Potential of Joint Stock Companies for SME Financing: Assessing Awareness, Constraints, and Policy Implications in Pakistan

Abstract

Investment is crucial for smooth execution of operations within the organization and the scarcity of the mentioned resource not only suspends the operations but also result in shutdown of companies, if the problem persists. This clearly demonstrates the severity of its importance. Availability of finance has always been a greater issue for third world countries because of low per capita income and consequently fewer saving. High inflationary rates decrease monetary worth and in turns greater money requirement for the establishment of organizations. With the globalization, no single firm can operate domestically without being in competition with multinational giants. The difference in investments makes the domestic organizations more vulnerable and the global companies a real threat to them. Share stock is an important mode of financing that facilitates establishment of large-scale manufacturing organization as well as provide common men the opportunity to invest. Joint Stock Companies may play a significant role in resolving the issue, however, the lack of awareness about stock market mechanism and negligence in less developed countries towards establishment and promotion of JSCs is a major impediment in reaping the benefits of mentioned mode of financing. The research aims to highlight the potential of share as a mode of financing i.e. development of joint stock companies in Islamic or the third world countries and also the impediments that restrict their growth as well. The research aims to help in devising policies expected to accelerate stock market operations thus benefiting investors, entrepreneurs, financial institutions and consequently the whole economy.