‘Gem and Jewelry’

Research Report on ‘Gem and Jewelry’ Segment

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Research Report on ‘Gem and Jewelry’ Segment

Acknowledgement

This segment booklet has been developed by M/s Corporate Partners (CDP) who was
commissioned by State Bank of Pakistan (SBP) to conduct the market research.

SBP’s Infrastructure, Housing and SME Finance Department provided critical facilitation
and oversight for this initiative. State Bank of Pakistan is the Central Bank of the country.
Like a Central Bank in any developing country, State Bank of Pakistan performs both the
traditional and developmental functions to achieve macro-economic goals. This role
covers not only the development of important components of monetary and capital
markets but also to assist the process of economic growth and promote the fuller
utilization of the country’s resources. The role of DFID, UK is also acknowledged here as
the cost of the research study was funded by this organization under the Financial
Inclusion Program.

This report contains market research and proposed banking products, based on primary
research survey results and secondary sources, carried out for SME segment ‘Gem and
Jewelry’ by Corporate Development Partners (CDP).

The purpose of this research report is to provide segment specific credible information
for the commercial banks to facilitate them in designing and delivery of banking services
to small and medium enterprises (SMEs) in a responsible, profitable and sustainable
manner.

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Research Report on ‘Gem and Jewelry’ Segment
Table of Content

1 Table of Contents
1 Guidelines for using this Research Report ................................................................... 2
1.1 Market Assessment .............................................................................................. 2
1.2 Product Suite ........................................................................................................ 2
1.3 Marketing and Distribution .................................................................................... 2
2 Introduction & Objectives ............................................................................................. 3
2.1 Limitations of the Study ......................................................................................... 4
2.2 Sampling Plan....................................................................................................... 5
3 Economic Overview ..................................................................................................... 9
4 Gem and Jewelry Industry Overview .......................................................................... 11
4.1 Precious raw gem and gemstones ...................................................................... 12
4.1.1 Demand ................................................................................................................. 12
4.1.2 Supply.................................................................................................................... 12
4.2 Jewelry manufacturing ........................................................................................ 13
4.2.1 Demand ................................................................................................................. 13
4.2.2 Supply.................................................................................................................... 13
4.3 Key Players......................................................................................................... 14
4.4 Trade Bodies ...................................................................................................... 14
4.5 Recent Developments......................................................................................... 14
4.6 Future Developments.......................................................................................... 15
4.7 Gemstone Cutting and Polishing ......................................................................... 15
4.8 Jewelry Manufacturing Process .......................................................................... 16
4.9 Success and Survival of the Businesses in this Sector ....................................... 17
5 Market Assessment ................................................................................................... 18
5.1 Market & Demographic Profile ............................................................................ 18
5.1.1 Market Sizing and Lending Potential ...................................................................... 19
5.1.2 Segment Demographics ........................................................................................ 20
5.2 Owners Profile .................................................................................................... 21
5.3 Business Linkages .............................................................................................. 22
5.4 Business Cycle ................................................................................................... 24
5.4.1 Working Capital ..................................................................................................... 25
5.5 Financial Assessment and Profile ....................................................................... 26
5.6 Financial Information........................................................................................... 27
5.7 Indicative Business Requirements ...................................................................... 29
5.8 Financial Need Analysis ...................................................................................... 30
5.9 Usage of Banking Products................................................................................. 32
5.10 Segment Risk Considerations ............................................................................. 33
6 Proposed Banking Product Suite ............................................................................... 36

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Research Report on ‘Gem and Jewelry’ Segment
Table of Content
6.1 Product Features ................................................................................................ 36
6.2 Eligibility Criteria for Asset Products ................................................................... 41
7 Distribution and Communication Considerations ........................................................ 42
7.1 Marketing Objectives of Banks ............................................................................ 42
7.2 Promotional Activities by Banks .......................................................................... 42
7.3 Distribution Strategy for Banks ............................................................................ 43

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Research Report on ‘Gem and Jewelry’ Segment
Index of Tables
Index of Tables

Table A: Sampling Plan....................................................................................................... 5

Table B: Economic Considerations ..................................................................................... 9

Table C: Summary of Industry Overview ........................................................................... 11

Table D: Cluster Locations ‘Precious Raw Gem and Gemstones’ ..................................... 19

Table E: Cluster Locations ‘Jewelry Manufacturing’ .......................................................... 19

Table F: Stake Holders and Their Interests ....................................................................... 22

Table G: Raw Material for Precious Raw Gemstones Sector ............................................ 23

Table H: Raw Material for Jewelry Manufacturing Sector .................................................. 23

Table I: Sector Financials Snapshot .................................................................................. 26

Table J: Indicative Equipment Requirement ...................................................................... 29

Table K: Working capital/Overdraft Finance Facility .......................................................... 37

Table L: Gem and Jewelry Machinery Leasing .................................................................. 38

Table M: Industrial Power Generator Leasing ................................................................... 39

Table N: Export Refinance ................................................................................................ 39

Table O: SME Business Bank Account ............................................................................. 40

Table P: Other Products.................................................................................................... 40

Table Q: Asset Products Criteria ....................................................................................... 41

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Research Report on ‘Gem and Jewelry’ Segment Section
Guidelines for using this Research Report 1
Index of Figures

Figure 4.7-a: Gemstone Cutting and Polishing Process .............................................................. 15

Figure 4.8-a: Jewelry Manufacturing Process ............................................................................. 16

Figure 4.9-a: Indicators of Business Success .............................................................................. 17

Figure 4.9-b: Key means of survival as an SME .......................................................................... 17

Figure 5.1-a: Number of years in operation ................................................................................. 20

Figure 5.1-b: Customers’ presence within the country ................................................................. 20

Figure 5.2-a: Education level of business owners ....................................................................... 21

Figure 5.2-b: Age group of business owners ............................................................................... 21

Figure 5.2-c: Number of employees under business owners ....................................................... 21

Figure 5.2-d: Ownership type ...................................................................................................... 21

Figure 5.3-a: Communication with customers ............................................................................. 22

Figure 5.3-b: Number of Suppliers .............................................................................................. 23

Figure 5.3-c: Supplier Relationship ............................................................................................. 23

Figure 5.4-a: Business Model...................................................................................................... 24

Figure 5.4-b: Repayment Terms to Customers............................................................................ 25

Figure 5.4-c: Repayment Terms from Suppliers .......................................................................... 25

Figure 5.6-a: Business Assets..................................................................................................... 27

Figure 5.6-b: Capital Expenditure ................................................................................................ 27

Figure 5.6-c: Total Revenue ........................................................................................................ 28

Figure 5.6-d: Annual Expense ..................................................................................................... 28

Figure 5.6-e: Total Income .......................................................................................................... 28

Figure 5.8-a: Business Funding Needs ....................................................................................... 30

Figure 5.8-b: Fixed Assets Financing Requirements ................................................................... 31

Figure 5.10-a: Business Expansion Restraints ............................................................................ 33

Figure 5.10-b: How Business Risk Addressed............................................................................. 34

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Research Report on ‘Gem and Jewelry’ Segment Section
Guidelines for using this Research Report 1
1 Guidelines for using this Research Report

The „Gem and Jewelry‟ Segment Research Report provides indicative business and financial
characteristics based on the information derived from a sample of business owners via primary
research survey. It can be used by Banks/DFIs as a starting point for development of program
based lending products for tapping the underutilized potential for providing financing products to
„Gem and Jewelry‟ business owners.

The „Gem and Jewelry‟ Industry overview is developed by using information obtained from
secondary and tertiary sources, including industry associations and data available in public
domain.

