What makes Pakistan’s $5 billion consumer lending market tick

For a sector that is stereotyped as being highly risk averse, it appears that the Pakistani banking sector has learned how to lend to consumers, at least in small quantities. Some time over the course of the next year, total bank lending to non-employees will hit over Rs1 trillion. Unto itself, this is may simply be a psychological barrier, but the trend lines it represents belie the image of an otherwise staid financial services sector that has sworn off high-risk lending altogether.

For instance, most people probably would not realize that the total size of the consumer lending market in Pakistan is about to hit $5 billion in total loans outstanding, and that non-performing loan ratio of this loan book is under 5% and has been for the last five years. Or that the total size of consumer lending doubled in rupee terms over just two years (2020 through 2022) but that non-performing loans did not go up during this time, or afterwards, despite interest rates skyrocketing past 20% during this period.

These are not data points that one is used to associating with the Pakistani banking sector. They sound like facts about a banking sector that actually knows how to lend. Of course, there is a flip side to this story as well, which we will also be exploring. But the picture of a credit squeezed Pakistani consumer, and a lazy banking sector that plows all deposits into government bonds, while mostly true, does have some complications that are interesting enough to explore in their own right.