The International Finance Corporation (IFC) and Habib Metropolitan Bank Limited (HABIBMETRO) have announced a new risk-sharing facility aimed at addressing the severe credit shortfall faced by Pakistan”s small and medium enterprises (SMEs), a sector where fewer than 200,000 of the nation”s 3.2 million such businesses can access formal loans.
According to a statement today, despite accounting for 90 per cent of all businesses and contributing 40 per cent to the country”s GDP, the SME sector remains critically underserved by financial institutions.
The new agreement is designed to catalyse lending to these businesses, support the creation of jobs, and bolster market competitiveness within the SME segment.
Under the terms of the facility, IFC will provide an unfunded risk amount of up to $40 million, or its Pakistani rupee equivalent. This will cover up to 50 per cent of principal losses on a total SME loan portfolio of up to $80 million to be originated by HABIBMETRO, which will include agricultural SMEs.
This initiative is part of the IFC’s Small Loan Guarantee Program (SLGP) and is backed by a first-loss guarantee from the International Development Association’s (IDA) Private Sector Window (PSW) Blended Finance Facility. The IDA PSW”s involvement provides a backstop that enables greater scale and improved pricing for SME lending in eligible countries.
‘Unlocking private capital at scale is essential to close Pakistan’s SME financing gap,’ said Momina Aijazuddin, IFC’s Regional Industry Director for the Financial Institutions Group in the Middle East and Central Asia. ‘Together with Habib Metropolitan Bank Limited, IFC is deploying a targeted risk-sharing to expand credit for SMEs and agri-centric businesses, to promote growth, which is inclusive, sustainable, and commercially viable.’
Khurram Shahzad Khan, President and CEO of HABIBMETRO, stated, ‘We are consciously working to improve access to finance for SMEs which constitute the backbone of Pakistan’s economy. Our partnership with IFC on this risk-sharing facility will enable us to broaden and diversify our SME portfolio across various regions and industrial sectors, including agriculture.’
The collaboration is expected to allow HABIBMETRO to significantly scale up its SME lending in line with its medium-term growth strategy. By demonstrating a sustainable and commercially sound model, the facility aims to influence broader market practices and encourage a shift in financing towards productive sectors.