Abstract
SMEs have been efficiently used as the vehicles for promoting innovation, productivity, and the competitiveness of a country's national economy. Across the globe, SMEs have been playing a distinctive role in achieving the socio-economic objectives such as employment generation, poverty reduction, equalizing the distribution of national wealth, fostering innovation, and nurturing institutional competitiveness. The main objective of this study is to empirically examine the extent to which financial constraints hamper the growth of SMEs in Sindh, Pakistan. To collect the primary data, survey questionnaires were distributed to 100 SMEs from different economic sectors and registered in the Chamber of Commerce Offices in Sindh. Seven (7) critical financial constraints to SMEs were determined through the literature and included in the questionnaire. The data were analyzed through descriptive analysis and correlation techniques. The results show that SMEs in Pakistan are severely constrained by financing, particularly external equity. Financial ecosystem for SMEs in Pakistan is not friendly and one-size fits all rules and regulations may not suffice the financing needs of SMEs in Pakistan. It has been observed that the institutional weaknesses and market failures exacerbate the financial constraints of SMEs. The government, exclusively, should develop specialized banks and funds to cater to the financing needs of SMEs in their various stages of the business cycle. Furthermore, the Credit Guarantee Schemes (CGS) should also be launched to share the risk of Financial Institutions for lending to the SMEs
Highlights
SMEs are critical in delivering sustainable and inclusive globalization
SMEs have been efficiently used as the vehicles for promoting innovation, productivity, and competitiveness of a country’s national economy
SMEs have been playing a decisive role in achieving socio-economic objectives such as employment generation, reduction in poverty, equitable distribution of national wealth, fostering innovative culture, and achieving institutional competitiveness (Ndiaye, Razak, Nagayev, & Ng, 2018)
Summary
SMEs are critical in delivering sustainable and inclusive globalization. In developed as well as developing countries, SMEs are central to the policies for achieving employment targets, value-added exports, higher income levels, and contributing to enhanced innovation. The existence of vibrant SME-sector has been empirically linked with more inclusive growth and environmental sustainability. According to the SMEDA (2018), in Pakistan, 99 percent of the business units are micro, small & medium enterprises and their contribution to the GDP of the country is 40 percent. The contribution of SMEs to employment generation is 78 percent which is above average among the South Asian Countries. The globalization has increased the access of firms to world markets, resulting in rapid economic growth. The fast-paced growth has resulted in a highly unequal distribution of wealth and the creation of economically imbalanced societies
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