survey findings - karandaaz pakistan · by islamabad capital territory (ict) at 38.9%. a report...

Impact of COVID-19 on SMEs (April 2020)

www.karandaaz.com.pk

June 2020

Survey Findings

©️ 2020 Karandaaz Pakistan Impact of COVID-19 on SMEs 2

Background and Objectives

1 World Bank, 20202 Ministry of Planning, 2020

BACKGROUND

• The countrywide lockdown associated with

COVID-19 has had a major impact on the

economy affecting businesses across all

industries and sectors.

• Small and medium enterprises (SMEs) in

particular, are facing contraction in demand,

employment shocks, financial instability and

disruptions across their entire supply chain.

• It is estimated that Pakistan’s GDP will

contract by 1.3% - 2.2%1 and about 18 million

people will lose their jobs2.

OBJECTIVES

• Karandaaz Pakistan conducted a 20 question online survey of SMEs during a

two week period in April 2020.

• The survey gauges the impact of the lockdown on employment, financial

stability and supply chain disruptions.

• Where possible, the survey results are presented by sector, province and size

of business (in terms of annual turnover and employment).

• The survey also highlights the extent of awareness and utilization within the

SME sector of refinance schemes made available by the State Bank of

Pakistan (SBP) in response to COVID-19.

• Finally, the survey sought input from SMEs on the type of assistance

required, so that timely and suitable support may be directed to them.


1 Estimate by Karandaaz Pakistan 20182 Pakistan Economic Survey 2018-193 Pakistan Economic Survey 2018-194 World Bank and Karachi Chambers of Commerce, 2017

Limitations of the Survey

• 123 respondents self selected themselves to respond to the online survey.

• Assuming 4.5 million SMEs in Pakistan1, the margin of error is in the range of 9% with a 95% confidence interval.

• The survey results may have a self selection bias because the participants with online presence, and having fluency in the English

language may be over represented.

• Certain segments such as agriculture (18.4% of GDP2) , trade (28.5 % of GDP3) and respondents from Balochistan (3% of

Pakistan’s GDP4) are under represented in the sample. In the absence of a sampling frame for SMEs, a stratified sampling

technique could not be applied.

• For the reasons stated above, the results of this survey have statistical limitations and should be viewed are indicative.


Businesses are coping with financial and supply chain shocks by reducing production costs, increasing digitization (especially for

marketing and sales), and focusing on business development.

58% respondents had laid off

employees by April 2020

47% respondents had already

reduced employee salaries

Part-Time/Contractual

Employees have been most

affected in terms of both salary

reductions and layoffs

More than half of the textile

sector respondents reported lay-

offs, especially in the part-time

(52.4%) and daily wage (61.9%)

categories

31% businesses reported a high likelihood of

becoming insolvent within a month of

lockdown

58.5% businesses cited salaries as a major

expense (>50% of total cost) during lockdown

66% respondents are aware of government

relief programmes. However, of 22%

respondents currently borrowing, only 30.4%

have applied for loan restructuring

84% businesses cited need for financial

support in the form of subsidized and interest-

free loans, reduction in sales tax and

deferment of utility bills (among others)

78.8% businesses reported

disruptions in their supply chain

78.6% exporters and 79.1%

businesses selling domestically

reported disruptions in their supply

chain

Availability of Raw Material,

Reduced Sales, and Limited

Imports were cited as major

disruptions

Other disruptions cited include

Limited Transport, and Allied

Industry Closure, among others

Top Line Findings

123 businesses participated in the survey. The sample distribution is as follows:


Sample Description (1/3)

63 (51.2%)

44 (35.8%)

14 (11.4%)

2 (1.6%)

Services

Manufacturing/Product Development

Trade

Agriculture

By Industry Respondent Count (%)

Location of Respondents - Cities: Abbottabad • Bahawalpur • Buner • Faislabad • Gilgit • Gujranwala • Hunza • Islamabad • Jhelum • Karachi • Lahore • Mardan • Multan • Nathia Gali • Peshawar •

Quetta • Rawalpindi • Risalpur • Sialkot • Skardu

49 (39.8%)

34 (27.6%)

21 (17.1%)

13 (10.6%)

5 (4.1%)

1 (0.8%)

Punjab Sindh ICT KP GB Balochistan

By Province Respondent Count (%)



40 (32.5%)

21 (17.1%)

17 (13.8%)

11 (8.9%)

10 (8.1%)

10 (8.1%)

7 (5.7%)

7 (5.7%)

Other

Textiles

IT

e-Commerce

Hospitality and Tourism

Light Engineering

Education

Agriculture and Food Processing

Top 8 Sectors in the Sample Respondent Count (%)

