharing basis.

• The above will cover full spectrum of establishing an SME business line

ranging from preparation of participating banks’ business plans to training

of loan officers.

SUBJECT TO:

For other than leased assets: Up to Rs. 100.0 M For Clean exposure: Up to Rs. 3.0 M




• The IBP and NIBAF will also collaborate with the firm in providing training

on SME credit to bankers.

• SBP is in the process of further lowering the CIB limit from Rs 500,000 to

cover all loans by the end of June 2005. This will help in improving the

financial institutions’ ability to provide loans especially to individuals and

SMEs.

• The State Bank in its different credit schemes namely:

• Long Term Financing of Export Oriented Projects (LTF-EOP);

• Locally Manufactured Machinery (LMM); and

• Export Finance Scheme (EFS) has been paying special attention to

the financing needs of SME Sector.

• The banks/DFIs are advised to focus SME sector while allowing credit

under these schemes. 7

The graphical diagram is showing the distribution of bank credits sector wise.8

7 www.sbp.org.pk/bpd/Conference/Day_One/SBP_Initiatives_for_SMEs_Financing.ppt

8 Bankind supervision Department,SBP.




3.2. Services offered by SME Bank:

SME bank is offering following some main services/Products to small and

medium enterprises;9

• SME Smart Loan

• SME Asset Finance

• SME Running Finance

• SME Express Loan

3.3. Services offered by BOP:

Bank of Punjab is offering following different kinds of services/products to the

SME sector;10

• Running Finance

• Lease

• Guaranties for Connections

• Karobar Barhao Scheme

• Power Generators Lease Financing Scheme

• Lady Entrepreneur Financing Scheme etc.

3.4. Services offered by UBL:

UBL is offering following list of services/Products to the small and medium

enterprises;11

• Rice/Paddy Advances

• Cotton Ginners Advances

• Credit Facilities against Liquid Securities

9 Annexure

10 Annexure

11 www.sbp.org.pk/sme/pdf/smebooklet-05-jul-08.pdf




3.5. Services offered by Bank Al-Falah:

Bank Alfalah is offering different kinds of services to the SME sector;

• Al-Falah Karobar Finance

• Al-Falah Milkiat Finance

3.6. Services offered by Standard Chartered:

Standard chartered bank is offering following distinct kinds of services and

products to its customers relating to SME sector;

• Tana Bana

• Rang Hi Rang

• Kissan Card

• Agri Deal

3.7. Services offered by Citi Bank:

Citi bank has following products portfolio for the small and medium

enterprises;

• Running Finance

• Term Loan

3.8. Services offered by NIB:

Following is the list of services/Products offered by the NIB to its SME

Customers;12

• Small Business Loan

• Salaam Business Loan

• General

12

Annexure




4. Why SMEs Are Bank Shy?

Besides all of the above mentioned services to the small and medium scale

sector still there is prevailing high problem of finances in this sector and one of

the major reasons for this is that small and medium enterprises are highly bank

shy, so in order to sort out the reasons for such behavior this research study is

conducted and following different important rationales are gathered in this regard;

4.1. Lack Of Awareness

Lack of awareness has always played a very important role for creating many

problems in any field while in my research regarding why SMEs are bank shy?, it

is clearly revealed from the information collected that most of the small and

medium scale enterprises are completely unaware about the availability of the

different services which banks are offering to their sector specifically due to

which they are unable to get the benefits from these available services and

remain in the financial crises due to lack of finance as most of the sectors

demonstrate that they are having financing problems due to which they are

unable to grow their business and compete well in the market while on the other

hand there is some deficiency from banking sector also as they are not marketing

their products and services effectively and not Providing any kind of awareness

to the actual sector which is small and medium scale sector so this sector

remains equipped with unawareness of the services offering by the banking

sector to them. Banks just provide awareness of their products and services

which they are offering to the small and medium enterprises through different

printed broachers and there is no any proper way to distribute these broachers to

the actual sector for which these services are designed and these broachers

remain in the banks and whenever any person or business man go to the bank




Agree Disagree no Comments

Lack of Awareness

0

10

20

30

40

50

Pe

rce

nt

Lack of Awareness

then at that time if he noticed or searched about services available for SMEs he

comes to know about those available products and services while the others

remain unaware in that regard.

