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Market Reforms and Entrepreneurship

Entrepreneurship can be defined in many ways and has various attributes, but at core it is about innovation and taking prudent business risks that can result in various outcomes. Entrepreneurship when allowed to develop, results in high growth rates and opportunities which opens avenues to all segments of the society, including the less fortunate. Focusing on this segment of the population is very important as it is engaged in small and medium enterprises. These individuals are immensely talented and vibrant models of entrepreneurship as they represent the majority in the context of our economy. Sadly, the state of competition in many Pakistani Industries is such that policies protect and subsidize incumbents, inducing the entrepreneurs to focus their energies and limited capital towards rent-seeking activities rather than into productive entrepreneurship.

The overall business environment is less than conducive leading to many questions on a wider policy debate around entrepreneurship. Some of these include, how is entrepreneurial talent fostered in today’s globalized world, what are the driving forces behind it, what are the enablers, how does it contribute to economic progress, poverty reduction, national development, and social outcomes. What are its linkages with overarching desirable outcomes of prosperity, stability, and social cohesion, and finally what are the impediments to promoting it as a policy tool.

To answer these, three important points need to be highlighted here, which touch upon aspects of these key questions.

Firstly, our own experience of microfinance demonstrates that a well-defined policy, legal and regulatory framework, is critical to foster entrepreneurial talent and promote entrepreneurship more broadly. The Microfinance Sector Development Program, in Pakistan, was initiated in the year 2000 with the objective of reforming the financial system and mainstreaming microfinance. The effort was based on the principle and evidence that there was a large demand for financial services at the grass-root level that was not catered to by commercial banks. This initiative promised potential for future expansion of the microfinance industry as sustainable and held particularly true for remote rural areas where commercial and other formal Institutions had a limited presence.

Pakistan today, has a favorable policy environment, a dedicated law in terms of the microfinance Institutions ordinance 2001, a supportive supervisory and a regulatory framework. At present there are eight licensed Microfinance Institutions and all belong to the private sector with Khushhalibank as the largest within this framework. The full service outreach has expanded across the country having serviced millions of clients cumulatively with presently over two million active clients. While there remains large potential in the industry with innovations such as branchless banking providing the enabling platform to bridge the demand and supply gaps over a short period of time both in Pakistan and elsewhere.


The  Global microscope on the microfinance business environment 2010 released by the Economist Intelligence Unit ranked Pakistan at number 5 on the global ranking Index (No 1 in terms of legal & regulatory framework). This accomplishment holds valuable lessons for undertaking reforms within the context of our own setting in Pakistan and providing the enabling space for entrepreneurship to nurture.

Secondly, the environment of Pakistan is such that it presents one with an opportunity to invest in such policies. Other challenges notwithstanding, Pakistan has a distinct edge with respect to entrepreneurship as it has a flourishing young population which can be productively employed and be part of a growth engine.The policy rationale for stepping up entrepreneurship is robust and the policy instruments to enable its progress are well established, but there are critical bottlenecks which need to be overcome.

Thirdly, the overall security environment is a disincentive for investment. High interest rates as a result of contractionary monetary policy does not auger well for business activity nor does the severe energy crisis which hampers business productivity. Also, the water crisis in a rural agrarian economy negatively impacts many agriculture economic activities, where innovations can be fostered but the most constraining factors are resultant of lack of policy consistency and weak governance.

A World Bank Pakistan Business Reforms result profile released recently says that small and medium-sized enterprises are key drivers of competition, growth and job creation, particularly in developing countries. But in these economies up to 80% of economic activity takes place in the informal sector. Firms are often prevented from entering the formal sector by excessive bureaucracy and regulation. Study of regulatory constrains to businesses is vital in Pakistan where small and midsize firms constitute nearly 90% of all companies. Pakistan is ranked number 83 out of 183 economies on the Ease of Doing Business and is the highest-ranking economy in South Asia. Despite recent and ongoing reforms, Pakistan needs to improve the business environment further to make it easier to set up and operate a business, the World Bank study said.

Harnessing people’s entrepreneurial capability necessitates creating an appropriate policy environment for a level playing field as a priority in this regard. Foremost, there is need to build safeguards against organized vested interests, which promote capture and bias laws and policies in a country to serve the needs of a selected few. In today’s globalized world, policy norms enshrined within the notion of competitiveness build safeguards. Truly, the Government alone or the private sector cannot employ the entire workforce for which a new discourse is required in terms of our thought process that not only addresses our immediate concerns but also provides a sustained road map for the future.

Innovation, leadership and entrepreneurship are traits present in individuals; we only have to provide the required environment which allows harnessing and channelizing these abilities towards building the nation.

Economic Growth does not depend on infrastructure alone; it also factors in contributing components such as productivity and innovation. Mature enterprises in diverse sectors contribute in the overall resilience of the economy and growth path. Economists today agree that entrepreneurship is a necessary ingredient for stimulating growth and employment opportunities in a society. Therefore, government support to entrepreneurship is a crucial for economic development as this concept has become vital in the context of knowledge driven growth and global competitiveness.

The wave of globalization and economic liberalization has triggered a rapid change in the global landscape. Privatization and deregulation has sharpened the competition in the international market and this has been further compounded by technological breakthroughs and instant changes in customer needs and expectations.

Progressive economies of the world are quickly adapting this environment by the repositioning of focus on knowledge based mechanisms which act as the key drivers of innovation and sustainable economic growth. Developing countries are now increasingly encouraging entrepreneurship to serve as one of the major contributors of economic growth for which they are investing in resources. These investments are expected to pay dividends in terms of increased export revenues, enhanced GDP, improved overall competitiveness resulting in sustainable economic growth.  

Promoting private sector development and Entrepreneurship in particular, has become a defining feature of the Government of Pakistan’s development policy in recent years. At a time when global development is being jeopardized by manmade and natural disasters, the need to integrate socially beneficial innovation has become more urgent than ever.

The Government of Pakistan is conscious of the need to address these factors and will undertake a comprehensive reform under a new policy framework with an objective of promoting small and medium enterprises thereby entailing enhancement of the competitiveness of the economy and generating employment.

It is important for the reform process to be holistic in terms of encompassing the entire eco-system that includes policy, entrepreneur, enterprise, support system, service providers, media, community and the public.

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