Dr. Ghulam Mohey-ud-din is an urban economist from Pakistan, currently based in the Middle East. He holds a PhD in economics and writes on urban economic development, macroeconomic policy, and strategic planning.
The problem of the enterprise ecosystem in Pakistan has a structural flaw, which is hardly ever discussed in policy-making circles, and it is that Pakistan lacks an institutional framework of micro, small, and medium enterprises (MSMEs) as a unified economic category. Compared to the other institutions, which serve only portions of this ecosystem, such things as micro enterprises, which are the most vibrant and the fastest rising section of this ecosystem, are the greatest unknown in policy-making.
Pakistan Bureau of Statistics shows that out of the estimated 5-6 million business establishments in Pakistan, more than 90 percent are micro or small with an employee count of less than 10 workers. The small and informal enterprises contribute approximately 40 percent of GDP, and more than 70 percent of non-agricultural employment. Nonetheless, their macroeconomic significance notwithstanding, the institutional structure of Pakistan fails to consider them as a strategic source of growth.
At the federal level, there is the Small and Medium Enterprises Development Authority (SMEDA) that offers advisory and facilitative services to SMEs. On the provincial level, small industries are dealt with in the Small Industries Corporations, which deal primarily with small and cottage manufacturing. Independently, there are microfinance banks and institutions (regulated by the State Bank of Pakistan) that cater to over 10 million borrowers, although they are not being targeted as an enterprise in need of productivity, technology, and integration into the market.
What Pakistan does not have is an institutionalized MSME- an institution in which micro, small, and medium enterprises are seen as a component of an ongoing growth pipeline and not policy silos.
The Forgotten Majority: Micro Enterprises
Micro enterprises cannot be classified as an outlying segment. They form the point of entry of the Pakistani economy in terms of entrepreneurship. These are informal retailers, service providers, home-based enterprises, platform workers, IT freelancers, and start-up enterprises.
Currently, the freelancers is more than 2 million in Pakistan, making Pakistan one of the top five freelance economies in the world. The industry estimates, and SBP figures indicate that IT and IT-enabled services exports reached USD 3.8 billion in the FY204-25, mainly comprising individuals and micro firms as opposed to registered SMEs. However, these digital microenterprises are not included in the industrial, trade, and export policies of Pakistan.
They are too young to be included in conventional SME initiatives, too current to be viewed as cottage industries, and too frequently just being considered as the beneficiaries of microcredit, but not as productive economic entities. Consequently, micro enterprises have been funded and not nurtured, enumerated but not incorporated, and accepted instead of being planned to be enhanced.
Studying by International Practice
The response of Pakistan is exactly opposite to that of peer economies towards MSMEs. Examples include India, which has a special Ministry of MSME that regulates over 63 million enterprises, which serve approximately 30 percent of GDP and close to 45 percent of exports. The MSME system in India incorporates registration, skilling, technology upgrade, access to procurement, and facilitation of exports in a single institutional framework.
Other developing economies like Turkey, Indonesia, Vietnam, and Malaysia directly consider MSMEs as sources of employment and export boosters. Their policies will ensure that the firms move out of the micro scale to the small scale and the small scale to the medium scale.
In Pakistan, on the other hand, there is no MSME structure, and there is no established channel of exit for the enterprise. Companies are left languishing in informality, productivity is not enhanced, and scale is not promoted, but it is discouraged.
Why the Timing Matters
This has even become a crippling institutional gap in the post-2020 economy. Pakistan is experiencing about 2 million working-age individuals annually, whilst the creation of formal employment is minimal. Mass production has been unable to absorb labor, and the fiscal limit has decreased the ability of the state to achieve capital-intensive growth policies.
Meanwhile, the digitalization has reduced the entry barriers to entrepreneurship. One of the few growth channels that provide Pakistan with a foreign-exchange boost is freelancing, e-commerce, and services exports. Nevertheless, these activities have not been linked to the export policy, skills development programs, and incentives in the formal sector without the presence of an MSME authority.
It can be measured by the price of such neglect: low rates of productivity growth, low levels of tax-to-GDP ratio, low levels of export diversification, and endemic informality. This is not an issue of financing per se, but it is an institutional issue.
What a National MSME Framework Should Not Do
Pakistan does not require another divided agency. It must have a national MSME structure or agency that undertakes four important functions.
First, it has to officially register micro enterprises as business entities, with clear definitions, online registration, and paths of graduation.
Second, it needs to infuse finance with non-financial assistance, relate credit to skills, technology adoption, digital tools, and access to markets.
Third, it has to align federal and provincial action and streamline industrial policy, digital economy action, skills development, and export objectives.
Last but not least, it should clearly encompass freelancers, startups, and digital service providers to be a part of the MSME ecosystem, understanding that future businesses in Pakistan will be asset-light, service-based, and globally networked at their inception.
An Institutional, and not an Entrepreneurial, Deficit
Entrepreneurs are not lacking in Pakistan. Millions of people are already taking part in micro-enterprise work, making and innovating by constraint, and establishing livelihoods despite the policy negligence.
Whether Pakistan can afford to have an MSME authority is not the issue. Whether or not Pakistan will lose further growth, productivity, and opportunity occasioned by its loss depends on it.
In case Pakistan is capable of achieving inclusive growth, job creation, export diversification, etc., the development of a coherent MSME institutional framework has ceased to be an alternative. It is a structural necessity.
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