1.1 Market Assessment

This section contains analysis based on primary findings of survey exercise conducted in main
cities of Pakistan, majorly Karachi, Peshawar and Rawalpindi among others; the information can
form the basis of identifying the characteristics of a typical business entity in the segment.

1.2 Product Suite

Proposed banking product suite provides a number of potential core banking products templates
that can be used by Banks/DFIs to design appropriate banking products for gaining access to the
particular segment. However, it is highly recommended that product development undergoes the
usual general practice and protocols employed by the bank. It is also recommended that the
product development and the business line team work together to conduct a quick market
research of a small sample in order to validate the results of this study.

1.3 Marketing and Distribution

Marketing and Distribution considerations are indicative and have been based on the assumption
that banks will employ their individual marketing and distribution strategy for product development.
However, information presented can be utilized by banks for developing certain hypothesis to be
validated for developing their marketing and delivery strategies.

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Research Report on ‘Gem and Jewelry’ Segment Section
Introduction & Objectives 2

2 Introduction & Objectives

According to the latest data cited in SMEDA and Economic Survey Reports 2010-2011, Small and
Medium Enterprises (SMEs) account for approximately 40% to GDP contribution of Pakistan and
play a major role in spurring economic activity with a contribution amounting to 80% of non-
agriculture GDP of Pakistan. Many businesses in this „Gem and Jewelry‟ segment have used
banks for business needs but with very few using it as a source of business fund. This is mainly
due to the following impediments:

 A different risk profile

 Lack of substantial collateral
 Conservative approach adopted by financial institutions
 Lack of awareness and willingness of banks

SMEs present immense business opportunities for financial institutions from the perspective of
increasing book size while generating strong risk adjusted returns, however there is an imminent
need to understand the dynamics of this segment in order to enable financial institutions to
structure products that meet overall risk management guidelines and facilitate the growth of this
SME segment.

In this context, State Bank of Pakistan (SBP) has mandated Corporate Development Partners to
conduct a secondary research and a primary survey of ten major SME subsectors of Pakistan to
determine banking and financial needs of the sector.

This research report contains findings pertaining to the segment of “Gem and Jewelry” which
includes gem cutting and polishing units as well as jewelry manufacturing units.

Manufacturing sector in Pakistan has been the major contributor towards promoting economic
growth, however, lack of research and development and inadequate investments has restrained
this sector to reach its growth to the fullest potential. Service sector in Pakistan has emerged as a
major contributor towards promoting economic growth and recently went through major
transformation with share of service sector increasing to 58.1% of the GDP, while the mining
sector estimated to grow at 4.4% in the year 2013-14 (Economic Survey 2013-14). With more
focus being placed on the service sectors, these sectors have the capability to reach growth to the
fullest potential.

The „Gem and Jewelry‟ Sector consists of:

• Precious raw gem and gemstones

• Jewelry manufacturing

The processing units of gemstones are mostly located in the mountainous regions of Pakistan
where gems in raw form are extracted. Khyber Pakhtunkhawa province has the largest deposits of
gems. The jewelry sector consists of jewelry manufacturing units which are located most in the

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Introduction & Objectives 2

urban cities of the country where the jewelry retail shops are located. Raw gems and gold is
transported from the Gilgit-Baltistan, KPK and AJK to the cities where they are used in the jewelry
making process.

The sector of precious raw gem and gemstones is highly unorganized and lacks severely in
updated technology for cutting and polishing of gems. This sector has great potential in growth
and export (USD 1.18 billion in 2013 - PGJDC) and therefore requires investment in polishing and
cutting of gems and state of the art equipment for jewelry designing. This will help the sector in
generating revenue as per its true potential/capacity.

2.1 Limitations of the Study

 The sample may not be geographically exhaustive.

 The sampling plan may not suit the requirements of every bank.
 Some of the recommendations are not backed by quantitative primary research but are based
on knowledge of the market and best practices.
 Some of the questions in the questionnaire, especially in the financial information section were
considered too personal by many business owners; therefore, many of them refused to answer.
Hence, the responses in this regard may be evasive and cannot be verified with respect to their
accuracy.

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Introduction & Objectives 2

2.2 Sampling Plan

The primary research exercise conducted for identifying the financial needs of the SME segment
was based on the following sampling methodology.

Table A: Sampling Plan

Particulars Criteria Rationale

Size  1,000 detailed  Sample size is sufficient enough to gather relevant

one-on-one qualitative and quantitative information on each sub
interviews for sector
10 sub-sectors  Increase in the sample size will only add marginal
 100 SMEs value to the overall information collected from the
surveyed within survey exercise
each sub
sector. Change of Definition of SME by SBP

 Small enterprises are defined as those businesses that

have employees up to 20 and annual turnover up to
PKR 75 million
 Medium enterprises are businesses with more than
20 employees and turnover above PKR 75 million
and up to PKR 400 million for the purpose of
classification and segmentation by banks
 For the purpose of this research, the small portion of
medium entities that we have reviewed include entities
that have revenue up to PKR 150 million (i.e. two times
the sales of Small Enterprises)

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Introduction & Objectives 2

Particulars Criteria Rationale

Status  At least 60%  Informal businesses would be entities that do not have
will be formal accounting and book keeping system. They do not
informal get their accounts properly audited and are normally not
businesses registered under an official trade/regulatory body.
 At least 20%  A wide majority of businesses operating in Pakistan are
will be formal informal businesses in terms of their quality of record
businesses keeping and accounting information, in the absence of
which banks do not offer them any credit based products.
 A study of informal businesses enables us to gauge the
reasons of these proprietors to remain within the informal
segment and still compete in the market with formal
business enterprises within the same industry segment.
 Moreover as per revised SME Prudential Regulations,
Small businesses are allowed financing up to PKR 15
million without the audited financials. This regulatory
change will enable SMEs to qualify for a structured lending
product by maintaining the basic system of book keeping
and accounting.
 Formal businesses are those entities that are relatively
larger in size and have a proper book keeping system.
These are also registered businesses that are operating
either under an association of businesses or under a
formal regulatory license, with a fair amount of
transparency in their accounting and book keeping
systems
 Including the above businesses give us a fair
representation of entities that are eligible for all financial
services being offered by banks and their extent of using
banks as their main financiers and other service providers
or only for holding their business operating accounts
 Formal businesses have more structured requirements
than those who use banks only for products such as fund
transfers

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Introduction & Objectives 2

Particulars Criteria Rationale

Turnover  At least 50%  The corresponding sample mix has been adopted to
with turnover ensure majority coverage of small businesses in the
less than PKR overall sample size since these would be the primary
75 million candidates for programme lending products
 At least 20%  However, for the purpose of understanding the
with turnover financial needs of medium sized entities that are close
more than PKR to the threshold point of small and medium, we have
75 million covered a minor portion to understand their
requirement for structured loan products as well as
other financial services generally required by
businesses that are relatively mature and larger sized
than small enterprises
Employees  60% will have  SMEs that are not in the manufacturing segment are
less than 20 relatively understaffed owing to the small size of their
employees business and ease of management
 40% will have  Moreover, businesses that have more than 20
more than 20 employees will now be classified as medium sized
employees hence we have covered a substantial portion of such
entities as well

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Introduction & Objectives 2

Particulars Criteria Rationale

Banking  At least 70%  As per SBP prudential regulations any business

history with banking operated by an individual as proprietor, but meets the
history classification criteria of the regulations will be termed
 At least 10% under SME
with no banking  On account of above a majority of sample in the market
history are operating their businesses through a bank account
(either in the name of the proprietor or in the name of
the business)
 Most of the financial needs and preferences that are
objectives of this assignment, have been obtained from
the above sample who are using a bank for their
businesses operating needs
 However, a very small portion of the totally unbanked
SMEs in the sub-sector is also covered during our
survey to understand their reasons for not availing the
banking services and fulfilling their needs for financial
services through other, more expensive, informal
channels

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Research Report on ‘Gem and Jewelry’ Segment Section
Economic Overview 3

3 Economic Overview

Pakistan’s economy has shown resilience despite challenges which include domestic factors such
as political instability during the last few years, security situation and international financial crisis,
in addition to an unprecedented rise in food and energy prices. As per the Economic Survey of
Pakistan (2013-14), after a period of slow growth due to floods and law and order crises, the
economy showed a significant growth in 2013-14 on the back of immense recovery from the
industrial sector along with moderate growth in agriculture and service sectors. With industrial
sector expanding by 5.84% when compared to last year figure of 1.37%, while the economy grew
by 4.14% in FY-2014.

