ISLAMABAD: A strategic consultation session was held recently, bringing together over 40 auto parts manufacturers and SME stakeholders. The session was jointly organized by the International Labour Organization (ILO) and the Small and Medium Enterprises Development Authority (SMEDA) under the Ministry of Industries and Production.
Led by key members of the Technical Working Group (TWG), including Mr. Mashood Khan and Mr. Mumshad Ali, the event facilitated a candid exchange of challenges, opportunities, and recommendations aimed at helping Pakistan’s informal businesses and workers transition into the formal economy. This transformation is seen as essential to building a fairer, more resilient, and competitive industrial landscape.
Why Formalization Matters
Mrs. Nadia Jahangir Seth, GM Policy & Planning (SMEDA), and Mr. Sheharyar Tahir, Head of External Relations, emphasized the transformative power of formalization. “Supporting enterprises in their transition from informality is vital for inclusive and sustainable economic growth,” they noted. Formal enterprises benefit from better access to finance, government support, and international markets, enabling them to grow sustainably while creating decent jobs and protecting workers’ rights.
Key Takeaways from the Discussion
Mashood Khan, TWG member and representative of the auto sector, highlighted the urgency of recognizing and replicating successful SME case studies. He proposed that local role models from the auto parts manufacturing sector can help guide the transition for other informal businesses.
Key proposals and recommendations included:
- Centralized Government Portal for Payments
Participants recommended developing a unified federal/provincial digital portal where all government departments can issue payable challans. This would reduce manual processing, minimize corruption, and ease the tax compliance burden for SMEs.
- SME-Specific Banking and Financial Support
There was strong consensus on the need for dedicated SME banking products, including:
- Low-collateral, long-term loans
- Interest rates not exceeding 2%
- Debt relief and restructuring from the State Bank of Pakistan for SMEs unable to meet past obligations
It was also suggested that the State Bank mandate banks to remove excessive interest and support recovery-friendly payment plans for affected SMEs.
- Low-collateral, long-term loans
- Government Procurement Quotas for SMEs
To ensure fair competition and sustainability, participants urged the government to reserve a fixed share of public procurement for SMEs, thereby integrating them more directly into national value chains.
- Incentives over Penalties
Rather than imposing penalties on informal businesses, attendees recommended offering incentives to SMEs that bring their suppliers into the formal sector. The approach should focus on encouragement and capacity building, not punishment.
- SME Cluster Zones
There was a shared vision for developing dedicated SME industrial zones, equipped with shared utilities, infrastructure, and easy installment-based shaded factory units. These zones would also facilitate technical partnerships and B2B collaboration.
- Creation of an SME Council
A strong suggestion was made to form an independent SME Council, composed of representatives from various sectors, to voice collective concerns, suggest reforms, and monitor progress toward formalization.
ILO’s Perspective
Mr. Naeem Ansari, National Project Coordinator for the SME Formalization Project at ILO, reaffirmed the importance of continuous dialogue and collaboration among key stakeholders, including workers. He emphasized the need for frequent brainstorming sessions with SME stakeholders and skilled labor to refine and advance the national roadmap.
“Our aim is to boost productivity, improve working conditions, promote social dialogue, and make SMEs more competitive and better compliant. Formalization is not a choice but a necessity for long-term economic growth for Pakistan,” Mr. Naeem said.
This session highlighted the pressing need for inclusive and action-driven approaches to formalize Pakistan’s SMEs. With the right policies, collaboration, and institutional support, Pakistan can harness the full potential of its informal sector—transforming it into a growth engine that creates jobs, boosts exports, and strengthens the national economy.
