Cash flow data could unlock SME financing

Digital banking service targets small and medium businesses

KARACHI:

Verifiable sales records and digital cash flows could help Pakistani small businesses overcome a major barrier to bank financing: their inability to demonstrate reliable financial performance, as digital banking platforms seek to bring undocumented businesses into the formal financial system.

A large number of Pakistan's micro, small and medium-sized enterprises (MSMEs) operate without formal registration or digitised accounts, making it difficult for banks to assess their creditworthiness. Consequently, lenders often demand collateral, which many small businesses cannot provide. Speaking at the launch of NEO BIZ, a digital banking service for SMEs, Mashreq Bank Pakistan CEO Muhammad Hamayun Sajjad said businesses often maintained bookkeeping records that banks did not consider reliable enough for lending decisions.

Pakistan has approximately 7.14 million MSMEs, contributing nearly 40% to gross domestic product (GDP), 30% to exports and employing more than 80% of the non-agricultural workforce. However, outstanding SME financing stood at around Rs882 billion as of December 2025, according to figures cited at the event.

Digital-first banking models could help bridge this gap by creating verifiable records of business transactions, including sales, payments and collections. Banks could use these records to assess turnover, analyse cash-flow patterns and evaluate repayment capacity, potentially enabling creditworthy businesses without conventional financial statements to access loans.

However, digital records alone would not guarantee financing, as lenders would still need to assess profitability, liabilities and business risks. NEO BIZ like services offer digital business account opening and management, payments and collections. Its broader roadmap includes transaction analytics, invoicing, bookkeeping, payroll solutions and business debit and virtual cards.

The planned development also includes cash-flow-based financing, tax facilitation and supply-chain services. Whether these features translate into increased lending will depend on their implementation and banks' credit policies. "Pakistan's SME sector is both dynamic and under-served, with significant gaps in access, awareness and digital capability," Sajjad said, adding that the platform was intended to simplify banking and reduce reliance on physical channels.

The initiative comes amid a longstanding debate over whether banks' substantial exposure to government borrowing crowds out private-sector lending. Banks have argued that the relationship is not straightforward, maintaining that they can obtain liquidity through the State Bank of Pakistan open market operations (OMOs) while holding government securities and extending credit to businesses.