THE FINANCIAL STRAIN ON SMES IN PAKISTAN

Abstract

Small and medium Enterprises are crucial to nations that are looking to expand economically and they have abundant resources that have not been utilized. SMEs boost economies by driving innovation, creating employment, and reducing poverty which aids in a country's economic growth. Governments worldwide also pay attention to SMEs and promote and expand them as their national development strategy. According to the World Trade Organization (WTO) SMEs account for over 90% of company employment, 60% to 70% of job creation, and 55% of GDP in industrialized nations, they are not merely a significant economic contributor. They are the economy. In Pakistan, SMEs also contribute significantly to a major part of GDP by creating jobs and enhancing economic growth. Despite this, they encounter significant financial hurdles while operating their business. The objective of this research is to identify the financial challenges and constraints faced by SMEs and the impact of financial literacy, government support, interest rate, and obtaining loans on SMEs performance in Pakistan. To collect the primary data quota sampling was employed and questionnaires were filled out among 205 SME owners, managers, and employees, entrepreneurs on various aspects of their financing experiences. The data was analyzed using Partial Least Squares (PLS) analysis to identify significant factors influencing SME financing. This research results demonstrate that SMEs face obstacles when they seek financing to grow more and there is a significant relationship between financial literacy, government support, interest rate, and obtaining loans on SMEs' financial performance. This research suggests based on the results government should create a more supportive financial ecosystem for SMEs to reach their potential, bringing innovation and contributing toward economic stability.