A recent piece authored by Basir Shamsie, President and CEO of JS Bank, published in DawnNews, sheds light on the pivotal role Pakistan’s small and medium enterprises (SMEs) play in shaping the national economy. According to Shamsie, SMEs contribute nearly 40 percent to the country’s gross domestic product (GDP) and are responsible for employing over 80 percent of the non-agricultural labor force, making them a backbone of economic activity and a vital driver of inclusive growth.
Despite their undeniable importance, SMEs continue to face structural barriers that limit their ability to expand and innovate. The article underscores how restricted access to finance remains one of the most pressing challenges for the sector. Conventional lending in Pakistan is heavily collateral-based, which prevents many smaller enterprises from qualifying for credit. Many SMEs, particularly those in early growth stages, often lack the hard assets required to meet collateral requirements, effectively locking them out of the financial system.
This reliance on rigid lending models has further been compounded by weak recovery frameworks, which make it difficult for lenders to confidently extend financing to smaller firms. The absence of efficient legal recourse in cases of default discourages financial institutions from experimenting with more flexible lending methods. As a result, SMEs are forced to rely on informal financing channels, which are often more expensive and riskier, stifling their ability to scale and compete in both local and international markets.
Shamsie emphasizes that urgent reforms are necessary to address these challenges and unlock the true potential of Pakistan’s SME sector. Among the key recommendations is the adoption of cash flow–based lending, a financing model that evaluates a business’s ability to generate income rather than its collateral base. By focusing on operational performance and projected earnings, cash flow–based lending could allow thousands of creditworthy SMEs to access funding that is currently beyond their reach.
The article also highlights the importance of stronger credit guarantee schemes, which would help reduce the perceived risk for banks and other financial institutions. By sharing the burden of potential defaults, such mechanisms could encourage lenders to extend credit more widely across the SME ecosystem. Additionally, reforms to establish quicker and more effective loan recovery processes would not only protect lenders but also build confidence in expanding financing solutions for small businesses.
Shamsie’s insights come at a time when Pakistan is actively seeking ways to boost growth and create sustainable employment opportunities. With the country’s economic challenges demanding structural reforms, empowering SMEs could provide a pathway toward inclusive development and greater resilience. By improving access to finance and creating a more supportive policy and regulatory environment, the government and financial sector can unlock vast untapped potential in this critical segment of the economy.
Ultimately, the message is clear: SMEs are central to Pakistan’s future economic growth, but without targeted reforms in lending practices, credit guarantees, and recovery frameworks, their contribution will remain far below their capacity. The call for action laid out in the article represents both a challenge and an opportunity for policymakers and financial institutions to reshape the country’s economic landscape.