Digitising SMEs in Pakistan

Sep 8, 2017
Tags :
  • digital finance,
  • digitization of SME,
  • SME,
  • As the world paces towards adopting digital technologies, Pakistan is making efforts to achieve parity. There are around 3 million Small and Medium Enterprises (SMEs) in Pakistan, contributing to over 40 percent to the Gross Domestic Product (GDP) and 78 percent of all employment.[1] There are no estimates available on what impact digitisation will have on SMEs in Pakistan but a  study on digital finance by the McKinsey Global Institute estimates that digitisation of processes and payments will add $36b to Pakistan’s GDP and will lead to the creation of 4 million jobs by 2025. Similarly, a recent study on the Impact of Internet and digitisation on SMB’s in India estimates that increasing adoption of digital technologies by SMEs in India could raise the GDP by 10 percent by 2020.

    The report also find that SMEs in India that have leveraged digital technologies achieve almost double the growth trajectory as compared to those who have not employed digital technologies. Digitally enabled SMEs reported a year-on-year (YoY) growth of 19 percent, compared to 10 percent of offline SMEs.

    In this context, SMEs, being a critical element of any economy, can benefit greatly from digitising their processes and payments.

    Some major advantages of being digitally enabled are:[2]

    • Economies of scale – With a larger customer base and enhanced revenues, SMEs are likely to reap the benefits of increased production and therefore higher profits.
    • Efficiency of processes – Through digital technologies, SMEs are able to positively impact their everyday processes, reduce lead times, conduct more efficient management of human resource, attract better talent etc.
    • Improved information sharing systems – Digital technologies lead to enhanced access to resources, international best practices, improved internal and external communication
    • Enhanced connectivity – SMEs have the opportunity to reach a wider customer base through employing digital technologies. With growing mobile internet penetration, currently at 29 percent, and increasing smartphone adoption, currently at 51 percent, consumers are more able to interact with businesses online[3].

    Digitisation is destined to solving various issues faced by SMEs. SMEs incur high cash management costs, struggle with managing their cash flows in real time and are prone to increased risk of theft and leakages. By employing digital payment systems and undertaking digital transactions, SMEs are likely to significantly reduce leakages and better manage their cash flows.[4] Also, these SMEs will automatically be included in the formal financial economy, which in addition to aiding the financial inclusion target of 50 percent financially include by 2020, will enable SMEs to access credit from formal financial institutions[5]. This will contribute towards reducing the credit demand gap of Rs. 277 billion in Pakistan. There are however some critical factors which hinder SME digitisation.

    Constraints to digitisation of SMEs: [6]

    • Lack of awareness: Lack of knowledge regarding the potential of digitisation is one of the biggest deterrents of SMEs adopting digital techniques within their processes and payments
    • Lack of digital skills: SMEs find it difficult to adopt digital techniques as a result of insufficient digital skills and capability of working digital systems.
    • Infrastructure and Cost: The cost of adopting digital techniques is a major concern for SMEs. Similarly, the lack of supporting infrastructure and technology are also major deterrents in keeping SMEs online[7].

    Government institutions such as the Trade Development Authority of Pakistan (TDAP) and the Ministry of Information Technology (IT) have, however, undertaken efforts to modernise and digitize SMEs in the country. One such example is the recent initiative by TDAP, which has signed a Memorandum of Understanding (MoU) with Alibaba, a global giant in e-commerce, for promoting exports by SMEs in Pakistan through their e-commerce channel. Alibaba, as part of the MoU will provide online and offline training programmes to SMEs, imparting skills to allow for SME digitisation.[8] Similarly, the ministry of IT, in its Digital Pakistan Policy 2017, has placed substantial emphasis on creating an enabling infrastructure for SMEs, which includes development of additional technology parks in federal and provincial capitals that provide world class data and network facilities to SMEs.

    Karandaaz Pakistan is also actively engaging SMEs. While the Karandaaz Capital platform is providing access to finance to SMEs in Pakistan, the Karandaaz Digital platform is working on digital initiatives throughout the country. A key success for Karandaaz will be to explore how the two arms can be amalgamated to facilitate SME digitization, given the centrality of the SME segment to Pakistan’s economic well-being.



    [1] National Financial Inclusion Strategy Pakistan, http://bit.ly/2wTCXhV
    [2] Impact of Internet and Digitisation on SMB’s in India, January 2017 http://bit.ly/2xVaLsW
    [3] The Connected Future for SMEs, 2013, http://bit.ly/2fdDxOk
    [4]  Powering Inclusive Growth in Emerging Economies, http://bit.ly/2e5FwqI
    [5] Financial Inclusion in the Digital Economy, 2016 http://bit.ly/2wRz2mx
    [6] Impact of Internet and Digitisation on SMB’s in India, January 2017 http://bit.ly/2xVaLsW
    [7] The Economic Survey of Pakistan 2016-2017, http://bit.ly/2wjMMT7
    [8] http://bit.ly/2jfASbk


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