The following is tabular and graphical diagrams are showing the results revealed

in this regard from target sample;

Lack of Awareness

Frequency Percent Valid Percent Cumulative

Percent

Valid Agree 31 37.3 37.3 37.3

Disagree 34 41.0 41.0 78.3

no Comments 18 21.7 21.7 100.0

Total 83 100.0 100.0




4.2. Religious Rigidity

It is one of the most important variable in this research because most of the times

it is observed that entrepreneurs just deny to discuss the matters on the grounds

of religion and they found to be completely against the concept of banking and

they showed high resistance towards dealing and availing facilities from the

banking sector on this point of view. Even if they are facing lots of financing and

other different kinds of problems and constraints in their businesses and if they

avail the services and get the support from the banking sector they can over

come all the problems they are facing but they are not ready to deal to get

services or any kind of financing in the form of loan from the banks. While it is

also searched from such respondent about their perception from the Islamic

banking and I found them completely against that concept also as they perceived

that it is just change of the name and change of the name of the services and

products offering by the banks while on the back end all the processing is same

as in the conventional banking so it is also prohibited in the religion while it is

observed that on the side of Islamic banking they are not promoting their

products in right manners due to which there is prevailing high level of

misperception in the minds of such persons who are against the conventional

banking pattern due to religious impact. The entrepreneurs demand that banks

should remove the interest on loans and Islamic banks should justify there

procedures and clarify that they are processing according to the Islamic rules and

regulations then they become able to make dealing with banking sector.

The results found on this question are precisely elaborated by the following given

table and graphs which gives the more clear understanding about the religious

impact of people and their behaviour in that regard;




Agree Disagree No Comments

Religious Rigidity

0

10

20

30

40

50

Pe

rce

nt

Religious Rigidity

Religious Rigidity


Percent

Valid Agree 34 41.0 41.0 41.0

Disagree 9 10.8 10.8 51.8

No Comments 40 48.2 48.2 100.0

Total 83 100.0 100.0

4.3. High Rates of Interest

Banks charged different rates of interest to different kinds of customers and on

different types of loans offered by them to their customers while it is very

common perception observed in this research that most of the entrepreneurs

believed that the rates charged by the banks are very high which they are unable




to pay as the banks are charging different rates if they are lending against

property or personal guaranty the variation can be clearly observed in the rates

of interest charged by the banks as they argue that when they are lending on

behalf of personal guaranty their risk is very high in comparison with lending

against collateral due to which they have to charge high rate of interest even this

perception is observed in the SME bank which is specifically launched to provide

soft loans to the SME sector for their uplift and support. While on the other side

SMEs have not so much collaterals which they can present to take the loans due

to which they have to go for personal guaranties and when the banks rise their

rates due to lack of collateral they are unable to avail the facility of loan from the

banks on those terms and conditions because they are not much strong and

profitable to pay that amount of interest to the banks as they approach for getting

support from the banks so that they can over come financial crises they are

facing but the interest rates which banks charged to them will lead the borrowers

more disastrous situation and instead of overcoming their financial crises they

got in to the trouble of survival and it will more harmful for their business because

their profits got reduced as they have to pay high interest to the banks due to

which they have lower level of savings and investing opportunities and in the end

they become unable to continue their businesses and they shut down their

business and pay the loan back by selling Assets, so instead of giving support

banks are contributing towards their problems due to which most of people prefer

to work on smaller scale with some constraints rather than to approach banks for

availing their services and borrowing from the banks. While banks prefer to lend

large scale units and they charge low interest rates to them on basis of business

relations and it is observed that the default rate in the large units is more than

that of small units but banks charge high rates to small and low rates to large and

banks are also more keen towards large rather than small units which is

completely unfair on behalf of banking sector towards society and small and





High Interest Rates

0

10

20

30

40

50

60

Pe

rce

nt

High Interest Rates

medium scale enterprises. It is observed specifically in the plastic products sector

that entrepreneurs demand for low interest rates and in this regard a suggestion

is also received that in which entrepreneur demand that banks should make their

interest rates variable and rate of interest varies with the amount of loan which is

borrowed and banks should charge low rate of interest on small amount of loans

and rate will increase with the amount of loan to be borrowed.

High Interest Rates


Percent

Valid Agree 49 59.0 59.0 59.0

Disagree 7 8.4 8.4 67.5

No Comments 27 32.5 32.5 100.0

Total 83 100.0 100.0




According to table it is revealed that only 8.4% of people are satisfied with the

rates of interest charged by the banks while 59% are on the opinion that banks

are charging unfair high rates of interest to their customers.