Table B: Economic Considerations

Positives  Heavily populated, (over 180 million people) translating into strong future
potential for improvement in work force as well as purchasing power,
leading to growth in consumer related segments.

 Despite many challenges faced by the country, Pakistan has performed

better than many developing countries with the GDP growth rate of
4.14% in FY 2014 which is highest in the last three years when
compared with GDP growth in FY 2013 and FY 2012 of 3.7% and 3.84%
respectively.

 Rising rates of urbanization – with the UN forecasting the proportion of

city dwellers climbing from 34.9% of the population in 2005 to more than
50% by 2035 – should continue to serve as a key driver of economic
growth.

 The industrial sector showed a huge growth of 5.84% compared to

previous year of 1.37% which has been a huge boost to the economy as
it contributes to 20% of the GDP. It is also a major source of tax
revenue.

 Investment activities are continuing to take place, backed by the fact that
public investment has recorded a remarkable growth of 17.12% while
last year it had a negative growth of 0.35%.

 Foreign Direct Investment (FDI) has also shown a remarkable increase

from USD 1,277 last year to USD 2,979 in the period July – April 2013-
14, an increase by 133%. Major portion of FDI was for oil & gas
exploration, electricity & power, financial business and chemicals.

 Positive trend of remittance over the last 10 years has greatly supported

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Economic Overview 3

the country’s balance of payment position.

Challenges  National saving is showing a decline, with 12.9% of GDP in FY14 while
in FY13 it was reported 13.5% of the GDP. Covering the saving-
investment gap remains to be a challenge.

 The FY 2013-14 has shown slight improvement in fiscal deficit which

reduced by 3.2% compared to previous year. Structural weakness in tax
system however still prevails with low tax to GDP ratio while the
expenditures continue to exceed the revenues.

 Balance of payments has shown a surplus of USD 1,938 million

compared to last year deficit of USD 2,090 million in FY 2013-14.
However despite that, the current account balance further showed a
deficit of USD 2,162 million in July-April 2013-14 compared to last year
in the same period.

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Gem and Jewelry Industry Overview 4

4 ‘Gem and Jewelry’ Industry Overview

Table C: Summary of Industry Overview

Factors Comments

Pakistan has great potential in increasing its exports of jewelry and more
so in gemstones, which are available in abundance. The gemstones
however are exported in raw form due to lack of sophisticated technology
Demand
for gem lapidary. Jewelry manufacturing is mostly available in traditional
designs which are valuable in Pakistan but do not match the international
demand.

Pakistan has one of the biggest natural reserves of gemstones and gold
with vast areas still undiscovered. Unfortunately due to lack of
Supply
sophisticated technology, gems are not extracted with proper technique,
leading to wastage as well as compromise in terms of quality.

Pakistan Gems and Jewelry Development Company, Shabeer gems

Key players
minerals collection, Chotani Jewelers, H. Jamal & Sons Jewelers etc.

 All Pakistan Gems Merchants and Jewelers Association (APGMJA)

 All Pakistan Commercial Exporters Association of Rough &
Trade Bodies
Unpolished Precious and Semi-Precious Stones (APCEA)

Regulatory Body Ministry of Industries

This sector has been realized to be one of the major potential revenue
Recent generating sectors. Steps have been taken by government to support it.
Development Many training institutes are being set up to raise the skilled workforce as
well as create awareness for international demands and quality standards.

With more government support and introduction of state of the art

Future prospects technology in both mining and manufacturing segment, this sector has
huge potential to be one of the top players in the international market.

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Gem and Jewelry Industry Overview 4

4.1 Precious raw gem and gemstones

4.1.1 Demand

Pakistan is a country fortunate to have

unmatched quality of Ruby, Emerald, topaz,
aqua marine, fluorite, lais-lazuli which are mined
from the valleys of Gilgit, Hunza, Swat, Azad
Kashmir and Chitral. Due to non-availability of
gem cutting and polishing facilities, gems are
exported in a raw form, which is insignificant in
value as compared to their real worth. Major
gem export markets include Thailand and Sri
Lanka, along with West Europe, USA and East
Asia. Besides higher priced and more in demand gemstones like Emerald, Pink Topaz and Ruby,
Pakistan also has one of the largest deposits of other gemstone varieties.

Many units involved in the cutting and polishing of gems use outdated and simple technology, the
end product does not hold much value by the traders and exporters. Therefore almost all these
gems are exported in raw form, from which many are smuggled in the neighboring countries like
China and Afghanistan.

Mainly due to lack of proper infrastructure, poor mining knowledge and lack of technology and
technical know-how, this industry has not been able to establish itself amongst the top 5 markets
internationally.

4.1.2 Supply

Pakistan is abundant in its natural reserves of

precious stones. Peshawar is called a `gems city` as
gem-buyers crowd this city in search of precious
stones. Gems include precious or semi-precious
categories like rough, uncut or cut and polished or
unpolished stones, pearls, diamonds and corals like
emeralds, topaz, lapis, peridot, sapphire, kunzite,
ruby, aquamarine etc.

Pakistan is also known to have fifth largest gold mines1. There are still many untapped reserves,
which still need to be developed. If gems sector is fully developed, it can generate immense
revenue and contribute hugely to the country’s economy. This sector has big potential but the
current state is very poor and a large quantity of the precious and semi-precious stones are
exported in raw form due to unavailability of gem cutting and polishing machinery. These raw
1
http://www.thenews.com.pk/TodaysPrintDetail/2011
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Gem and Jewelry Industry Overview 4

forms of gems generate low profit, which is negligible compared to their actual worth. Therefore,
Pakistan has billions of dollars foreign exchange earning capacity, if it focuses on exporting value-
added products of gems and jewelry instead of selling it abroad in raw form. However, sadly many
countries are taking advantage like China, Afghanistan, USA, Belgium, UK, India etc., and import
gems from Pakistan in raw form, preferring to use their own lapidary techniques.

4.2 Jewelry manufacturing

4.2.1 Demand

Gold jewelry has not only been perceived as a symbol of

status and wealth but also holds a great traditional value,
which is attached to every family in the subcontinent.
Many people perceive it to be as a source of investment
security and savings as well.

Demand for gold jewelry rises to its peak during wedding

seasons, which is mostly in winter and spring. Highest
demand is for 22-karat gold by Pakistan and India, while
for 14-18 karat gold, the key market exists in West and Far East. With the overall increase in
working population and a rise in purchasing power, many are using gold as a medium of savings
for future. More recent trends indicate their preference is also shifting towards 18-karat gold.

