Pakistan SME Enabling Environment and Performance Index (SEPI)

Challenge

Pakistan’s SME sector, which constitutes over 90% of all businesses, suffers from a critical absence of comprehensive and current data on performance and operating conditions. This data vacuum hampers informed decision-making by banks, policymakers, and investors at a time when SMEs are operating under severe structural constraints. Widespread informality estimated at 40% of GDP and 80% of employment — combined with high hidden costs of doing business, regulatory complexity, and chronically low access to finance (only 5–6% of total bank credit, one of the lowest rates globally) has left the sector deeply underserved. Infrastructure deficiencies, particularly unreliable electricity supply, further erode SME competitiveness. Compounding these challenges, existing data sources are badly outdated — the last Census of Economic Establishments was conducted in 2005 — and remain fragmented with no standardized SME definitions or integrated information systems. Women-led SMEs and businesses operating in secondary cities and Special Economic Zones are especially invisible within existing datasets.

Partner

Ipsos

Client

Pakistan Banks Association

Approach

To address this gap, Pakistan’s first-ever twin-index — the SME Environment and Performance Index (SEPI) — was developed in partnership with the Pakistan Banks Association (PBA). A 12-member SEPI Working Group was constituted, drawing from major PBA member banks including HBL, NBP, JS Bank, Meezan Bank, Bank of Punjab, Bank Alfalah, and Bank Al Habib, alongside the State Bank of Pakistan for technical oversight. The methodology was grounded in an exhaustive review of global SME indices from OECD, IFC, ADB, and UNDP, as well as Pakistan-specific sources including SMEDA cluster profiles and SBP financing reviews. Two sub-indices were designed: an Environment Sub-Index comprising 24 variables across 8 thematic baskets, and a Performance Sub-Index spanning 6 thematic areas covering financial performance, workforce, inclusivity, ESG, digitization, and market competitiveness. Key Informant Interviews and Focus Group Discussions were conducted across Islamabad, Lahore, Karachi, Quetta, and Peshawar to validate and refine indicators. A stratified sampling framework was developed, recalibrated from the 2005 CEE baseline and incorporating a booster sample for women-led SMEs. Statistical validation was carried out through Confirmatory Factor Analysis and Multi-Group CFA, while data partnerships were established with PBS, SBP, Pakistan Single Window, commercial banks, PACRA, and Tasdeeq for triangulation.

Outcome

The project successfully completed Phase 1 the Research Framework. This phase produced a validated conceptual framework for Pakistan’s first twin-index SME measurement tool, comprising a 24-variable Environment Sub-Index across 8 thematic baskets and a 6-basket Performance Sub-Index. A stratified sampling framework was developed, recalibrated from the Census of Economic Establishment (CEE) 2005 baseline and incorporating a booster sample for women-led SMEs. Data partnership arrangements were initiated with Pakistan Bureau of Statistics (PBS), State Bank of Pakistan (SBP), Pakistan Single Window, commercial banks, Pakistan Credit Rating Agency (PACRA), and Tasdeeq. Upon approval of the research framework, the project will proceed to Phase 2 (large-scale survey and index construction) and Phase 3 (validation and launch), after which two updation waves are planned at 6 and 12 months post-publication. Once completed, SEPI is intended to serve as a risk assessment and credit scoring tool for banks, a policy monitoring instrument for government, and a baseline for annual SME data updates aligned with the Uraan Pakistan 2024–2029 initiative.
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