Obstacles to Growth of SMEs

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ABSTRACT

Small & Medium Enterprises are considered as a growth engine for developing economies. Importance of this sector cannot be neglected due to its utmost significance and contribution towards GDP growth and employment generation. SME sector in Pakistan is facing number of problems which acts as a hurdle in their growth. Major obstacles in the growth of SMEs include financial constraints, regulatory and fiscal constraint, infrastructure constraint and human resource constraint. These four factors are deteriorating SMEs growth in Pakistan. Sample firms have been selected from trading, manufacturing and services sector of similar size and capacity. Problems faced by SMEs are dimensions of the pointed out four major obstacles.

Lesser technical and professional training of owners, difficult entry into the business, high rents of business premises, high cost structures, high average credit collection period and power shortages are key issues that have been reported by entrepreneurs. Other problems include lack of formal books of accounts, accounting training, computer usage, bank accounts, awareness about banks loan products, low loan acceptance ratio, the excessive government regulations, the hostile taxation authorities, competition from Chinese products, lack of technical and vocational training facilities and poor roads and communications infrastructure. Various dimensions have been revealed in this study that affect growth rate of SMEs. It has been identified that regulatory constraint and infrastructure constraint are key obstacles to growth of SME sector. Future research study can be conducted by calculating financial losses to individual firms and country in general due to obstacles faced by SMEs.

INTRODUCTION

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