The biggest importer of gold jewelry from Pakistan is Dubai followed by USA and UK. Despite
high demand, the tools and technology used are not very updated. This has resulted in the jewelry
industry to lose its export share compared to other international players with India being the
biggest competitor.

Gold jewelry export can increase at least ten fold if designs are also focused towards the
international market which is more light weight and separate from the heavy traditional designs.
Also a high demand is placed on 18, 14 and 8 karat gold while in Pakistan mostly jewelry is based
on 22 karat gold.

4.2.2 Supply

Gold jewelry manufacturing is labor intensive and

requires high level of skill, which is usually passed
on from generations to generations. Different gold
jewelry manufacturing units have different
specialization in specific processes and skill.
Therefore these units are clustered as an
independent unit, each specializing in their own
process and sending their finished goods for further
processing to relevant units. Each unit is dependent
on each other for their skills and completion of the final product. Highly skilled manpower is
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Gem and Jewelry Industry Overview 4

however mostly concentrated in major cities like Karachi and Lahore. This segment is still quite
unorganized and therefore proper data of the number of units established is not available.

The machinery used in this segment is locally made and is stated to be at par with Italian
machines. Due to this fact the machines are not very costly and so less investment is required.
However major challenge that jewelry making segment has to endure is to stay updated in jewelry
designs that are demanded in the international market.

The jewelry manufacturing can be in-housed or outsourced. The establishment of in-house

manufacturing is opted by jewelry manufacturers to ensure their designs are not copied
elsewhere, giving them an edge in competition. It is however not feasible for small scale jewelry
shops to have an in-house jewelry manufacturing unit because of the cost associated with it.

4.3 Key Players

The major key players of „Gem and Jewelry‟ Sector are Pakistan Gems and Jewelry Development
Company, Shabeer Gems & Minerals collection, Chotani Jewelers, H. Jamal & Sons Jewelers,
etc.

4.4 Trade Bodies

 All Pakistan Gems Merchants and Jewelers Association (APGMJA) has been working as a
facilitator to various tasks related to „Gem and Jewelry‟ sector as well as handling the
emerging problems in this industry. The main aim has been to regulate the market and
enhance the quality of the product, to be able to compete in the international market.
 All Pakistan Commercial Exporters Association of Rough & Unpolished Precious and
Semi-Precious Stones (APCEA) has been established to aid in export of rough and un-
polished precious and semi-precious stones as well as to frame rules and regulations
governing trade in this sector.

4.5 Recent Developments

„Gem and Jewelry‟ sector is being considered by the government as an important and active
industry which has huge revenue earning potential and of becoming one of the leading exporters
in the international market.

Also training institutes such as Gems and Jewelry Training and Manufacturing Centre have been
set up which are now offering postgraduate diplomas with prime focus on jewelry designing and
manufacturing.

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Gem and Jewelry Industry Overview 4

4.6 Future Developments

With more government support and introduction of state of the art technology in both mining and
manufacturing segment, this sector has huge potential to be one of the top players in the
international market.

PGJDC is participating in different international Jewelry Exhibitions where Pakistani companies

are not only getting export orders but also learning about the latest trends in jewelry designs as
well as the requirements of international markets.

4.7 Gemstone Cutting and Polishing

Following is the gemstone cutting and polishing Figure 4.7-a: Gemstone Cutting and
procedure: Polishing Process

Sawing: Gemstones are cut and shaped by a thin

circular blade with water or oil used to wash away the Sawing
debris and prevent the blade and stone from
overheating. Different sizes of saw blades are used for
different depth in cutting.
Grinding

Grinding: Gems are shaped in a desired rough form by

machine with diamond impregnated wheels.
Sanding
Sanding: Deep scratches that are left behind by
grinding process are removed using finer abrasives
and also allows for finer shaping of the gem.
Lapping
Lapping: A rotating and flat disk is used to give flat
shape to gems.

Polishing: The gems, once shaped, are then polished, Polishing

giving it a shining surface.

Drilling: If a hole is required to be made through the

gem to create beads, those gems are drilled through Drilling
using small rotating rod of diamond tip.

Tumbling: The remaining large rough stones are then

turned in a barrel at a slow speed with water and Tumbling
abrasives for days resulting in fine and smoother
stones of attractive shapes.

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Research Report on ‘Gem and Jewelry’ Segment Section
Gem and Jewelry Industry Overview 4

4.8 Jewelry Manufacturing Process

Figure 4.8-a: Jewelry Manufacturing
Initially an order is placed after which following Process
process takes place (Figure 4.8-a):

Jewelry designing: A process of blue print designing Placing order

is carried out, which is copied from catalogues
provided by the customers or designed by the jeweler
himself. Jewelry Designing

Molding: The designed jewelry is then turned into a

plastic mold, which sets the base for total jewelry
making process. Molding

Casting: This is a complex process, which involves

steel containers in which wax molds are placed. The
Casting
metal of choice (gold, silver, etc) is poured into the
mold and allowed to cool. The mold is then removed
revealing the jewel casting
Filing
Filing: Filing is used to remove excess metal, even
out surface, smooth or shaped, as required.

Polishing: Every part of the jewelry is polished, also Polishing

ensuring no part of mold remains.

Embellishment/Decoration: The required decorative

Embellishment/
stones and gems are cut and weighed with Decoration
preciseness and assorted for final setting in jewelry.

Finishing: The casting in this process is given Finishing

attention for smooth and soft finish in order to meet
high standards.

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Research Report on ‘Gem and Jewelry’ Segment Section
Gem and Jewelry Industry Overview 4

4.9 Success and Survival of the

Businesses in this Sector

From the survey interviews (Figure Figure 4.9-a: Indicators of Business

Success
4.9-a), 79% of the business owners
felt that good relations with the 90%
79%
suppliers and 34% of the business 80%
70%
owners felt that timely delivery of 60%
the finished goods was the major 50%
40% 34%
success factor for the businesses in 30%
20%
this sector. 20% 15%
10%
0%
In order to survive as an SME Good Relation with the High profit margin Product innovation and Timely delivery
suppliers diversity
(Figure 4.9-b), 89% of the business
owners believe that experience was
Figure 4.9-b: Key means of survival as
the most essential element followed an SME
by education by 70% of the
business owners. 14% also felt that 100%
89%
due to favorable government 90%
80%
70%
policies their business set up has 70%
managed to earn profit throughout 60%
50%
these years, while 8% of the 40%
business owners further added that 30%
20% 14%
due to strong supplier customer 10%
8%
1%
relations their SME businesses 0%
Availability of Education Experience Favorable Strong supplier
managed to survive. Finance/Debt Government customer relations
policies

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5 Market Assessment
5.1 Market & Demographic Profile

Most businesses in the SME sectors are family owned with members of one family serving
different functions of business. Underlying issues inherent to the segment include:

1) Limited funding sources and capital investment in unorganized sector

2) Lack of innovation and research within the sector
3) Lack of access to complete retail data
4) Unorganized infrastructure
5) Lack of awareness and willingness of banks
6) Use of outdated technology by the gem sector

The „Gem and Jewelry‟ Sector may be considered as unorganized in terms of structure if we
assess the Gem industry. However, Jewelry manufacturing and retail shops are considered to be
comparatively more organized but only in Karachi and Lahore clusters. Gems sector is
concentrated in Gilgit-Baltistan and KPK, with highest number of establishments present in
Peshawar, where reserves are present in abundance. Jewelry manufacturing and retail sector has
many clusters in Karachi and Lahore where it is in close proximity to the target market. Due to the
overall diversity and number of setups, it is difficult to assess the total number of establishments
linked to this segment.