4.4. Strict Rules and Regulations

Among other lots of problems and constraints it is also one of the important

issues raised by the target sample in this research that banks impose very harsh

conditions and rules and regulations against borrowing due to which they are

highly pessimist regarding borrowing from banks for their businesses as banks

rules and policies are highly complicated and difficult to follow and in this regard

the following certain points are highlighted;

• Rules regarding Default

• Hidden Service/Bank Charges

• Rules regarding loan disbursement

• Complicated regulations regarding payment of loan to the banks

• Percentages of rates of interest year wise or quarter wise

So due to above highlighted different points most of the business community feel

fear to borrow from the banking sector as they are quite unclear about certain

conditions imposed by the banks on borrowing. It is highly demanded from the

targeted sample that banks should simplified their procedures and regulations so

that they can become able to borrow from the banks.

There are 57.8% of the respondents claiming about the strictness of rules and

regulations followed by the banks and just 7.2% have showed their satisfaction in

this regard that bank’s rules and regulations are suitable for them.

The following showed table and graphs are providing clear evidence in this

regard;





Strict Rules & Regulations

0

10

20

30

40

50

60

Pe

rce

nt




Percent

Valid Agree 48 57.8 57.8 57.8

Disagree 6 7.2 7.2 65.1

No Comments 29 34.9 34.9 100.0

Total 83 100.0 100.0

4.5. Complicated Documents Requirements

The following are some general things which banks demand most of the time

from the borrowers when they are applying for the loan from banks;

• Computerized National Identity Card

• Photographs




• Addresses

• Photo copy of utility bills

• Proprietor’s Request letter

• References

The above mentioned details are referred to as personal details while bank also

demand some business details as mentioned follows;

• Bank Statement

• Receivables

• Payables

• Stock Report

• Sales tax Registration Number

• National Tax Number

• Partnership Deed in case of Partnership

These are some few important details required by the bank when advancing loan

facility to its customers besides these there are also many requirements from the

banks and entrepreneurs are on point of view that banks demand so many other

complicated documentation requirements and they have to waste their lot of

important time and sources and money on the establishment of those documents

and in this way their lot of time and resources got wasted and they demand that

banks should simplified their documentation requirements and make it more

convenient for the borrowers to borrow in limited time by spending minimum

resources.

In the research 62.7% of people have showed their great level of resistance

towards banks just because of highly complicated documentation requirements

and just 8.4% of sample have showed their favor towards banks in this regard.





Documents Complications

0

10

20

30

40

50

60

70

Pe

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nt




Percent

Valid Agree 52 62.7 62.7 62.7

Disagree 7 8.4 8.4 71.1

No Comments 24 28.9 28.9 100.0

Total 83 100.0 100.0




4.6. General Risk Aversion

This is also very important variable observed in the research that most of the

people and businessmen are generally very high risk averse and they are not

ready to deal with banks in form of taking loans as they consider it as increasing

their business risk and they are also found satisfied at their current state and not

willing to expand their business concerns as they take it in negative way and

relate it with increase in risk so they are not willing to borrow from the banks as

they put the point of view that when they borrow from the banks they have to pay

the specific amount of interest to the banks which will reduce their profit margins

and they have also bound to pay amount of interest to the banks.

While on the other hand banks are also found to be highly risk averse and

hesitate to lend to the small entrepreneurs because of their weak financial

background and limited availability of collaterals.

Out of sample of 100% it is found that 41% respondents are highly risk averse in

this regard and 27.7% have found negative to this query while 31.3% showed no

response regarding risk aversion.

General Risk Aversion


Percent

Valid Agree 34 41.0 41.0 41.0

Disagree 23 27.7 27.7 68.7

NoComment 26 31.3 31.3 100.0

Total 83 100.0 100.0




Agree Disagree Comments


0

10

20

30

40

50

Pe

rce

nt


4.7. Lack of Collaterals

One of main problems identified in the research is the lack of collaterals available

for pledging against borrowing from banks. Most of the small and medium

entrepreneurs have very limited resources and doing the business on very

scarce resources they have not their personal property or even some are doing

their businesses on the finance of others. Some entrepreneurs borrow from their

relatives and commence the business and most of the small entrepreneurs are

running their business on rented property. So in these situations when they

approach banks for borrowing they are unable to meet the requirements of the





Lack of Collaterols

0

10

20

30

40

50

Pe

rce

nt

Lack of Collaterols

banks regarding presenting of property or any other security to the banks against

borrowing from the banks as they are doing business on the rented property so

due to lack of collaterals banks deny to accept the loan application and hesitate

to advance loans to such entrepreneurs.

