This report analyses how the regulatory environment affects the growth of micro, small and medium-sized enterprises (MSMEs) and, in turn, the generation of MSME employment in Pakistan. The assessment of the policy environment for small enterprises in Pakistan is based on a careful mapping of existing laws and regulations. Despite reform efforts, small enterprises are still faced with an extremely complex regulatory framework that is difficult to understand and comply with. Micro enterprises with fewer than 10 workers are exempted from most labour laws. While this exemption decreases the burden of regulatory compliance for micro enterprises, it leaves workers unprotected and can create a growth trap for enterprises whose size places them close to the threshold for compliance.

Unawareness of regulatory requirements at the micro and small enterprise (MSE) level is widespread in Pakistan and access to information is minimal. Bureaucracy, corruption, a lack of transparency, and the payment of extra costs (incurred as "speed money") add to the burden for micro and small enterprises - already struggling to meet the high fixed costs of compliance with various regulations.

Effective policy implementation in Pakistan calls for overall improvement in MSME awareness and the access to information on regulatory procedures and requirements. In addition, this report proposes that a standard MSME definition should exist at the national level, to enhance government recognition of the importance of MSMEs in Pakistan and to promote cohesiveness in the implementation - and effectiveness - of policies specifically targeted to the MSME sector.