Raw material in this sector is in the form of gemstones and gold found in abundance in the
northern region, which is mined and transported to cutting and polishing units established nearby.
These polished, cut or unpolished stones are either exported or sold to the local market where it is
used in jewelry manufacturing. This sector, however, lacks updated technology to process/polish
these gems as well as sophisticated mining techniques to ensure good quantity and quality. With
strong financial support and introduction of state of the art technology, this sector has huge
potential for phenomenal growth.

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.1.1 Market Sizing and Lending Potential

As mentioned before the gem sector is relatively unorganized while the jewelry sector is
comparatively more organized. It is, therefore, hard to avail data for the number of units
established. Precious raw gems and gemstones segment is located in the Gilgit-Baltistan, AJK,
and KPK while jewelry manufacturing and retail cluster has highest concentration in the urban
cities like Karachi and Lahore. The following table provides the registered establishments in both
gemstones (Table D) and jewelry (Table E) segment separately, which is an estimate as exact
data is not available.

Table D: Cluster Locations ‘Precious Raw Table E: Cluster Locations ‘Jewelry

Gem and Gemstones’ Manufacturing’

Area No. of Area No. of

Establishment Establishment
Peshawar 406 Karachi 309
Swat 22 Lahore 256
Rawalpindi 22 Quetta 34
Lahore 16 Faisalabad 16
Islamabad 15 Others 3
Abbottabad 9 Total 618
Mardan 6
Nowshera 4
Skardu 3
Gilgit 3
Faisalabad 3
Quetta 2
Karachi 2
Others 60
Total 573

Source: Corporate Development Partners

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.1.2 Segment Demographics

Demographic information is obtained from industry sources and primary research conducted
using a selected sample of businesses in major cities of Pakistan. „Gemstones and Jewelry‟
manufacturing is spread out in the Gilgit-Baltistan and KPK and urban cities of the country
respectively. The locations of customers indicated by the graph below (Figure 5.1-b) are
pertaining for those businesses that have been covered in the surveys. Peshawar and Rawalpindi
mostly pertains to the „Gem and Jewelry‟ sector while Karachi and Quetta mostly cover the
jewelry manufacturing and retail outlets.

More than half of the businesses (52%) have been in operation for more than 10 years while 20%
have been in operation for 5 to 10 years, which indicates that business owners have long
experience of running their business (Figure 5.1-a).

Figure 5.1-a: Number of years in

operation

Less Than 1
year, 1% 1 to 3 years, 2%

3 to 5 years,
20%

5 to 10 years,
More Than 10 25%
years, 52%

Figure 5.1-b: Customers’ presence within

the country

45% 40%
40%
35% 30%
30%
25% 20%
20%
15% 10%
10%
5%
0%
Karachi Peshawar Quetta Rawalpindi

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5
5.2 Owner Profile

The business owners in almost half of the businesses (49%) consist mainly of people in the age
group of 31-40 years while 42% of the owners are between the ages of 41-50 years (Figure
5.2-b). Almost half (52%) of the businesses have been established for more than 10 years. This
indicates that the business owners are well experienced and have been in this business for many
years with sound knowledge of the industry. 57% of the business owners in the survey have
completed their bachelor/college with only 1% not having had any education at all (Figure 5.2-a).
About 60% of the businesses have large set ups, with 10-24 employees (Figure 5.3-c).
Predominantly 75% of the businesses are individual/proprietorships being run by family members.
18% of these businesses have been formed on partnership basis (Figure 5.2-d).

Figure 5.2-a: Education level of Figure 5.2-b: Age group of business

business owners owners

Post Graduate, Primary School 51-65, 5% 21-30, 4%

5% Completed, 1%
No Education,
1%

College/Bachelor
Degree, 57%

41-50, 42% 31-40, 49%

High School, 36%

Figure 5.2-c: Number of employees

Figure 5.2-d: Ownership type
under business owners

Private Limited
51+, 2% Company, 6% Cooperative, 1%
24-50, 6% 0-4, 8%

Partnership, 18%
5-9, 22%

10-24, 62%
Individual/propri
etorship, 75%

Source: Survey Findings

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 Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.3 Business Linkages

Businesses in the segment are connected to various institutions, which are directly or indirectly
affected by the business operations, primary stakeholders and their interests are enlisted in the
following table (Table F):

Table F: Stake Holders and Their Interests

Gem and Jewelry Sector

Stakeholder Interest

Owners Growth and access to finance

Suppliers Better terms, lower risk of payment defaults and maintaining
consistent quality
Customers Product quality, reasonable pricing and timely delivery

Financial Lending products and increase in deposits

Institutions
Government Economic growth, employment and favorable regulations for export
of finished goods, establishment of training institutes

Businesses employ various mediums as means of communication with their customers (Figure
5.3-a) however, personal visits by customers and telephone are widely utilized by 84% and 70%
of the customers respectively. In 7% of the cases employees pay direct visit to the retail shops for
collection of the order. The businesses in this sector operate in competitive environment with
businesses mostly having more than 10 competitors.

Figure 5.3-a: Communication with

customers

90% 84%
80%
70%
70%
60%
50%
40%
30%
20%
7% 4% 7%
10%
0%
Email Fax Personal Visits Telephone Visits by an Employee

Source: Survey Findings

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

Major raw material for Jewelry manufacturing includes gold and gemstones. Jewelry retail and
manufacturing units store inventory/stocks for sale mainly in the form of gold, the quantity of which
varies for different owners depending on the size of their setup. Following are the raw materials
used in this sector (Table G and Table H):

Table G: Raw Material for Precious Table H: Raw Material for Jewelry
Raw Gemstones Sector Manufacturing Sector

Diamond Powder Casting Rubber

Carborundum Powder Nitric Acid
Aluminum Oxide Investment Powder (Plaster)
Tin Oxide Detergent
Cerium Oxide Coloring Chemicals
Grinding Laps
Precision Drill

Raw material in the gemstones segment are gems in raw form, mostly for export purposes. Many
of those raw gems are smuggled which results in further depletion of profit. Some of these gems
are however, transported to the jewelry manufacturing market in the urban cities.

60% of the businesses depend on many suppliers to meet their inventory needs with only 9%
depending on the same suppliers for years (Figure 5.3-c) which depicts difficult availability of
material needs when required. 6% of the businesses however are not consistent in their suppliers
to meet their raw material needs while 25% of the businesses need new suppliers due to
inconsistent quality of stock supplied. About 72% of the businesses rely on two-five suppliers to
meet their raw material needs (Figure 5.3-b).

Figure 5.3-b: Number of Suppliers Figure 5.3-c: Supplier Relationship

More than
five, 25% 70%
One, 3% 60%
60%

50%

40%

30% 25%

20%
9%
10% 6%

0%
Rely on the same Not consistent in Depend on many to Need new suppliers
supplier for material meeting business meet business due to inconsistent
needs material needs material needs material quality
Two to Five, supplied
72%

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.4 Business Cycle

This sector is not seasonal although the overall demand tends to increase during wedding
seasons. These seasons are mostly in winter and spring. The requirement for traditional jewelry
rises immensely with huge orders being placed. This becomes challenging for jewelers at times to
be able to complete the orders in time.

These orders are placed in retail shops which either have in-house jewelry manufacturing or have
outsourced this function (Figure 5.4-a). The jewelry manufacturing cluster includes many units
being specialised in various processes including polishing and crafting units being dependant on
each other.

