Key takeaways
- Over 90% of Pakistan's establishments are micro or small firms with fewer than ten workers.
- Small and informal firms are estimated to contribute about 40% of GDP.
- MSME policy is split between SMEDA, provincial bodies and microfinance regulators.
- Freelancers and digital service firms sit outside the policy framework altogether.
- A national MSME authority should give firms a clear path from micro to medium.
In this Paradigm Shift column (January 2026), Dr. Ghulam Mohey-ud-din argues that Pakistan’s weakest growth link is institutional: the small firms that employ most of its workers have no coherent home in government.
The argument
According to Pakistan Bureau of Statistics data cited in the column, more than 90 percent of establishments are micro or small enterprises with fewer than ten workers. Assessment studies put the contribution of small and informal firms at around 40 percent of GDP and over 70 percent of non-agricultural employment. Yet micro enterprises are treated as an informality problem rather than as the entry point of entrepreneurship.
Responsibility is fragmented: SMEDA at the federal level, provincial small industries corporations, and a separately regulated microfinance sector. The fastest-growing part of the economy, freelancing and IT-enabled services, falls outside all of them, even though Pakistan ranks among the world’s largest freelance economies and IT exports reached about US$3.8 billion in FY2024-25.
The stakes are demographic. Around two million people enter the working-age population each year and formal employment cannot absorb them. Peer economies such as India, Turkey, Vietnam and Malaysia treat MSMEs as a growth pipeline with graduation paths; India’s MSME ministry oversees some 63 million enterprises that account for roughly 30 percent of GDP and 45 percent of exports. Pakistan’s institutional gap shows up instead as low productivity, a narrow tax base and entrenched informality.
What needs to change
- A national MSME authority with clear firm-size definitions, online registration and graduation paths.
- Finance bundled with skills, technology adoption, digital tools and market access.
- Federal and provincial alignment across industrial, digital, skills and export policy.
- Explicit inclusion of freelancers, start-ups and digital service providers.