The Role of Small and Medium-size Enterprises (SMEs) in the Socio-economic Stability of Karachi.

Abstract

The purpose of this study is to identify the core constraints in financing of SMEs in Karachi that impede their growth and even undermine their liquidity and financial position. Literature review: The problems and constraints are faced by small and medium-size enterprises (SMEs) in Karachi with regard to access to financing. Along with Karachi, the other cities and areas in Pakistan are facing alike problems. Methods: This study is exploratory in nature and includes quantitative and qualitative data. Data was collected through well designed questionnaire from a sample group of 500 respondents of SMEs in Karachi. In addition, one-on-one formal and informal interviews were also taken from various businessmen and bankers. Conceptual Model: A conceptual model/ framework were devised to test and ascertain the statistical validity of the study. It includes dependent variable SME financing, and independent variables, financing constraints, functional/ internal barriers, government support and incentives, and SMEs growth and development. Findings: The findings revealed that most people/ SMEs feel reluctant to borrow from banks and financial institutes because of stringent collateral requirements, high mark up, lengthy and convoluted documentary process, and to some extent malpractices at banks and financial institutions. The preference of the lending institutions is to finance the large-scale corporate sector. The results of the data analysis confirmed profound relation of dependent and independent variables and accepted the hypotheses. Conclusion: A substantial portion of SMEs possesses great potential of growth. There exists unending opportunities to tap, while banking and financial system in Karachi and Pakistan enjoys enough liquidity but SMEs are unable to enjoy financial leverage because of various financial constraints, lack of support by government institutions and policy makers, and internal weaknesses and flaws of SMEs in managing their businesses. Finally recommendations were lodged.Small and Medium enterprise; constraints in financing; Socio-economic Sustainability