The gemstone sector includes mining activity and units which specialise in cutting and polishing
these gems. These units then either export these precious stones in raw form or after polishing
them. Many are however smuggled especially by unregistered mining units. Due to lack of
technology, many jewelry manufacturing units import polished and cut gems of better quality.

The businesses in this sector are affected by the energy crises prevailing in the country, like
almost every other sectors, where the use of machinery is required. Outdated technology is
another major issue faced by this sector. Law and order sitution in the country further hampers the
production as well as demand due to security and protection reasons.

Figure 5.4-a: Business Model

Mining

Cutting and Polishing

Units Import of Gems

Jewelry Manufacturing
Units

Orders
International
Customers Jewelry Retail Outlets

Local Market

Customers

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.4.1 Working Capital

Working capital is dependent upon payment terms offered to customers and received from
suppliers. Businesses in ‘Gem and Jewelry‟ sector operate by having local and overseas
contracts with the customers.

The repayment periods provided by the suppliers are mostly (45%) within one month (Figure
5.4-c). 11% of the businesses claimed in the interview of receiving repayment period of two
months from their suppliers. 49% of the businesses do not provide any credit to their customers
(Figure 5.4-b) while 40% give credit for one month to their customers. The direct cash or cheque
payment is usually the advance which is taken at the time of placing an order while credit period
pertains to the remaining amount which is paid after the completion of those orders.

It shows from the following two graphs that the businesses in this sector have similar supplier and
customer credit terms, which indicates a relatively smooth working capital cycle. The finished
goods however, may have a long shelf life. Many businesses therefore operate with just-in-time
approach.

Figure 5.4-c: Repayment Terms from Figure 5.4-b: Repayment Terms to

Suppliers Customers

3 Months, 8%

2 Months, 11%

0.5 Month,
37%
1 month, 40%

No credit, 49%

1 Month, 45%
3 months, 8%

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.5 Financial Assessment and Profile

Almost all of the businesses in this segment claim to prepare Financial Statements from which,
however, more than half of the business owners do not have their financial statements audited.

Half of the business owners keep track of accounts themselves, while the rest hire accountants,
finance managers, secretaries or general managers to manage their accounts. More than half of
these businesses do not issue printed sales invoice to their customers while some do not receive
sales invoice from their suppliers either.

A rough estimate was given by the business owners regarding business assets employed, annual
revenue, income and expenses.

Business owners’ reluctance for sharing financial information presents an issue for calculation of
segment’s accurate benchmark financial ratios. The following table (Table I) provides key
financial ratios of this sector which have been calculated on the average value of the financial
range provided to us by the businesses covered in the survey. These ratios are an estimate at
best and cannot be utilized to assess the performance of the businesses prevailing throughout
this sector.

Table I: Sector Financials Snapshot

Financial Information PKR

Business Assets 24,720,000
Total Revenue 90,000,000
Annual Expense 80,000,000
Total Income 10,790,000
Key Financial Ratios
Profit Margin 12%
Operating Expenses/ Revenue 88%
Asset turnover 3.64 times
ROA 43.6%

Conclusively, a low capital investment compared to the business’s revenues especially in the
jewelry manufacturing segment. This mostly pertains to gem segment as it is mostly unorganized
with almost no updated technology, depending on old blasting techniques. Despite a high return
on assets, the expenses are also high which results to a lower net income for average businesses
in this sector.

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.6 Financial Information

Primary survey findings reflect the Revenue, Expenses, Income and Capital Expenditure under
the selected sample for the sector.

Liabilities constitutes of trade payables while total assets comprise of plant and machinery, land
and building, inventory/stock, trade receivables and IT equipment. Survey findings demonstrate
76% businesses are operating with total assets between PKR 10-50 million, while the remaining
operate with assets less than PKR 10 million (Figure 5.6-a), suggesting low initial capital required
to set up the business. A low total asset value may also pertain to the use of outdated technology
and low inventory level maintained by the businesses in this sector.

Plant and machinery constitutes of IT equipments which are used for grading the stones and gold.
Other machinery includes polishing, cutting and carving machines. 35% of the business owners in
the „Gem and Jewelry‟ sector incurred capital expenditure in the past five years (Figure 5.6-b).

Figure 5.6-a: Business Assets Figure 5.6-b: Capital Expenditure

Less than PKR 10

MN, 24%

Yes, 35%

No, 65%

PKR 10 – 50 MN,
76%

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

Annual average revenue is predominantly between PKR 10-50 million and more than PKR 100
million throughout the sector, with percentages being 50% and 41% respectively (Figure 5.6-c).
Expenses primarily represent material and employee cost. The expenses are between PKR 10-50
million for half of the businesses while for 38% it is more than PKR 100 million (Figure 5.6-d).

Figure 5.6-c: Total Revenue Figure 5.6-d: Annual Expense

PKR 10 – 50 MN,
More than PKR
50%
More than PKR 100 MN, 38%
100 MN, 41%
PKR 10 – 50 MN,
50%

PKR 51 – 100
PKR 51 – 100 MN, 12%
MN, 9%

Source: Survey Findings

55% of the businesses have disclosed to earn between PKR 6-10 million while 42% claim to earn
more than PKR 10 million of average income for the last three years (Figure 5.6-e). 3% of the
business owners show earnings in the range of PKR 1-5 million annually. Overall the earnings of
the businesses in this sector is moderate.

Figure 5.6-e: Total Income

PKR 1 – 5 MN,
3%

More Than 10
MN, 42%

PKR 6 – 10 MN,
55%

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.7 Indicative Business Requirements

The following table (Table J) lists the business equipment required by the businesses in the „Gem
and Jewelry‟ sector. The values provided below are susceptible to volatility in market prices. In
addition, individual business owners will have distinctive requirements as per their business needs
and their size. The table below is neither comprehensive nor specific and provides only an
indication as to the typical requirement for set up or the expansion needs of a small sized
business within this segment.

Table J: Indicative Equipment Requirement Cost PKR (per unit)

Jewelry Manufacturing Requirement

Polishing Machine 5,000 – 30,000
Silver/Gold Plating Machine 30,000
Wax Casting Machine 100,000
Gas Furnace 500,000
Die Press Machine 50,000
Wire Making Machine 150,000
Tools set (Depending on number of pieces) 10,000
Caste Machine (Depending on size) 15,000 – 200,000
Gemstones Requirement
Trimming machine 100,000
Calibrating machines with wheels 250,000
Dual Edge Grinding Machine 200,000
Buffing, Sanding & Polishing Machines 200,000
Saw Faceting Machine 100,000

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.8 Financial Need Analysis

More than half of the business owners themselves are in charge of their business funds. The
funds are mainly required for working capital/overdraft in 70% of the businesses interviewed from
which 41% of the businesses requiring working capital finance for letter of credit (LC) to import
raw material. This pertains to those businesses in jewelry sector who import gold and gemstones
because of higher quality and easier availability for some. 27% of the businesses require finance
for finished goods.

Amongst the business assets, buildings followed by machinery and equipment was required by
the business owners with percentages resting at 66% and 47% respectively (Figure 5.8-b).

Almost half of the businesses show reliance on banks while some also depend on their own
savings as their source to fund their business needs. Few also use cashflows from their business
as their source of funds. Working capital financing can provide the SMEs in the segment to assist
them in their inventory and expansion of their business, as indicated by 70% of the businesses
(Figure 5.8-a).

