Identification of strengths and barriers among Pakistani SMEs: A financial management viewpoint

Abstract

In Pakistan, Small and Medium Enterprises (SMEs) are considered as key indicators of the status of the national economy through contributing 90% in total businesses establishments and 80% employments in the non-agriculture sector. Pakistani government with the assistance of Small and Medium Enterprise Development Authority (SMEDA) and other associated organizations are undertaking multiple activities to boost awareness and importance of adopting prudent financial management practices by SMEs. This research endeavor aimed at exploring the strengths and barriers faced by SMEs in planning and undertaking sound financial management practices. Keeping in view the exploratory nature of this research, based on qualitative research paradigm, semi-structured interviews were conducted with managers/owners of thirty SMEs. The study findings demonstrated that the component of capital found to act as strength and barrier among SMEs. On one side, the absence of external capital (loan) appeared beneficial for SMEs due to minimizing financial risk for the business and offering more freedom to managers in their decision making without having any fear regarding any restrictions imposed by external finance. However, on the other side, lack of financial resources due to having difficulty in acquiring external capital (loan) might restrict SMEs capability to undertake viable business opportunities. This study highlights the crucial role of adopting appropriate financial management practices in developing a sound capital structure for SMEs. This study finding could provide useful insight to SMEs pertinent to dealing with multiple business challenges and acquiring sustainable profitability.