Sattar is leading the way for entrepreneurial women in Pakistan.

After a trip to Pakistan in May, Beyond Profit has created a multi-part series, The Other Side of Pakistan, about a side of the country you may not have heard about before. We look forward to your comments and questions.

I can’t get a word in edgewise. I’m sitting in Maimoona Sattar’s office, trying to have a conversation about women in business in Pakistan, but between the two phones in Ms. Sattar’s ears, her office assistant, and a potential woman entrepreneur, I’m the lowest rung on the ladder of priorities. If Ms. Sattar is any indication of the big picture, the tables are turning for women in Pakistan.

Ms. Sattar is the head of the Women’s Business Incubation Center (WBIC), (a project of SMEDA which we covered last week), and an entrepreneur in her own right. She’s been charged with increasing the number of female small and medium enterprise owners in Pakistan. “Look,” she tells me matter of factly, “Pakistan is half women. How can women just be consumers? They have to produce something, something other than children.”

» Continue reading “The Other Side of Pakistan: Entrepreneurial Women”

After a trip to Pakistan in May, Beyond Profit has created a multi-part series, The Other Side of Pakistan, about a side of the country you may not have heard about before. We look forward to your comments and questions.

Small potatoes. That’s what one might call 99% of enterprise in Pakistan. These “small businesses” comprise most of the enterprise activity in the country. Many of these entrepreneurs prefer to keep it that way. Whether keeping afloat a family business passed down by a relative, or running a small shop or food stall, Pakistan’s entrepreneurs fail to see the potential of growth. But, there is movement in the medium-sized enterprise category, which can make a great impact in a developing economy. In Pakistan, these businesses are employing 100-250 people, and hold assets up to US$300,000. The challenge is to encourage and help them to grow.

Were the government not preoccupied with terrorism and poverty reduction, perhaps they would do more to support this sector. A deft move was to outsource this work to SMEDA, the Small and Medium Enterprise Development Authority, a decade or so ago. The organization, operating out of Lahore, hangs in the balance between government and the private sector. » Continue reading “The Other Side of Pakistan: Medium Enterprises on the Rise”

SME investment can be proftable

The good news is that the importance of SMEs in terms of a country’s economic growth has now begun to be recognized by the formal banking sector. Spurred by increasing competition in their traditional businesses, banks are now looking to the largely untapped SME segment, which now presents a lucrative opportunity. When traditional banks downscale their operations to serve the SME market, higher transaction costs and undefined risk management strategies are seen to be a major obstacle. However, the profitability of SME banking, if it is served effectively by creative business models, has been proven by various case studies. The graph below shows that Return on Assets (ROA) of SMEs is higher than the ROA of the total portfolios of the sample banks. So it looks like this is one trend that banks would do well not to ignore.

ROA SME vs Bank Total

Source: SME Banking Best Practices – Benchmarking, International Finance Corporation

Lack of Access to Financing  – A Case in Pakistan

A recent survey conducted by the Small and Medium Enterprises Development Authority in Pakistan is a clear case in point of how SMEs struggle from lack of access to formal financing opportunities.

According to the results, only 16% of SMEs surveyed applied for bank loans in the last two years; more than half of these applications (53%) were rejected. In fact, a great majority of SMEs resort to personal connections for financing.

The Importance of the SME sector

The Importance of the SME sector

The SME sector, with its ability to generate jobs and wealth can have a direct and significant impact on the  formalization of a country’s economy.

It is said that among high-income countries of the Organization for Economic Cooperation and Development (OECD), two-thirds of all jobs are created by the SME sector. The figure is lower among low-income countries because of the overwhelmingly dominant informal sector, yet the SME sector’s contribution is significant. And as an economy grows and income levels rise, the impact of the SME sector only increases.

Source; SME Banking Guide 2009, International Finance Corporation

Small and Medium sized Enterprises (SMEs) are a driving force of economic development, and are key to job creation and GDP growth, both in developed and developing countries. However, mainstream banks, particularly in emerging markets, have typically viewed SMEs as high-risk investments and have shied away from serving these businesses.

And while banks may consider many of these SMEs to be too small or risky, even the fast growth of microfinance has not helped their cause too much because many of them are too large to be effectively financed by microfinance institutions. More SMEs are suffering from this noticeably widening gap, which is called the SME financing gap.