While in case of personal guaranties banks charge very high interest rates which

small businessmen are unable to pay due to which their deal remain

unaccomplished.

Lack of Collaterals


Percent

Valid Agree 24 28.9 28.9 28.9

Disagree 39 47.0 47.0 75.9

No Comments 20 24.1 24.1 100.0

Total 83 100.0 100.0




4.8. Lack of Advertisement

There is no any proper way to promote the products from the banking sector due

to which no one comes to know what bank is offering to him and what are the

terms and conditions and how any person can avail services beneficial for his

business from the bank.

There is no doubt almost all banks are offering different kinds of services

specifically for the small and medium enterprises but on the other side it is

commonly observed that all small entrepreneurs are completely unaware from

these available services which further contributes towards gap between banks

and entrepreneurs.

Banks are just pay attention towards advertisement in the form of printed

broachers/leaflets but there is no any way to distribute these broachers to the

small entrepreneurs and these remain in the banks.

There is high need for proper distribution of these leaflets from the banks by

targeting the sector to which bank is going to offer the services. It will fill the gap

between the banking sector and the small entrepreneurs due to which they

become able to avail the services from the banks and there is commencement of

proper business relationship between banks and small and medium enterprises.

Lack of Advertisement from Banks


Percent

Valid Agree 40 48.2 48.2 48.2

Disagree 7 8.4 8.4 56.6

No Comments 36 43.4 43.4 100.0

Total 83 100.0 100.0






0

10

20

30

40

50

Pe

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nt


From total of 100% there are 42.8% who are claiming against advertisement

while just 8.4% showed their opinion that they are satisfied from the current

advertisement and promotion efforts by the banks.

4.9. Fear of High penalties

It is fact which is noted in the research study from the banking side as well as

from the customer side also that whenever customer has got default, the bank

impose the high penalties to the defaulter party which further make very

disastrous situation for the customer.




Many of the cases during research are pragmatic in which customer has got

default and bank as a result impose very high penalties and customers has to

shut down his business and he pays off by selling assets.

Due to such cases in the market the other businessmen feel lot of fear to borrow

from the banks because they are on the point of view that business situation

varies over the time, some times it is on boom, some times it is on recession in

which profits of the business squeeze but on the other hand they have to pay the

bank as bank is not concerned with the situation prevailing in the market they just

have charge interest on specified date and they are concerned with the recovery

of the loan at stated date so if at that time business is suffering then bank loan

will create more hurdles.

In this research study 45.8% of the respondents showed great hesitation towards

banks due to problem of high level of penatlties imposed by the banks while

45.8% showed no response and 8.4% respondents replied in positive towards

banking sector in this regard.

High Penalties Imposed by banks


Percent

Valid Agree 38 45.8 45.8 45.8

Disagree 7 8.4 8.4 54.2

No Comments 38 45.8 45.8 100.0

Total 83 100.0 100.0

The same situation has also showed with the help of the graphical diagram in this

regard.





High Penalities Imposed by banks

0

10

20

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Pe

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nt

High Penalities Imposed by banks

4.10. Non Availability of One Window

Businessmen have no much time to waste as they have to compete in the market

and to handle their business which requires lot of attention and time but on the

other side when they approach banks for loan they have to waste lot of time

because they have to prepared lots of documentation and for that purpose they

have to visit so many departments and after so much struggle they become able

to fulfill the requirements of the bank and further in the bank there is no one

window operation they have to meet so many officers for the approval of loan

and for verification of documents as well.

After verification of documents these documents are proceeded to head office

from where the approval of loan is required but some times head office return the





Lack of one window operation

0

10

20

30

40

50

Pe

rce

nt


documents and disapprove the loan due to some deficiencies in documents and

again to remove those decencies lot of time and effort is required so most of the

businessmen prefer to borrow from other sources instead from banks.