Figure 5.8-a: Business Funding Needs

80%
70%
70%

60%

50%

40%
29%
30%

20% 17%
10%
10%
2%
0%
Business vehicle Long term project financing Trade financing Working Capital/
financing equipment Overdraft
financing

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5
Figure 5.88-a: Fixed Assets Financing
Requirements

70% 66%

60%

50% 47%

40%

30%
18%
20% 14%
10%

0%
Buildings Furniture and Fittings Machinery and Office and Busines
Equipment Equipment

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.9 Usage of Banking Products

Very few owners are aware of SME segment specific efforts made by the Government of
Pakistan; however, businesses in this sector have shown interest in potential loan products and
availed it from banks but for those who did not avail cited religious issues and high interest rate as
their reasons for not availing loan. The most used loan products were business loans and vehicle
financing (loans, leasing arrangement) by 78% and 43% of the businesses respectively.

More than half of the business owners listed the key driver in choosing a certain bank being
convenience/location/proximity to business and efficient and rapid service. Few owners were keen
to propose feature or product they wished to be offered by the bank which were, better online
services, more sme specific products and free payorder services.

Other services such as cash management and money transfer facility are used by the businesses
in this sector with percentages resting at 91% and 10% respectively. 6% of the businesses also
availed payroll services from banks.

56% of respondents do not use any insurance products; 21% of the businesses have travel
insurance, followed by 19% availing office equipment insurance. The remaining few percentage
have legal insurance (6%), medical aid (7%) and motor vehicle insurance (4%). 4% also have
their inventory insured. None of the business owners showed any interest in availing any
insurance product if provided by banks as they prefer to avail such products directly from
insurance companies.

The sector consist of 37% of the businesses who avail advisory services from which only 19%
claimed to pay for it. Majority of them avail advisory services from family, friends and relatives with
57% of them being satisfied with their current source of advisory services. 27% of the business
owners are willingly to pay for such services if provided by the banks as they believe them to have
more experience in finance. This area provides oppurtunity for banks to target this sector.

Banking Product Usage Percentage

Deposit (Checking) Account 69%
Term Deposits 37%
Loan Products 37%

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

5.10 Segment Risk Considerations

This sector shows the potential of phenomenal growth in Pakistan but is still highly unorganized
with outdated technology and therefore is embedded with many risks. Following are the risks that
pertains in this sector.

Businesses in the segment are largely individual proprietorships with majority of the business
owners having this business as their only source of income. Ironically, more than half of the
businesses in this sector listed scarce raw material as a risk to their business. This can be due to
old mining methods and hardly any latest gem polishing and cutting machinery available. This
forces the manufacturing units to import these gems. This is followed by risk of non-repayment of
loans from banks by 55% of the businesses. Inflation is also considered as one of the primary risk
of the business owners.

80% of the businesses address these risks through more capital investment. 20% of the
businesses also focus on inventory management (Figure 5.10-b). Almost half of the businesses
operate from rented premises and so incur fixed expenses in the form of montly rent payments of
their premises.

More than half of the businesses do not have their Financial Statements audited. Further, many of
the business owners do not issue printed sales invoice to their customers or receive sales invoice
from their suppliers, as mentioned above. This may pose serious miscalculation in accounts and
incomplete accounting records.

A large proportion of SMEs in the segment do not use any insurance products. One of the major
restraint to business expansion listed is lack of access to finance (58%) which presents
oppurtunities for the banks to target these businesses (Figure 5.10-a).

Figure 5.10-a: Business Expansion

Restraints

70%

60% 58%

50%

40%

30%
23% 24%

20% 18%

9%
10%
1%
0%
Access to Lack of No collateral Regulatory/ Shrinking Utility issues
finance Infrastructure policy issues market like gas,
electricity

Source: Survey Findings

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5
Figure 5.10-b: How Business Risk
Addressed
90%
80%
80%

70%

60%

50%

40%

30%
20%
20% 15%
10% 12%
10%

0%
Capital Inventory Manpower training Product Reduction in profit
management innovation/cost margin
reduction

Source: Survey Findings

Following are the strengths and weaknesses inherent in this sector:

Strengths

 High capacity for phenomenal growth

 High demand in both local and international market
 Low initial capital
 Availability of skilled labor
 Establishment of training institutes
 Recognition in the global market
 Availability of raw materials specially gems and semi-precious stones

Weaknesses

 Unorganized infrastructure
 Energy crises
 Lack of Knowledge of international market
 Lack of innovation
 Export and smuggling of gems in raw form
 Law and order situation

Further, the risks inherent to the segment include:

 Inconsistent supply of inventory

 Unaudited financial statements of many businesses
 No proper book keeping
 Outdated technology

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Research Report on ‘Gem and Jewelry’ Segment’ Section
Market Assessment 5

Possible Mitigating Factors:

 Lending only to those businesses which have been operating for more than five years
 Proposing products to business with a verifiable banking history of more than two years
 Review of accounts and register of invoices
 Registration of property documents
 Product quality certificates

35
Research Report on ‘Gem and Jewelry’ Segment Section
Proposed Banking Product Suite 6

6 Proposed Banking Product Suite

6.1 Product Features

Based on our primary and secondary research we propose the following for growth of „Gem and
Jewelry‟ sector:

Asset Products:

 Working capital/overdraft Finance Facility

 „Gem and Jewelry‟ Machinery Leasing
 Industrial Power Generator Leasing
 Export Finance

Liability Products:

 Business Bank Account

Other products

 Banc assurance
 Branchless Banking (Mobile)
 Utility Bill Payment

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Research Report on ‘Gem and Jewelry’ Segment Section
Proposed Banking Product Suite 6

Table K: Working capital / Overdraft Finance Facility

Particular Details

Initial deposit Minimum initial deposit of PKR 10,000

1 year with no requirement of Annual Cleanup for principle amount.

Tenure
However, regular payment of markup is must for renewal of limit.
 Minimum Limit - PKR 5,000,000
 Maximum Limit - PKR 50,000,000
 Minimum and maximum loan limits are reviewed annually
Loan Limit Total loan limit offered will not exceed an average six months of usage
determined over a period of the last three years
(Maximum limit is set based on 50% mark-up of average revenue estimated for this
sector)
One time documentation (as required by banks) for a period of three
Documentation
years

 Flexible repayment conditions: lump sum payment on the due date or

Repayments &
partial repayments
Withdrawals
 Multiple withdrawals are allowed during the tenure of loan

Borrower is liable to clear the entire loan amount, both principal and
Cleanup markup, once in a year on a date indicated by the borrower & mutually
agreed by the bank.

Markup As per prevailing KIBOR and spread

Markup charges Mark up will be charged only on the amount utilized by the borrower

Renewal will be on the basis of fresh application, subject to clearing of

Renewal
entire loan amount including markup and satisfactory credit history

No early repayment penalty may be imposed on the borrower (subject

Penalty
to banks discretion)
Insurance Mandatory insurance as per SBP guidelines
Raw material stock. Mortgage of business premises for those who
Security
operate from owned premises.

