The Pakistan Business Forum has called on policymakers and financial regulators to introduce forward-looking prudential regulations aimed at expanding cash-flow-based lending and unlocking the untapped potential of Pakistan’s small and medium enterprise sector.
During a meeting with a delegation of the business community, PBF President Khawaja Mehboob ur Rehman emphasized that Pakistan’s long-term economic trajectory depends less on a limited number of large corporations and more on the growth of hundreds of thousands of small enterprises operating across the country. He stated that inclusive and sustainable growth cannot materialize unless SMEs are empowered through structural financial reforms and improved credit access.
Pakistan’s SME landscape comprises more than 5.2 million businesses operating in manufacturing, services, and trade. Collectively, these enterprises contribute nearly 40 percent to the country’s gross domestic product and employ more than 80 percent of the non-agricultural labor force. Despite their dominant footprint in economic activity and employment generation, SMEs receive less than 7 percent of private sector credit, a ratio considered among the lowest in South Asia.
The Forum highlighted that overall private sector financing in Pakistan stands at approximately 6.5 percent of GDP, reflecting what it described as a structural weakness in financial intermediation. According to PBF estimates, the number of SME borrowers currently stands at around 295,000, with outstanding SME financing totaling approximately Rs686 billion. The Forum characterized these figures as significantly below potential, signaling substantial room for expansion in SME-focused lending.
A central concern raised by the PBF revolves around the prevailing credit assessment framework used by banks. The Forum noted that strict collateral requirements remain a major barrier for small businesses, even those demonstrating strong revenue streams and viable market positioning. Many SMEs, particularly startups and service-oriented enterprises, often lack asset-heavy balance sheets, making them ineligible under conventional lending models.
To address this constraint, the Forum urged banks and regulators to pivot toward evaluating borrowers based on cash flows, business viability, revenue consistency, and growth prospects rather than relying predominantly on fixed asset collateral. According to PBF leadership, transitioning to cash-flow-based lending models would enable financial institutions to better align with the operational realities of modern SMEs.
The Forum also proposed expanding low-collateral financing schemes and establishing dedicated SME desks within banks to streamline client engagement. Simplifying documentation procedures, particularly for women-owned enterprises, was identified as a priority to improve inclusive access to credit and encourage broader participation in formal economic channels.
Beyond financing, the PBF cautioned that over-taxation, excessive bureaucratic processes, and outdated regulatory frameworks are suppressing entrepreneurial momentum. It argued that without comprehensive reforms, Pakistan’s broader economic transformation agenda will remain incomplete.
The Forum underscored that developed economies have historically built their industrial and employment base on the foundation of strong SME sectors. Ensuring affordable financing and minimizing regulatory burdens, it said, is not a matter of subsidy but of strategic economic planning.
PBF leadership concluded by urging the government to act decisively in providing SMEs with the regulatory clarity, institutional support, and financial access required to thrive in an increasingly competitive economic environment.
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