A Pakistani guide to sustaining small and medium sized businesses during the Pandemic

• The number of SMEs to be adversely affected by the lockdown is as high as 5.2 million
• It's time to take advantage of Government financing schemes, up-skilling your staff and rethinking your business model
• Businesses should treat COVID-19 as a wake-up call to digitize to be able to cater to a different kind of customer.

COVID-19 has affected all walks of life. Businesses face a financial crisis that for most of them, is the worst they’ve ever faced. The financial crisis in Pakistan will affect small and medium sized business owners the most due to the limited cash flow ( enough for a couple of months at most). It is no secret that daily cash flow is a small businesses’ lifeblood.

According to a SMEDA survey report, the number of enterprises to be adversely affected by the lockdown is as high as 5.2 million. In the survey, most of the businesses are small in size. 33% of respondents have an annual sales turnover of up to PKR 1 million and 34% employ 1 to 5 employees. So, when something as monumental as COVID-19 hits, not only will SME owners be devastated but so will the employees working for them.

https://www.brecorder.com/2020/04/28/592925/serious-impact-on-enterprises-in-pakistan-due-to-covid-19-emphasized-in-smeda-survey-report/

Corroborating this with the last economic census by Pakistan Bureau of Statistics, we see that over 98% of all enterprises in the country employee 1 to 50 employees only. Additionally, 89% of the labour force does not have protected employment in Pakistan.

https://www.brecorder.com/2020/04/29/593195/over-58mn-workforce-in-pakistan-lacks-social-security-benefits-reveals-study/

Therefore, it is integral for SMEs to stay solvent and survive. Otherwise, Pakistan risks adding to the significant number of people already unemployed.

So what options do SMEs, which contribute 40 percent to the national GDP and constitute about 80 percent of non-farm employment, have when faced with this crisis?

Take Advantage of Government Finance Packages

Governments all around the world have announced stimulus packages of various degrees to help revitalize the economy. Pakistan is no different as State Bank of Pakistan has announced several refinancing schemes and loans with low interest rates. The government has recently set aside PKR 100 billion for the SME sector to help through the ongoing crisis.

The usual financing options (illustrated below) already exist for SMEs and are still active.

In addition, the State Bank and the Pakistan Government have announced multiple financial schemes that SMEs can make use of.

• Refinancing Scheme to prevent worker layoffs

The scheme provides financing for wages and salaries expense for three months from April to June 2020 for those businesses which do not lay off their employees for these three months. “The mark-up on the loans under this scheme will be up to 5pc. Borrowers that are on the active taxpayers list will be able to get loans at a further reduced mark-up rate of 4pc. The scheme has been designed to give preference to smaller businesses”, read the SBP press release.

https://www.brecorder.com/2020/04/10/588350/sbp-introduces-new-refinance-scheme-to-avoid-layoff-of-workers/

The state bank mentions that over Rs 65 billion worth of loans for 700 companies were being processed which will lead to protecting more than half a million jobs in the first two weeks of the announcement of the scheme. SMEs can still utilize this loan to keep afloat.

• Rs 51 Billion Financial Package solely for SMEs

The Ministry of Industries and Production has prepared package namely “Chota Karobar-o-Sannat Imadadi Package” which works to provide financial support to approximately 95 percent commercial consumers with connected load up to 5KW and 72 percent of industrial consumers with connected load of up to 70KW. The package states that commercial consumers would be given support up to Rs100,000 and industrial consumers up to Rs450,000 for three months for May-July 2019 on the basis of their electricity consumption.

https://www.brecorder.com/2020/05/02/593859/pm-khan-to-launch-smes-relief-package-today/

Upskill Your Staff

Your priority should be to keep your business afloat but only cut costs by laying off employees as a last resort. The pandemic has been a testing time for all and with unemployment on the rise, it is best to try to keep your employees and train them with additional skills, which could increase productivity and efficiency, as well as diversifying their roles allowing you to not hire more staff.

Google Inc, in collaboration with the Ministry of Commerce, SECP, TDAP and many private corporations, has started webinar sessions to provide training to small enterprises to digitize and take their businesses online whilst keeping in check with evolving market dynamics.

SMEs can register here for the webinars that are set to go on from 30^th April to 12^th May, 2020.

Take the Opportunity to re-think your business 

It’s never pleasant to use crisis’ as opportunities but using it as a wake-up call to reconsider your business model can be a prudent approach to fortifying your business in the wake of a crisis. If your business model isn’t able to survive the changes that will come from the COVID-19 pandemic, it might be time to change things up.

Historically, Pakistan has been slow to the party of innovation. The story is no different in terms of digitization but this pandemic has brought excess demand, creating a lucrative opportunity for businesses to re-strategize and “go online”. This will help business cater to a new type of customer.

A question all SMEs in Pakistan need to address is of digitization. Can you digitize any of your products or services? Can you streamline your processes by taking them online and balancing any loss of earnings during the crisis by offering new ways to connect with your customers?

Proactive vs Reactionary

The impact of world-changing events such as COVID-19 are intensified by the responses of successive governments to poverty, healthcare, and inclusive social protection. A government's timely response (or lack thereof) shapes how the population largely fares during such times. For businesses in Pakistan, a reactionary government rather than a proactive one could endanger scores of businesses with their short term approach rather than taking feasible long term sustainable measures.

Whilst the State Bank and the government have intervened with certain financial schemes, it remains to be seen whether these mitigation strategies will be effective in alleviating economic hardship amongst the people who arguably need it the most.