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Research Report on ‘Gem and Jewelry’ Segment Section
Proposed Banking Product Suite 6

Table L: ‘Gem and Jewelry’ Machinery Leasing

Particular Details

Down Payment Minimum down payment of 20%

 Equipment & machinery leasing will be provided for expansion capital

only to businesses who have been operating for 3 or more years
 A list of pre-approved equipment and machinery manufacturers will be
Salient Features developed based on information received from trade association and
market sources
 Disbursement will be made directly to pre-approved equipment and
machinery vendors for supply of equipment to the borrower

Tenure 3 - 5 years

 Minimum Limit - PKR 500,000

Loan Limit
 Maximum Limit - PKR 10,000,000

 One time documentation required for a period of three years

Documentation
 Financial Statements

Repayments &
Repayments will be based upon preset Equal Monthly Installments
Withdrawals

Markup As per prevailing KIBOR and spread

Penalty As per existing bank policies and cost of charges

Insurance Mandatory insurance as per SBP guidelines

5% of invoice as security deposit. Security as per requirement and
Security/Collateral
satisfaction of the bank

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Research Report on ‘Gem and Jewelry’ Segment Section
Proposed Banking Product Suite 6

Table M: Industrial Power Generator Leasing

Particular Details

Down Payment Minimum down payment of 20%

 Loan amount will be directly transferred to suppliers’ accounts against

invoices
Salient Features  Credit facility will be offered directly through pre-approved generator
suppliers

Tenure 3-5 years

 Business Financial Statements

Documentation
 Proof of business operation for last three years

 Minimum Limit - PKR 500,000

Loan Limit  Maximum Limit - PKR 10,000,000

Repayments &
Repayments will be based upon present Equal Monthly Installments
Withdrawals

Markup As per prevailing KIBOR and spread

Insurance Mandatory Insurance facility as per SBP guidelines

Penalty As per existing bank policies and cost of charges

Table N: Export Refinance

Particular Details

Initial deposit Any form of collateral/guarantee which the bank feels fit.

Tenure Depends on the contract terms of LC

One time documentation required for a period of one year which may
Documentation
include financial statements, company incorporation documents etc.

Markup As per the yearly revised rate provided by the State Bank of Pakistan

Penalty As per the yearly revised rate provided by the State Bank of Pakistan

Insurance Mandatory insurance as per SBP guidelines

Security As per the requirement and satisfaction of bank.

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Proposed Banking Product Suite 6

Table O: SME Business Bank Account

Particular Details

Account Type Non- remunerative Current Account

CNIC/smart NIC, completion of KYC requirements as per SBP

Documentation
Regulations
 Cheque Book
 Upgraded ATM facilities
 Business Visa Debit Card
Facilities  Phone Banking
 Mobile Banking
 Internet Banking
 Monthly account statement

Table P: Other Products

Particular Details
Bancassurance products such as Business Premises Insurance,
Personal Injury Insurance, Equipment and Vehicle insurance can be
Banc assurance
proposed by banks through its channels offering reasonable rates and
servicing through banking channels such as direct debit

Branchless Banking Mobile banking services for instance balance check, bill payment and
(Mobile) funds transfer

Utility Bill Payment Service for easy payment of electricity, gas, telephone and cell phone
bills

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Research Report on ‘Gem and Jewelry’ Segment Section
Proposed Banking Product Suite 6
6.2 Eligibility Criteria for Asset Products

Table Q: Asset Products Criteria

Indicators Description
During assessment of customers, take into account the total indebtedness of the
Borrower potential borrower, his disposable income and ensure that the total financing to
Eligibility customer does not exceed the prescribed limits as laid down in approved
Analysis policies of bank. Borrower should be in business of „Gem and Jewelry‟ for the
past three years and hold a valid CNIC/smart NIC.
To assess the Borrower’s position, verification of their revenues can be verified
Business
by the bank. Business premises ownership documents should be verified
Analysis
against name of the owner.
Credit Credit worthiness of the borrower may be ascertained by collecting information
worthiness from e-CIB or other credit information bureaus.
Financial To assess average expenses, income generated and repayment capacity of the
parameters borrower.
Adherence to To assess that Customer/ Borrower requirements are in compliance with
Lending standards set for revolving finance scheme by the Bank and/ or Regulatory
Standards Authorities.
Banking
Verifiable banking history of more than one year with active accounts
History
Business should be in operation for more than three years. If the business is
Business
involved in exporting their finished goods then they should be involved in export
Operations
business for the last 3 years.
Trade body
Business should be a member of the sector’s trade body.
membership

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Research Report on ‘Gem and Jewelry’ Segment Section
Distribution and Communication Considerations 7

7 Distribution and Communication Considerations

SMEs in „Gem and Jewelry‟ are spread out in the Gilgit-Baltistan and KPK of the country in gem
sector while jewelry manufacturing sector are mostly scattered in the urban areas with the biggest
cluster in Karachi and Lahore. The banks will therefore have to reach further to be able to reach
and target the unorganized gem sector.

7.1 Marketing Objectives of Banks

Marketing objectives for building and promoting the brand image of SME Products for „Gem and
Jewelry‟ sector are as follows:

 Educate and create awareness for financial needs and banking products in the identified
market regions
 Develop strategies to attract a large number of owners in „Gem and Jewelry‟ sector to avail
banks’ lending/financial products such as conducting seminars with All Pakistan Commercial
Exporters Association and All Pakistan Gems Merchants and Jewelers Association at cluster
locations of Gems and Jewelry sector
 Increase direct interaction of Relationship Managers with „Gem and Jewelry‟ units and retail
shops to promote more direct and close interaction with the business owners and to assist
small businesses in navigating difficult economic and business conditions
 Provide sponsorships for trade fair and exhibitions of „Gem and Jewelry‟ which not only
promotes the sectors competency but also links the promotion of bank’s brand image locally
and worldwide

7.2 Promotional Activities by Banks

To create awareness of SME specific products in the target market, the banks may aggressively
advertise their banking products through various promotional programs and events:

 Conduct workshops in coordination with All Pakistan Commercial Exporters Association of

Rough & Unpolished Precious and Semi-Precious Stones (APCEA) and Pakistan Gems
and Jewelry Development Company (PGJDC)
o To provide more interaction to business owners with trade associations
o To enhance communication between them regarding industry specific issues.
 Organize promotional events in cluster locations of both gem and jewelry to build strong
image of the bank among the target audiences

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Research Report on ‘Gem and Jewelry’ Segment Section
Distribution and Communication Considerations 7

Banks can service this segment through the following proposed channels: (Please note that this
list is not exhaustive):

 Direct Sales Agents

 Tele Sales
 Trade association backed seminars
 Branches in cluster locations
 Identify opportunities for expansion through market sources
 Involvement in trade fairs and exhibitions

7.3 Distribution Strategy for Banks

As primary means of customer service and sales interaction, distribution channels play a central
role in the customer relationship process, which further increases growth. Banks’ challenge is to
improve and integrate their multiple distribution channels to consistently deliver an enhanced
experience and foster better customer relationships. Top priority is placed in attracting and
retaining customers within and across these channels.

To reach maximum percentage of target market, Banks need to have a comprehensive

distribution strategy. Banks should aim to cater banking needs of „Gem and Jewelry‟ sector
through its products on national basis in major cities of the country where jewelry manufacturing
units are located and then further target gemstones polishing and cutting units located in the
Gilgit-Baltistan, KPK and AJK.

Banks may adopt following conventional channels for distribution:

 Branches: Establishment of lending branches in „Gem and Jewelry‟ cluster regions with a
potential to attract large number of customers.
 Direct Sales Agent: This activity may be outsourced and a trained marketing team should
periodically visit identified areas within the cities, to educate potential customers and create
awareness of the products and services being offered under SME Products Suite.
 F2F interactions: A deeper level of interaction may provide an integrated customer focus, by
relationship managers involved in face to face interaction, which will become critical in helping
better communication for product awareness and in addressing hesitations faced by the
business owners.

Following Technology based alternate delivery channels can also be adopted for distribution

 Internet Banking: With technology up gradation mobile phones have become sophisticated
and capable of handling advanced applications and services, so banking via mobile phones
appeal to consumers on multiple fronts.
 Short Message Service (SMS): Marketing team can send out mass messages in Urdu or
English to „Gem and Jewelry‟ segment for advertising bank’s products.

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