Other Sector Respondents: • Furniture • Marble Mining & Processing • Car Wash Services • Aerospace and Aviation • Packaging • Architecture and Interior Design • Health Services • Chemicals •

Auto and Auto Parts • Sports Goods • Advertising • Coal Mining &Trading • PR Services • Transport and Logistics • Retail • Wholesale • Event Organizer • Construction & Housing • Car Rental Service •

Restaurants • Chemicals • Fashion and Beauty



37.8%

38.6%

9.4%

7.9%

6.3%

Annual Turnover in PKR (%)

Between 1 and 10 million

Above 10 million to 150 million



Above 800 million

33.9%

40.9%

12.6%

7.1%

5.5%

Number of Employees (%)

1 to 10 Employees

Above 10 to 50 Employees



Above 500 Employees

Small Enterprises are defined by the State Bank of Pakistan (SBP) as

those businesses that have an annual turnover of up to PKR 150

million and have up to 50 employees

75.6% respondents fall into the ‘Small Enterprise’ category based on

annual turnover (up to PKR 150 million)

74% of respondents fall into the ‘Small Enterprise’ category based on

number of employees (up to 50).

Medium Enterprises are defined by SBP as those businesses that

have an annual turnover between PKR 150 to 800 million, and have

51 to 250 employees

17.3% respondents fall into the ‘Medium Enterprise’ category based on

annual turnover (above PKR 150 million and up to 800 million)

Number of Respondents = 123

Employment Impact (1/4)

The largest proportion of Manufacturing Sector respondents reported layoffs (53%),

followed by Services Sector respondents (43.3%).


53.0

43.341.3

0

10

20

30

40

50

60

Manufacturing/Product Development Services Trade

Proportion of Respondents Reporting Layoffs by Sector (%)

The largest proportion of respondents from Khyber

Pakhtunkhwa (KP) reported layoffs (58.5%), followed

by Islamabad Capital Territory (ICT) at 38.9%.

A report released in May 2020 by the Planning and Development Department, Government of Balochistan titled, COVID-19: Balochistan

Socio-economic Impact Assessment, cites that 0.36 million people have already been laid off in the province.

58% respondents had already laid off employees in April 2020

58.5

37.9

25.4

38.9

0

10

20

30

40

50

60

KP Punjab Sindh ICT

Proportion of Respondents Reporting Layoffs by Province (%)

30.4

41.5

23.1

35.4

25.4

0 10 20 30 40

1 to 10 employees

Above 10 to 50 employees



Above 500 employees

Layoffs by Employee Size (%)

44.6

34.5

36.9

10.7

23.8

0 10 20 30 40 50

Between 1 and 10 million


Above 150 to 300 million


Above 800 million

Layoffs by Revenue Size - PKR (%)

The largest proportion of businesses with an employee size in

the range of 10-50 reported layoffs (41.5%), followed by those in

the range of 50-150 employees (35.4%).

The largest proportion of businesses with a revenue size of PKR

1-10 million reported layoffs (44.6%), followed by those in the PKR

150-300 million range (36.9%).



18.7

34.1 35.0

78.0

49.641.5

2.416.3

23.6

0

20

40

60

80

100

Permenant Part-Time Daily Wages

Proportion of Businesses Reporting Layoffs by Type of Employee (%)

Yes No N/AN/A signifies businesses that do not have employees in a particular category.

A larger proportion of

respondents reported layoffs

in the part-time and daily

wage employee categories; in

comparison, 18% respondents

reported layoffs in the permanent staff category.

More than half the Hospitality

and Tourism, and Textile

sector respondents reported

layoffs in the part-time and

daily wage employee

categories. The highest

proportion of respondents in the

Hospitality and Tourism sector

reported layoffs in the

permanent employee category.



10.0

25.0 23.830.030.0

38.5

52.4 55.6

20.0 21.4

61.971.4

0

20

40

60

80

e-Commerce IT Textiles Hospitality and Tourism

Proportion of Businesses Reporting Layoffs by Sector and Type of Employee (%)

Permenant Employees Part-Time Daily Wages

17.4

41.9 41.5

20.2

41.2

44.7

0

5

10

15

20

25

30

35

40

45

50

Permenant Employees Part-Time Daily Wage

Exporters vs Businesses Selling Locally Reporting Layoffsby Type of Employee (%)

Exporters

BusinessesSellingDomestically


52.6 51.8

10

15

20

25

30

35

40

45

50

55

60

Exporters Businesses Selling Locally

Exporters vs Businesses Selling Locally Reporting Layoffs (%)


Approximately equal proportion of businesses

exporting (selling their product/service internationally

and nationally) and selling locally (selling only in the

national market) reported layoffs

Exporters as well as businesses selling locally reported more layoffs in the part-time

and daily wage categories; fewer respondents reported layoffs in the permanent

employee category

Impact on Salaries (1/2)

Employers who have reduced

salaries as a response to COVID-19

reported that in general, salary

reductions have been in the range of

< 20% for all three employee

categories


Note: N/A signifies businesses that do not have employees in a particular category.

