Small and Medium Enterprises (SMEs) form the backbone of Pakistan’s economy, with over 5 million operating nationwide — 60% of them based in Punjab. Representing more than 90% of all businesses, including 72% of manufacturing companies, SMEs employ nearly 80% of the non-agricultural workforce. These enterprises contribute approximately 40% to the country’s GDP, 25% to export earnings, and provide livelihoods to over 25 million people.
Despite their significant role, SMEs face serious challenges. Majority of them operate outside the formal economy, limiting their access to institutional support. Only 6% of private sector credit is extended to SMEs, and they remain excluded from formal financial mechanisms. Outdated infrastructure, complex loan and tax procedures, poor awareness of Islamic banking products, and weak linkages with large firms and financial institutions further hinder their growth.
To unlock the full potential of SMEs, a series of incentive-driven reforms are needed. These include establishing an SME Council or Foundation in private sector with the back of government, recognizing successful formal SMEs as role models, and allocating 25% of government procurement quotas to SMEs. A centralized portal for tax payments, intermediary firms for accounting support, and subsidized energy policies can reduce bureaucratic burdens. Partnerships with universities for capacity building, development of Common Facility Centers, and the setup of industrial clusters — such as those in Rachna Industrial Park (Lahore), running under Federal Ministry of industries & Production — will promote sustainable growth.
To improve financial access, the creation of an SME Credit Information Bureau and a dedicated SME Credit Rating Agency (like India’s SMERA) is recommended. Promoting subcontracting relationships between SMEs and large firms, introducing SME-focused banks or low-interest loan windows in all banks, and training bank staff to promote Islamic banking in simple Urdu will support financial inclusion. Lastly, redefining SME classifications — with “Small” set at sales up to PKR 600 million and “Medium” up to PKR 2 billion — will help align policy support with business realities.
With focused policy interventions and coordinated support, Pakistan’s SMEs can transform into a dynamic engine of inclusive economic growth.
Engr. Iftikhar Ahmad,
EC Member LCCI (2024 – 2026)
Advisor – PAAPAM Skill Development Center (PSDC)
Former Chairman PAAPAM
This exclusive article has been published in Automark Magazine’s September-2025 printed and digital edition.