Barriers Faced By Pakistani SMEs in Raising Bank Finance :: Business, Banks

1.Introduction The SMEs globally, are recognized as engines of frugal produce and play a pivotal role in boosting the economy. The brilliance of the SMEs sector is well recognized and its Contribution is relevant in achieving several(prenominal) socio-economic objectives, such as employment generation, contribution to national make and exports, and nurture new entrepreneurship. SMEs contribute in economic growth of both authentic and developing countries, as they Provide low cost employment since the social unit cost of persons employed is lower for SMEs than for large-size units (Sadaquat and Sheikh, 2010).The SMEs sectors growth of output trend to decrease in fresh years since liberalization and adaptation policies (Bari and Haque, 2008). So, it is important to specially address the policy issues regarding bestow toward the SME sector. This sector is confront severe problem in financing, regulatory aspects, access to non-financial inputs. Some recent trend shows that Gov ernment policies have discriminated against gloomy-scale enterprises (Raza and Murad, 2010). There is nothing disparage with a situation in which inexperienced entrepreneurs are unable to know institutional credit. In the same study he shows that, the relative worsening of small-scale enterprises in most developing countries has been accelerated by the industrial enterprise policies adopted in these countries (Bari and Haque, 2008). Protection, regulatory constraint, investment incentives, credit control, and the promotion of exertion in the public sector have all discriminated against the small. Especially, facilities regarding small groups bid female were poor and create adverse impact on the growth of SMEs (Sadaquat and Sheikh, 2010). The common idea that the cost of capital is very extravagantly for small enterprises is overly simple (Basu, 1998). A research of World Bank suggests the globe of financial constraint because testicle banks do not lend to the smallest firm s in most countries. It has also severe impact on the smallest firms. Access to beauteousness and formal debt financing has repeatedly been identified as a revenant constraint to SME growth and development. Commercial banks apply conservative policies in lending to SME. More, importantly the existing structure of financial sector was developed to coiffe medium to large enterprises which are organized as a formal business (Kon and Storey, 2003). Most banks prefer to hold risk free-income generating assets and lending to SME is plain due to a range of objective and subjective factors. These include high transaction costs, inability to do away with tangible collateral requirement, no linkage of financial products with sector needs and the inability to structure/ gallop and manage risk-prone SME specific medium to long term financing options.