47% respondents reported reduction in employee salaries by April 2020

According to a survey by Karandaaz

of its 14 women-led investee

businesses, the April - June forecast

for their salary bill was lower than

their pre-COVID forecast by a median of approximately 37%

20.3 18.7 17.113.0

8.94.9

7.3 5.79.8

57.7

46.3

36.6

1.6

20.3

31.7

0

10

20

30

40

50

60

70

Permanent Contractual/Part-time Daily Wage

Proportion of Businesses Reporting Reduction in Salaries by Type of Employee (%)

Reduced <20% Reduced 20%-50% Reduced <50% Not Reduced N.A

45.7 44.741.742.9 42.0

48.6

0

10

20

30

40

50

60

Permenant Part-Time Daily Wages

Proportion of Businesses Selling Abroad vs. Locally Reporting Reduction in Salaries by Type of Employee (%)

Exporters Local Businesses

More than 40% of both

exporters and

businesses selling

locally have reduced

salaries in all three

employee categories –

permanent, part-time

and daily wage.


Impact on Salaries (2/2)

Disruption in Supply Chain (1/4)

78.8% businesses reported

disruptions in their supply

chain while 13.5% expect

future disruptions

76.5% of the businesses

whose supply chain was

impacted reported a high

impact while the rest reported

a slight impact.

78.8%

7.7%

13.5%

Businesses Reporting Disruptions in Supply Chain (%)

Impact No Impact Future Impact Expected





20.5

5.1

20.025.0

7.7 10.3 10.0

71.8

84.6

70.075.0

100.0

0

20

40

60

80

100

120

Between 1 and 10 million Above 10 million to 150 million Above 150 to 300 million Above 300 million to 800 million Above 800 million

Proportion of Businesses Reporting Disruptions in Supply Chain by Turnover (PKR)

Future Impact No Impact Impact

Both big and small businesses reported disruptions in their supply chain. All businesses with an annual turnover of more than PKR 800 million

reported disruptions. Up to 10% of respondents in the PKR 10-150 million, and PKR 150-300 million turnover range reported ‘no impact’ on their

supply chain. A closer assessment reveals these respondents fall into the IT and Agri sectors.

92.3% of the respondents from KP reported supply chain disruptions,

followed by Punjab (82.5%). 84.2% of Manufacturing Sector respondents reported supply chain

disruptions, as compared to 63.6% for the Trade Sector, and 54.7% for

the Services Sector.


7.7 10.0

21.4 20.0

0.0

7.510.7

6.7

92.3

82.5

67.973.3

0

10

20

30

40

50

60

70

80

90

100

KP Punjab Sindh ICT

Businesses Reporting Supply Chain Disruptions by Province (%)

Future Impact Expected No Impact Impact


10.515.1

18.2

5.3

30.2

18.2

84.2

54.7

63.6

0

10

20

30

40

50

60

70

80

90

Manufacturing/ProductDevelopment

Services Trade

Businesses Reporting Supply Chain Disruptions by Industry (%)

Future Impact No Impact Impact

28.4

17.9

7.4

0

5

10

15

20

25

30

Raw Material Availability Reduced Sales Reduction in Imports

Most Cited Supply Chain Disruptions (%)

78.6% of exporters and 79.1% of businesses selling

domestically reported disruptions in their supply chain.

Other disruptions cited include transportation problems,

allied industry closure, and reduction in exports among

others.


