Banking sector’s banner year creates small business lending vacuum

Pakistan’s commercial banks have been having a bit of a party, but it seems nearly the entire private sector missed the invitation.

The numbers are quite astounding. The banking sector saw extraordinary profits on the back of government securities, arbitrage, and last-minute lending surges to avoid tax penalties. Yet beneath these headlines lies a fundamental challenge: an unprecedented drought in private sector credit that has particularly devastated the backbone of Pakistan's economy: its SME and agricultural sectors.

There are more than 50 lakh businesses in Pakistan that are characterised as being ‘small and medium enterprises’ (SMEs) in both the formal and informal sectors working in manufacturing, trading, and services. These enterprises power the economy, contributing 40% to the GDP, representing 90% of all private enterprises, generating 30% of export earnings, and employing 30% of the workforce. In a nation of 24 crore people facing intensifying poverty and unemployment, their vitality has never been more crucial. 

Yet these businesses continue to struggle for affordable growth capital, primarily due to documentation gaps and insufficient collateral.