The results obtained form questionnaires in this regard are precisely shown with

table and graph;



Percent

Valid Agree 40 48.2 48.2 48.2

Disagree 4 4.8 4.8 53.0

No Comments 39 47.0 47.0 100.0

Total 83 100.0 100.0





Non availability of specialized Products

0

10

20

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50

60

Pe

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nt


4.11. Non Availability of Specialized Products

It is also complaint by businessmen that banks are not offering any kind of

specialized services or product to specific sector as there is little bit change in the

terms and conditions in different products and type of back payment while on the

side of interest it is always almost similar rate on all products/services bank is

offering to the customers.

The following is elaboration with table and graphs generated in SPSS software;



Percent

Valid Agree 26 31.3 31.3 31.3

Disagree 15 18.1 18.1 49.4

No Comments 42 50.6 50.6 100.0

Total 83 100.0 100.0





Taxes Problems

0

10

20

30

40

50

Pe

rce

nt

Taxes Problems

4.12. Fear of Taxes

Most of times business community shies to borrow from the banks due to fear of

disclosure of their secret business information to the tax department as they have

to prepared and present certain important documents to the bank for the purpose

of borrowing so due to this fear they deny to borrow from banks and borrow

finance from other informal resources like from relatives, business partners etc.

Tabular and graphical representation of this fact is shown below;

Taxes Problems


Percent

Valid Agree 39 47.0 47.0 47.0

Disagree 7 8.4 8.4 55.4

No Comments 37 44.6 44.6 100.0

Total 83 100.0 100.0




cutlery

ceramics

food items

fans & room coolers

leather products

nuts bolts

plastic

paper products

sanitary fittings

sports goods

textile machinery

tyresutensils

washing machine

0

3

6

9

12

15

Perc

ent

Type of Indsutry

5. Interpretation of Questionnaire’s Results

Here all the results received from the respondents on the queries confronted to

them in the questionnaires are interpreted with the help of different tabular and

graphical diagrams.

