Renowned economist Professor Amir Sufi has called for a fundamental transformation of the financial sector to keep pace with the global shift toward high-tech services, warning that traditional banking models are increasingly misaligned with the needs of modern, innovation-driven economies. He was speaking at the 25th Zahid Husain Memorial Lecture hosted by the State Bank of Pakistan, an annual event that honours the legacy of the central bank’s first Governor, Zahid Husain.
The lecture brought together diplomats, academics, senior banking professionals, members of the business community, and the family of the late Governor to reflect on the evolution of financial systems amid rapid technological change. The gathering focused on how finance must adapt as economies move away from asset-heavy industries toward services driven by knowledge, research, and technology.
Professor Sufi, the Bruce Lindsay Distinguished Service Professor at the University of Chicago and a recipient of the prestigious Fischer Black Prize, delivered a detailed analysis of the structural transformation underway in global markets. He explained that sectors such as information technology and professional scientific services are increasingly central to economic growth, yet they rely heavily on intangible capital such as research and development, intellectual property, and specialized human expertise.
According to Professor Sufi, conventional banking systems are poorly equipped to finance such sectors because they are built around physical collateral and liquidation values. Innovative firms, he noted, derive much of their value from their ability to continue operating and generating future cash flows rather than from tangible assets that can be sold in distress. This disconnect limits access to finance for high-growth firms and constrains the development of modern industries, particularly in emerging economies.
To address this gap, Professor Sufi emphasized the need for financial intermediaries that specialize in intangible capital. He pointed to cash flow-based lending and external equity financing mechanisms such as venture capital and private equity as essential tools for supporting innovation-led growth. He argued that without these instruments, economies like Pakistan risk falling behind in the global transition toward technology-driven services.
He further stressed that regulatory coordination is critical to creating an enabling environment for such financing models. This includes the development of efficient bankruptcy systems that preserve business value rather than destroy it, as well as strong contract enforcement mechanisms capable of handling complex equity arrangements. These institutional foundations, he said, are necessary to attract long-term capital and support entrepreneurial risk-taking.
In his opening remarks, SBP Deputy Governor Saleemullah acknowledged that Pakistan has achieved a degree of macroeconomic stability but cautioned that stability alone is insufficient to ensure sustained growth. He highlighted the need for deep structural reforms to break the recurring boom-and-bust cycles that have characterized the country’s economic history.
He emphasized that channeling capital toward the real economy is essential for inclusive and durable growth. Expanding financial access for small and medium enterprises, youth, and women, he said, is a critical imperative. He urged banks to move beyond their traditional reliance on collateral and adopt cash flow-based lending practices grounded in a deeper understanding of business risks and potential.
The Deputy Governor also outlined the central bank’s role in facilitating this transition through initiatives such as the risk coverage facility for SME and agricultural finance, the Banking on Equality policy, and the Regulatory Sandbox for fintech innovation. These measures, supported by digital infrastructure including electronic know-your-customer systems and faster payment platforms, are intended to strengthen the foundations for technology-driven growth.
The session concluded with an interactive fireside discussion in which Professor Sufi elaborated on policy priorities for Pakistan and responded to questions from participants. The dialogue underscored a shared recognition that aligning financial systems with the realities of a high-tech economy is essential for long-term competitiveness, job creation, and sustainable development.
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