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

1.Introduction The SMEs glob whollyy, atomic number 18 accepted as engines of economic fruit and play a pivotal constituent in boosting the economy. The importance of the SMEs empyrean is well recognized and its Contribution is pertinent in achieving several socio-economic objectives, such as employment generation, contribution to subject area output and exports, and fostering new entrepreneurship. SMEs contribute in economic growth of both developed and developing countries, as they Provide low comprise employment since the 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 recent historic period since liberalization and adjustment policies (Bari and Haque, 2008). So, it is important to specially address the policy issues regarding impart toward the SME sector. This sector is facing severe problem in financing, regulatory aspects, feeler to non-financial inputs. Some recent trend shows that Government policies have discriminated against small-scale enterprises (Raza and Murad, 2010). there is nonhing wrong with a situation in which inexperienced entrepreneurs are unable to get institutional credit. In the same study he shows that, the relative decline of small-scale enterprises in most developing countries has been intensify by the industrialization policies adopted in these countries (Bari and Haque, 2008). Protection, regulatory constraint, investment incentives, credit control, and the promotion of industry in the public sector have all discriminated against the small. Especially, facilities regarding small groups like female were poor and create adverse jolt on the growth of SMEs (Sadaquat and Sheikh, 2010). The common idea that the cost of capital is real high for small enterprises is overly simple (Basu, 1998). A research of knowledge base Bank suggests the existence of financial constraint because formal banks do not lend to the sma llest firms in most countries. It has also severe impact on the smallest firms. Access to equity and formal debt financing has repeatedly been identified as a recurring constraint to SME growth and development. Commercial banks apply conservativist policies in lending to SME. More, importantly the existing structure of financial sector was developed to serve medium to large enterprises which are organized as a formal business (Kon and Storey, 2003). Most banks prefer to hold pretend free-income generating assets and lending to SME is unattractive due to a range of objective and native factors. These include high transaction costs, inability to do away with evident collateral requirement, no linkage of financial products with sector needs and the inability to structure/ offer and manage risk-prone SME specific medium to long bourne financing options.