13.6 13.47.8 7.5

78.6 79.1

0

10

20

30

40

50

60

70

80

90

Exporters Local Businesses

Disruptions in Supply Chain Reported by Exporters vs Businesses Selling Locally (%)

Future ImpactExpected

No Impact

Impact


58% of the businesses

cited salaries as their

most significant cost

Rent and Raw Materials

were also cited as

significant costs. The

latter cost is likely to

decline if demand

remains depressed,

especially in non-

essential sectors


Note: This is a multiple response question

Financial Sustainability (1/3)

58.5

27.626.0

18.715.4

0

10

20

30

40

50

60

70

Salaries Raw Material Rent Loan Repayment Utility Bills

Significant Costs for Businesses During Lockdown (%)


Almost 1/3rd of the

respondents expected to be

able to meet their financial

expenses for 1 month with

own resources (revenue,

savings and retained

earnings) if the lockdown is

continued

Only 6.3% respondents

expect to remain solvent for

up to 1 year if the lockdown is

continued


30.7%

48.8%

14.2%

6.3%

Expectations Regarding Financial Sustainability if Economic Activity Continues to be Impacted by COVID-19

Less than 1 month 1-3 months 3-6 months Up to 1 year



The Textile and

Hospitality and

Tourism sectors

present the most

desperate state of

affairs with 100% and

90% respondents

respectively, expecting

to become insolvent

within three months.


27.3

45.5

18.2

9.1

50.0

40.0

10.0

29.4

52.9

11.8

5.9

28.6

71.4

0 10 20 30 40 50 60 70 80

Less than 1 month

1-3 months

3-6 months

Up to 1 Year

Expectations Regarding Financial Sustainability by Sector (%)

Textiles

IT

Hospitality and Tourism

e-Commerce

42.9%

12.2%

16.3%

28.6%

Type of Financing Availed (%)

Working Capital

Long Term Loan

Trade Finance

Operating or Financial Lease

SBP Schemes – Awareness & Utilization


30%

70%

Borrowers that have Approached Bank to Reschedule Loan (%)

Yes No

Of the 23% that reported to have

borrowed from a financial institution,

most had availed of a Working Capital

Loan (42.9%), and Operating or

Financial Lease (28.6%)

Only 1/3rd of the current borrowers

have approached the bank to

restructure their loan.

86% borrowers are aware of schemes

being offered by SBP to support SMEs

during COVID-19, i.e., 4 of the 28

borrowers were not aware in April

2020 of the schemes being offered

to SMEs


Only about 23% respondents reported access to a loan from financial institutions


Type of Support Required by Businesses

More than 80% of respondents cited the need for financial support

Non-financial support cited includes:

Supply chain support (33.3%) i.e., improving availability of raw material, easing lockdowns, resuming imports and exports

Digitization (26.8%) i.e., creating enabling environment for online sales and marketing

Government support in managing export and import orders (20.2%) i.e., through expediting administrative processes

Transportation and logistics (18%) i.e., government may allow movement of goods and for businesses

83.7

33.326.8

20.2 18.5

0

10

20

30

40

50

60

70

80

90

Financial Support Supply Chain Support Digitizing Marketing and Sales Government Support in ManagingImport and Export Orders

Transporation & Logistics

Type of Assistance Needed During Lockdown (%)

Type of Support Required by Businesses


Most businesses

indicated the need for

financial support in the

form of loans, reduction

in sales tax and

deferment of utility bills.

Fewer respondents

cited reduction in

interest rates, income

tax, and relaxation in

excise and import

duties.

51.4

45.0

35.1

30.6

27.9

21.6

17.1

0 10 20 30 40 50 60

Loan

Reduction in Sales Tax

Deferment of Utility Bill

Reduction in Interest Rate

Reduction in Income Tax

Restructing of Existing Loan

Relaxation in Excise and Import Duty

Type of Financial Assistance Needed (%)

Mitigation Measures Adopted by Businesses


26.0

19.5

16.3

12.2

10.6

0 5 10 15 20 25 30

Reduce Production Costs

Increased Digitization

Business Development

Product Diversification

Fundraising

Measures to Cope with Lockdown (%) Mitigation measures adopted by businesses to

alleviate the employment, sustainability and supply

chain impact include:

Reduction in production costs e.g. salaries,

overheads, production level

Increased digitization in production, marketing

and distribution processes

Business development by targeting different

markets, clients and delivery channels

Some businesses also reported diversifying

their service/product offerings

14 Karandaaz investee women-led businesses were

surveyed in March 2020

The businesses reported, on average, a 61% reduction in

their post-COVID-19 revenue forecast for Apr - Jun

(compared to actual average revenue Jan-Mar 2020)

The businesses expected to lay off 19% permanent staff,

53% contractual staff, and 33% daily wagers in April 2020

Except one, all the businesses were planning to pay full

salaries to their permanent employees for April 2020

57% of the businesses cited salaries as their biggest cost;

the remaining 43% cited rent as their most major cost

Top Line Results

As the Director, I will not draw my

salary for the next 3 months in

order to keep liquidity intact.