Type of Indsutry


Percent

Valid cutlery 8 9.6 9.6 9.6

ceramics 6 7.2 7.2 16.9

food items 5 6.0 6.0 22.9

fans & room coolers

9 10.8 10.8 33.7

leather products

5 6.0 6.0 39.8

nuts bolts 2 2.4 2.4 42.2

plastic 9 10.8 10.8 53.0

paper products

6 7.2 7.2 60.2

sanitary fittings

5 6.0 6.0 66.3

sports goods 3 3.6 3.6 69.9

textile machinery

2 2.4 2.4 72.3

tyres 2 2.4 2.4 74.7

utensils 12 14.5 14.5 89.2

washing machine

9 10.8 10.8 100.0

Total 83 100.0 100.0




Nature of Business


Percent

Valid Manufacturing Concern 51 61.4 61.4 61.4

Services Concern 32 38.6 38.6 100.0

Total 83 100.0 100.0

Manufacturing Concern Services Concern

Nature of Business

0

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20

30

40

50

60

70

Pe

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nt

Nature of Business




AOP Individual not available Partnership Private Limited

Legal status of business

0

10

20

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40

50

60

Pe

rce

nt




Percent

Valid AOP 5 6.0 6.0 6.0

Individual 23 27.7 27.7 33.7

not available

48 57.8 57.8 91.6

Partnership

2 2.4 2.4 94.0

Private Limited

5 6.0 6.0 100.0

Total 83 100.0 100.0




Number of Employees


Percent

Valid 0 5 6.0 6.0 6.0

1 4 4.8 4.8 10.8

2 8 9.6 9.6 20.5

3 2 2.4 2.4 22.9

4 10 12.0 12.0 34.9

5 3 3.6 3.6 38.6

6 8 9.6 9.6 48.2

8 2 2.4 2.4 50.6

9 3 3.6 3.6 54.2

10 5 6.0 6.0 60.2

12 3 3.6 3.6 63.9

13 2 2.4 2.4 66.3

15 3 3.6 3.6 69.9

18 2 2.4 2.4 72.3

20 9 10.8 10.8 83.1

22 1 1.2 1.2 84.3

24 1 1.2 1.2 85.5

25 2 2.4 2.4 88.0

30 1 1.2 1.2 89.2

35 1 1.2 1.2 90.4

40 3 3.6 3.6 94.0

70 1 1.2 1.2 95.2

100 1 1.2 1.2 96.4

200 2 2.4 2.4 98.8

300 1 1.2 1.2 100.0

Total 83 100.0 100.0




0 1 2 3 4 5 6 8 9 10

12

13

15

18

20

22

24

25

30

35

40

70

10

0

20

0

300

Number of Employees

0.0

2.5

5.0

7.5

10.0

12.5

Pe

rcen

t

Number of Employees




Yes No

Business Expansion

0

10

20

30

40

50

60

Perc

en

t

Business Expansion

Business Expansion


Percent

Valid Yes 40 48.2 48.2 48.2

No 43 51.8 51.8 100.0

Total 83 100.0 100.0




Fully Satisfied High Risk Fear Lack of Expertise and Awareness

Lack of Finance Others

Problems to Expand Business

0

10

20

30

40

Pe

rce

nt




Percent

Valid Fully Satisfied 29 34.9 34.9 34.9

High Risk Fear 3 3.6 3.6 38.6

Lack of Expertise and Awareness 8 9.6 9.6 48.2

Lack of Finance 31 37.3 37.3 85.5

Others 12 14.5 14.5 100.0

Total 83 100.0 100.0




Yes No

Availing Services of Bank

0

10

20

30

40

50

60

70

Perc

en

t




Percent

Valid Yes 52 62.7 62.7 62.7

No 31 37.3 37.3 100.0

Total 83 100.0 100.0




Loan Accounts Non

Services Availing from Bank

0

10

20

30

40

50

Pe

rce

nt

Services Availing from Bank

Types of Services Availing from Bank


Percent

Valid Loan 18 21.7 21.7 21.7

Accounts

34 41.0 41.0 62.7

Non 31 37.3 37.3 100.0

Total 83 100.0 100.0




Yes No

Problems in Services

0

20

40

60

80

Pe

rcen

t




Percent

Valid Yes 17 20.5 20.5 20.5

No 66 79.5 79.5 100.0

Total 83 100.0 100.0




Types of Constraints Faced


Percent

Valid Slow Processing 1 1.2 1.2 1.2

Complicated Documentation Formalities

10 12.0 12.0 13.3

High Rates of Interest 10 12.0 12.0 25.3

Stringent Collateral Requirements 4 4.8 4.8 30.1

Poor Services 5 6.0 6.0 36.1

Unavailability of Finance on time 1 1.2 1.2 37.3

General Risk Aversion 23 27.7 27.7 65.1

Religious Point of View 29 34.9 34.9 100.0

Total 83 100.0 100.0

Slow Processing

Com

plicated Docum

entation Formalities

High R

ates of Interest

Stringent Collateral R

equirements

Poor Services

Unavailability of Finance on tim

e

General R

isk Aversion

Religious P

oint of View


0

10

20

30

40

Pe

rce

nt





6. Conclusion & Suggestions

After the concrete and in depth analysis of the research report and gathered

information in this research it is revealed that there are lot of industries in the

Gujranwala working at very small level and having lots of financial and other

different constraints due to which they are unable to continue their pace of

growth while on the other hand lots of decencies are observed from the banking

sector in order to serve the SME sector and it is finally concluded that there is

high need to develop strong bond between SME sector and Banks in order to

support this industry and to remove obstacles they are facing in their way to

development.

Following are some important suggestions are drawn based upon the analysis of

whole research study;

• Policies should be laid down for the banks to properly target the deserved

customers and promote their products according to the culture of the

target audience.

• Banks should make changes in interest rates charges by making rate

variable with the amount of loans taken by the customers.

• Awareness programs should be launched by the Islamic banking sector to

clarify the procedures and to satisfy religious rigid customers regarding

their products/services.

• Local chamber should provide personal guaranty for its members and

make arrangement to provide them loans from banks at low rates.

• State bank should design policies for the banks to provide interest free

loan to cottage industry that deserve whenever they required.

• Banks should simplify their procedures and documentation requirements

for advancing loans to SMEs specifically.




7. Bibliography

To accomplish the research report “WHY SMEs ARE BANK SHY?” following

links are used to collect the data;

• www.smeda.org.pk/main.php?id

• ec.europa.eu/enterprise/enterprise_policy/sme_definition

• www.smeda.org/downloads/smepolicy2007.pdf

• www.international.lga.gov.uk/european_work/glossary.html

• en.wikipedia.org/wiki/Small_and_medium_enterprise

• www.sbp.org.pk/bpd/Conference/Day_One/SBP_Initiatives_for_SMEs_Fin

ancing.ppt -

• http://www.smeda.org/main.php?id=50

• www.pakistaneconomist.com/issue2002/issue5/f&m.htm