M Ans Qayyum
27th June is celebrated as a day to recognise micro, small and medium enterprises around the world. Globally, MSMEs contribute roughly 50% of the GDP and employ an estimated 60 - 70% of all workforce. This MSME day encourages us to engage in meaningful dialogue to support MSMEs around the world and in Pakistan. And one of the most important conversations right now is how MSMEs are weathering the storm of this COVID-19 pandemic.
COVID – 19 has laid waste to lives and livelihoods all over the world. Global confirmed infections are closing in on the 200 million mark, of which nearly 4 million individuals have passed away. In Pakistan, nearly 1 million have been infected with 22,000 passing away. The impact on livelihood and employment losses has been similarly devastating, which has been estimated and measured through a variety of methodological approaches. Globally, the International Labour Organization estimated that the employment of 114 million people was affected in 2020, either through reduced work hours, inactivity or loss of employment. For Pakistan, one study projected the job losses at 18.5 million.
SMEs are the engine of Pakistani economic growth, contributing between 30 – 40% of the GDP, employing three-fourth of the non-agri labor force and making up 25% of Pakistan’s manufacturing exports. The pandemic brought in a range of issues for this sector. SMEs had to cope with supply chain issues, plummeting demand for goods and services, sharp decline in revenues that had a knock-on effect on the business financials and employed workforce.  
According to a World Bank survey in Pakistan, firms reported an average decrease of 44% in their sales when the pandemic first hit. The crisis acutely affected smaller sized firms more - an estimated 10% of micro-sized businesses permanently shutting their doors by the mid of 2020 compared with only 2% of large firms. A similar survey conducted by Karandaaz Pakistan revealed that (within the sample studied) 52% of businesses laid off employees as a result of the lockdown related measures while 43% reduced the salaries of their employees. Part-time and daily wage earners were the most affected segment. Pandemic related restrictions also affected the free movement of goods within the country, and across international borders. A whopping 80% of businesses had a negative impact on their supply chain. 
With a mandate to support MSMEs in Pakistan, Karandaaz Pakistan channeled its investments to support the small and medium enterprises it has been working with. It provided financial assistance to 12 women-led businesses that were on the verge of laying off close to 500 employees. Through a PKR 12.6 million financial assistance, Karandaaz helped these MSMEs avoid this layoff during the peak of the pandemic in 2020. Additionally, a couple of these enterprises were extended an additional PKR 14.5 million so that they could meet their working capital requirements.
Beyond the individual efforts by organizations such as Karandaaz, supporting the economy was essential and the government was quick to announce a 1.2 trillion stimulus package. The up-take of the stimulus package by the intended beneficiaries could have been better. While an estimated 70% of businesses were aware of the stimulus and relief measures, only 8% approached banks to avail these facilities according to the survey by Karandaaz. The domestic policy of not imposing a complete lockdown again, does seem to have benefited SMEs in Pakistan as compared to SMEs in other countries of the region. The government’s electricity support package has also been helpful, quoted business respondents in a survey. The Temporary Economic Refinance Facility was introduced specifically for fueling new investments and supporting the economic activity.
SMEs also suffered adversely in a key area that is extremely important for their growth and expansion: access to capital and credit. According to the data released by SBP, SME financing has shrunk in all but the last quarter of the year 2020. The first 9 months of 2020 witnessed an average decrease of 11% in the gross loan portfolio of SME businesses in Pakistan, considering a year-on-year basis. To put this into perspective, year-on-year growth was positive every quarter since 2015. Limited uptake of credit is likely to hamper the capital needs and expansion plans of SMEs. 
Businesses have resorted to a variety of initiatives to mitigate the impact of this pandemic. Aside from reducing costs, businesses have pivoted to digital channels, new products and business development strategies. 42% firms of all sizes surveyed by the World Bank in 2021, reported using digital channels to conduct their business. Broadband subscribers have increased by 17% in 2020 while e-banking transactions grew by 24% in volume and 22% in value in the last quarter of 2020. However, it remains to be seen whether this shift will be sustained. 
With the vaccination drive in place, there is light at the end of the tunnel. The Business Confidence Survey conducted by the SBP reported that the Business Confidence Index was at its highest in December 2020 since it was launched in mid-2018. That is a remarkable improvement considering that the index was lowest in April-June 2020. In 2020, firms were expecting a hefty double digit decrease in employment. However, the expected decrease was in single digit numbers in 2021. SME financing in terms of GLP posted a positive growth once again, in December 2020. Coupled with private sector financing, beneficial schemes amounting to PKR 12 billion in the recently announced budget are likely steer the engine of the economy in the right direction.
The writer is Senior Analyst, Knowledge Management, Karandaaz Pakistan.