SBP targets Rs1.5tr SME credit

Governor urges banks to scale up borrowers; documentation key barrier

KARACHI:

The State Bank of Pakistan (SBP) has set an ambitious target to raise small and medium-sized enterprises (SMEs) financing to Rs1.5 trillion by June 2028, with plans to expand the number of SME borrowers to 750,000, Governor Jameel Ahmad announced on Wednesday.

Addressing the Pakistan Banking Summit 2026 as the keynote speaker, Governor Ahmad described expanding financing to priority sectors like SMEs, agriculture, and affordable housing as one of the most important challenges and opportunities for the banking industry.

Sustainable economic growth requires a banking system that supports productive investment, he said. "Agriculture, SMEs, and affordable housing are critical drivers of employment, exports, and economic resilience. Yet they continue to face significant financing gaps."

According to the governor, outstanding SME financing has more than doubled between June 2021 and December 2025, while the number of SME borrowers increased by around 75%. He termed these results encouraging but insufficient, urging banks to scale up efforts through innovation.

Zafar Masud, President and CEO of the Bank of Punjab, who also serves as Chairman of the Pakistan Banks' Association (PBA), highlighted practical challenges in SME lending during a sideline conversation with The Express Tribune.

"The main challenge for private sector SME credit is that businesses are not documented, so banks cannot assess them properly," Masud said. "They will have to get them registered and pay taxes to be able to avail the banking financing."

His remarks underline a key barrier to formal credit expansion: the large undocumented segment of the economy and the need for businesses to integrate into the formal system.

The SBP's strategy moves away from heavy reliance on directed lending towards an enabling ecosystem. This includes regulatory reforms, digital innovation, risk-sharing mechanisms, and capacity building. Specific initiatives encompass the SME Asaan Finance Scheme, the Risk Coverage Scheme for SMEs, and the Prime Minister's Youth Business and Agriculture Loan Scheme.

Recent regulatory changes have enhanced financing limits, expanded clean financing within the regulatory retail portfolio, simplified loan procedures, and revised prudential regulations for SMEs. These steps aim to provide banks with greater flexibility to adopt technology, partner with fintechs, and design innovative products such as digital supply chain financing and cash flow-based lending using alternative data.

Ahmad encouraged banks to develop sector-specific products aligned with the cash-flow cycles of SMEs and agriculture while reducing dependence on government schemes. "The policy framework is now firmly in place. The next step is to translate these opportunities into scale through innovation, partnerships, and sustained commitment from the banking industry," he added.

The SME push forms a core part of SBP's Vision 2028, which also prioritises digital transformation, he said. Over 92% of retail financial transactions are now processed digitally, supported by 268 million financial accounts and more than 49 million Raast IDs. The central bank has also mandated digitisation of all government disbursements through secure digital wallets.

Atif Bajwa, CEO of Bank Alfalah and Chairman of the Pakistan Banking Summit, echoed the need for deeper alignment between banks and national priorities in his address. He highlighted that discussions over the two days underscored the importance of expanding access to finance across agriculture, SMEs, housing, climate, and the environment.

"Particular emphasis also needs to be placed on women's participation in the workforce and in business. Bringing more women into the formal economy is not only a social priority, but also an economic opportunity for Pakistan," Bajwa said.

He called on banks to reflect honestly on shortcomings and invest more aggressively in technology and human capital. "Technology is fundamentally changing the way banking is done… Yet, as an industry, we are still not investing enough in technology," he noted, advocating for greater collaboration among banks to manage the high costs and risks of digital infrastructure.

Bajwa also stressed the importance of ethics, customer-centric practices, and regulatory reforms across the broader economy. He urged banks to support capital formation, equity markets, and market-based mechanisms while improving the sector's public perception through evidence-based dialogue.

The SBP governor presented an optimistic macroeconomic outlook to support long-term investments. Despite challenges from the Middle East conflict and earlier floods, average inflation in FY26 stood at 7.05%. Real GDP growth reached a robust 4% during July-March FY26 and is provisionally estimated at 3.7% for the full year. The current account remained in surplus, and foreign exchange reserves have risen above $18.4 billion.

"The macroeconomic environment remains conducive for our financial sector to undergo the necessary transformation," he said, adding that growth momentum is expected to pick up in FY27.

Ahmad reiterated the need for cyber resilience, data governance, and trust-building as digital adoption accelerates.