LAHORE, Mar 01 (APP):Pakistan Business Forum (PBF) Sunday urged policy-makers and financial regulators to introduce prudential regulations to encourage cash-flow-based lending and unlock the immense potential of Pakistan’s small and medium enterprise (SME) sector.
PBF President Khawaja Mehboob-ur-Rehman, while talking to a traders/SMEs delegation here, stated that Pakistan’s future prosperity will not come from a handful of large corporations but from hundreds of thousands of small enterprises, which produce, innovate and employ. “If we want truly inclusive and sustainable growth, empowering SMEs is not optional; it is essential,” he remarked.
With over 5.2 million businesses operating across manufacturing, services and trade sector, he mentioned, the SMEs contribute nearly 40 percent to Pakistan’s GDP and employ more than 80 percent of the non-agricultural labour force. Despite their dominant role in the economy, SMEs receive less than seven percent of private sector credit, one of the lowest ratios in South Asia.
According to PBF data, he said, private sector financing in Pakistan stands at approximately 6.5 percent of GDP, reflecting a structural weakness in financial intermediation. The number of SME borrowers is estimated at around 295,000, with outstanding SME financing at approximately Rs 686 billion that is far below the potential, and indicative of vast untapped opportunities.
Khawaja Mehboob highlighted that strict collateral requirements remain a major obstacle for small businesses, even those with strong market potential and viable business models. He called on banks to shift their assessment frameworks away from asset-heavy collateral models towards evaluating cash flows, revenue streams, business viability, and market positioning. “It is time for the entire banking industry to move towards expanding cash-flow-based lending, where financing decisions are tied to a business’s revenue capacity rather than physical assets alone,” he added.
The PBF President further recommended expanding low-collateral financing schemes, establishing dedicated desks for SME clients, and simplifying procedures, particularly for women-owned enterprises to ensure more inclusive access to credit.