Karandaaz Investee

1 This survey was conducted by the Monitoring, Evaluation and Learning team


Karandaaz Survey of Women-Led Investee Businesses1

I have already used my personal savings to pay pending

bills for March, so I will not be able to inject much more

going forward. The initial plan is to ask my landlord for

partial relief on the rent due. Secondly, instead of

immediate layoffs, I’m going to pay half salaries in April...I

may also consider closing down a branch is this situation

persists for longer...

Karandaaz Investee

Key Recommendations (1/2)

• The State Bank of Pakistan (SBP) announced a Refinance Scheme for Payment of Wages & Salaries to the Workers and Employees of Business in

April 2020. The scheme aims to enable businesses to meet their major operating expense – salaries. Based on survey results, which also indicate

rent, utilities and other expenses as significant, SBP may consider opening up the scheme to include other operating expenses. In particular, the

Tourism & Hospitality sector needs additional support for meeting their rent expenses.

• High rental costs indicate that many SMEs do not own the premises they operate on. This has direct implications for their ability to meet collateral

requirements for accessing loans from banks. SBP may review collateral requirements for SMEs, especially in light of the recently launched

Secured Transactions Registry (STR) and coordinate with the Securities and Exchange Commission of Pakistan (SECP) to fast track utilization and

onboarding.

• To spur the financial inclusion of SMEs and encourage banks to continue lending, there is a need for a credit guarantee facility whereby 90-95%

credit risk of pre-approved loans extended to Sales Tax/Income Tax filers is covered. The ticket size of the loan may be pegged to the actual tax

paid, sector economics and the borrower’s liquidity needs, subject to a maximum limit. This guarantee facility should also be made available to the

non-bank finance company (NBFC) sector.

• Survey findings indicate that while awareness of SBP’s COVID-19 related schemes is on the higher side (66% respondents), utilization seems to be

low as only 30% of SMEs with an outstanding loan have approached their banks for restructuring and deferment of payments. It will be useful to

explore the reasons for low uptake (complexity in the application process, low effectiveness/utility of the schemes (perceived or actual), etc.) to

ascertain and put in place corrective measures.



• SBP may explore providing access to the NBFC sector for its refinance schemes, given that several NBFCs not only lends to the SME sector but

are also likely to face liquidity constraints in the current scenario. NBFCs can provide an additional channel for improving uptake of these refinance

schemes.

• The Government of Pakistan (GOP) should consider a massive development programme to support the economic cycle in various sectors. e.g., it

can announce a strategic purchase programme of commodities other than wheat, such as pulses, in specific districts.

• To provide support to SMEs, the GOP may consider introducing a threshold for the procurement of certain items from registered and tax-paying

SMEs. This practice is being followed in some of the Latin American countries (pre-COVID19). This may also be introduced in the procurement of

agriculture produce e.g., wheat, which the GOP can procure from small farmers (land holding of < 12 acres).

• Tax incentives for start-ups and SMEs within the export oriented value chains may be considered.

• The GOP, donors and SME focused investment funds may also consider options for infusion of equity in SMEs that are expected to grow,

especially during and post COVID-19 e.g., Fintechs, e-commerce players, etc. In addition, the SECP has drafted a regulatory framework for Equity

Crowdfunding Platforms in Pakistan, which may be fast tracked for approval.

• Business advisory assistance should be included as part of the relief programme for SMEs that either want to diversify product/service offerings or

tap into new markets and clients. GOP may provide assistance in improving e-commerce platforms to facilitate SMEs.

Key Recommendations (2/2)

©️ 2020 Karandaaz Pakistan

KARANDAAZ PAKISTAN is a Section 42 company established in August 2014 and focuses on fostering economic growth and creating jobs through financial

inclusion of unbanked individuals and unserved enterprises, with a special focus on women and youth. The company has four verticals:

Karandaaz Digital

Focuses on expanding the poor’s access to digital financial services in Pakistan by working across the ecosystem with all stakeholders

Karandaaz Capital

Provides wholesale structured credit and equity-linked direct capital investments to micro, small and mid-size enterprises (MSMEs) that demonstrate

compelling prospects for sustainable business growth and employment generation in Pakistan

Karandaaz Innovation

Manages the Innovation Challenge Fund and Women Ventures, providing risk capital and grants to partners with the aim to generate innovative

solutions in areas of financial inclusion and entrepreneurship

Knowledge Management and Communications

Supports the company’s core financial inclusion goal by developing and disseminating evidence based insights and solutions

Karandaaz Pakistan has received funding from the United Kingdom’s Department for International Development (DFID) and the Bill & Melinda Gates Foundation (BMGF).

survey findings - karandaaz pakistan · by islamabad capital territory (ict) at 38.9%. a report...

Documents