Karachi: The Pakistan Business Forum (PBF) has called on policymakers and financial regulators to implement prudential reforms that promote cash-flow-based lending, a move they argue will unlock the potential of the country's small and medium enterprises (SMEs).
According to Pakistan Business Forum, SMEs are vital to Pakistan's economy, accounting for nearly 40 percent of the GDP and employing more than 80 percent of the non-agricultural labor force. Despite their significant economic role, SMEs in Pakistan receive less than 7 percent of private sector credit, which is one of the lowest ratios in South Asia. The PBF emphasized the need for a shift in banking practices from asset-heavy collateral models to cash-flow-based lending to address this issue.
PBF President Khawaja Mehboob ur Rehman highlighted the structural weaknesses in Pakistan's financial intermediation, noting that private sector financing stands at approximately 6.5 percent of GDP. The Forum described the current level of SME financing, with 295,000 borrowers and Rs686 billion in outstanding loans, as "far below potential," pointing to untapped opportunities in the sector.
The Forum urged banks to evaluate creditworthiness based on a business's revenue capacity rather than physical assets and recommended expanding low-collateral financing schemes and simplifying procedures for SMEs, particularly those owned by women.
Drawing on international examples, the PBF cited China's credit guarantee programs and Southeast Asia's FinTech solutions as successful models for expanding credit access. Additionally, India's Pradhan Mantri MUDRA Yojana was highlighted as a scheme that has provided low-interest financing to micro and small enterprises.
The Forum warned that without reforms to support the SME sector, Pakistan's reform agenda would remain incomplete. It called for the removal of over-taxation, reduction of bureaucratic barriers, and modernization of credit models to unleash entrepreneurial potential and drive inclusive economic growth.
Khawaja Rehman concluded by stressing the urgency for government action to provide SMEs with the necessary resources, regulatory support, and financial access to thrive.
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