Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants. Foreign entrants such as Uber & Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development.
It is estimated that SMEs constitute around 90% of the 3.2 million private enterprises in the industrial, services and trade sectors in Pakistan and employ around 70% of the non-agriculture labor force. These enterprises also contribute over 30% to GDP and 25% to the country’s total export earnings. Their share in value-added manufacturing is estimated at 35%. In view of the critical importance of SMEs in low-cost job creation and poverty reduction, successive governments have tried in the past to focus on their development, but the sector remains uncompetitive in the world markets owing to structural weakness, obsolete technology, lack of access to credit and marketing and management skills, unfriendly business and regulatory environment, and other factors, despite various initiatives both at the federal and provincial levels. Venture Capital can be an effective option for start-up businesses. However, to establish this market some significant steps are required to encourage domestic and foreign investors for the establishment of Fund Management Company (FMC). These steps may include the reduction in the capital requirement for the establishment of FMC, issuance of contract for longer term and establishment of secondary markets, etc. Some notable companies that have helped foster entrepreneurship in Pakistan are Accenture, IBM, MIT and Orix etc.
Small and medium enterprises (SME) sector has a great potential for expanding production capacity and self-employment opportunities in the country. Enhancing the role of financial sector in development of SME sub-sector could mitigate the serious problems of unemployment and low level of exports. The banks may introduce ‘SME Financing Funds’ with various geographical locations. The corporate sector and the commercial banks may set up a network of such funds under the aegis of State Bank of Pakistan or Securities Exchange Commission of Pakistan by establishing institutions under syndicate arrangements or otherwise. The corporate sector and academia must also play their role by setting up challenge funds for SME financing in order to promote entrepreneurship. Challenge Funds (CF) have been implemented in several countries by donors to elicit innovative responses to a variety of chronic challenges, including bottlenecks in financial access, reducing the number of out-of-school children, arresting waste and inefficiencies in agricultural value chains, increasing responsiveness of local governments for improvements in service delivery, to name a few.
Pakistan has the lowest rate of female entrepreneurship in the world, with only 1% of female entrepreneurs compared to 21% of male entrepreneurs. Access to finance is one of the factors that has prevented women from engaging in entrepreneurial activities, with only 5% of women having access to an account at a formal financial institution. Beyond this, there are many structural, institutional and socio-cultural barriers that restrict the entrepreneurial capabilities of Pakistani women. Below are a few norms that are particularly important to understand and address so that we can bring more women into the formal financial sector.
- Limited or restricted mobility
- Low levels of literacy and capability
- Unfamiliarity with technology
- Responsibility for childcare
- Lack of need for financial services
Efforts are being made to develop female entrepreneurship and support women-owned micro and small businesses in Pakistan; however, a study by the Pakistan Microfinance Network demonstrates that these efforts are often piecemeal and inadequate as they fail to ensure significantly increased female access to financial products and services and have had limited success in promoting the development of female entrepreneurs beyond the small home-based businesses that they are currently engaged in.
Greater access to formal finance can improve economic empowerment and allow an increasing number of women to participate in the formal economy. Interestingly, it can be argued that better financial access is both a cause (the ability to make decisions) and a result of economic participation (if women are working or participating, it should incline them to maintain their own accounts). Simply put, greater economic opportunity through employment or entrepreneurship can be a driver for financial inclusion.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]