SME financing reaches Rs641bn: PBA

KARACHI: Bank lending to small and medium enterprises (SMEs) has risen by 36 per cent to Rs641 billion, with the number of beneficiaries increasing by 51 per cent, making the Rs1.1 trillion credit target for 2028 attainable, according to the Pakistan Banks Association (PBA) statement released on Tuesday.

The PBA highlighted the banking sector’s commitment to supporting various transformative initiatives introduced in the federal budget for 2025-26. It noted that the SME sector has gained renewed momentum. The State Bank of Pakistan (SBP)-led SME risk coverage scheme, launched last year, has disbursed over Rs311 billion to more than 95,000 beneficiaries. Consequently, SME financing has grown to Rs641 billion, with a 51 per cent increase in beneficiaries. This progress brings the Rs1.1 trillion credit target by 2028 within reach.

To harness the potential of the nation’s SMEs, the SBP recently launched a comprehensive review of the prudential regulations governing SME financing. About five million SMEs are operating in Pakistan, employing approximately 80 per cent of the non-agricultural labour force. These businesses contribute around 40 per cent of the country’s GDP and 25 per cent of total exports.

The banking association also highlighted its pivotal role in addressing the Rs1.275 trillion circular debt resolution -- a significant and complex financing effort in Pakistan. This cashflow-backed solution, while imposing additional costs on consumers, is anticipated to stabilise the power sector and help reduce electricity costs for consumers. Among the most forward-thinking initiatives in this year’s budget is the National Subsistence Farmers Support Initiative (NSFSI), designed to assist smallholder farmers. This programme offers digital, cashflow-based loans of up to Rs1 million, which are disbursed directly into farmers’ wallets and can be redeemed at POS-enabled merchants for essential agricultural inputs. It will also provide technology-enabled agricultural advisory services, fostering more inclusive rural financing in conjunction with the electronic warehouse receipt (eWhR) solution.

“A government-backed subsidy scheme is being launched to support affordable housing for Pakistan’s low- to middle-income buyers. With the support from the banking sector, the scheme will offer 20-year mortgages at subsidised rates, helping to raise the mortgage-to-GDP ratio from 0.3 per cent to 5.0 per cent by 2030,” the PBA said.

“The government is launching a targeted financing scheme for electric two-wheelers and three-wheelers. Under this programme -- developed in close collaboration with the PBA and the banking industry -- subsidised, collateral-light loans will be offered to eligible individuals, particularly gig workers, women and small business owners,” it added.

According to the PBA, under the Prime Minister’s Youth Business and Agriculture Loan Scheme, a Rs200 billion disbursement target has been set to provide concessional financing to micro small and medium enterprises, with a focus on the agriculture sector. The scheme also includes green loans of up to Rs2.5 million to solarise diesel-powered tube wells -- advancing a more sustainable and climate-resilient agri-economy.

“Pakistan’s banking sector, in collaboration with the British Asian Trust (BAT), is launching the country’s first-ever Pakistan Skills Impact Bond (PSIB) -- a breakthrough instrument that shifts from traditional, target-based funding to outcome-based financing, where success is measured by real employment outcomes,” it said.

Zafar Masud, chairperson of PBA, said, “These bold reforms and targeted interventions underscore the evolving role of the banking industry -- not merely as a financial intermediary but as a strategic driver of national transformation.”