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Empowering Pakistan by improving access to finance for SMEs

Access to financing is now widely acknowledged as a path to meaningful economic inclusion and reduction in poverty. Policy efforts to increase access to finance in Pakistan have taken time to bear fruit, but now access is indeed expanding quickly in certain financial sectors (microfinance, remittances) albeit from a very low base. Nevertheless, policy measures cannot single-handedly increase financial access; financial institutions’ willingness to expand access in Pakistan has been stinted by slow technologic advances, weak legal foundations, and unsuitable financial processes and products. Poor socioeconomic conditions, gender bias, and low levels of basic education and financial literacy remain barriers, but perhaps the single strongest driver of low demand for financial access has been income.

Major constraints to financial access, despite policy reforms, arise from the high levels of poverty, combined with low awareness of and information about available financial services, as well as gender bias. Technology can be harnessed to help expand geographical outreach, as well as overcome low literacy levels. Physical access can be stepped up using a two-pronged strategy, in view of limited financial infrastructure and penetrationvia existing agencies with higher penetration as well as via new technology solutions such as branchless banking and mobile banking.

New approach suitable for smaller enterprises, such as bank digitization, are workable tools to achieve sustainable small and medium enterprise (SME) lending products. It is estimated that SMEs constitute around 90 percent of the 3.2 million private enterprises in the industrial, services and trade sectors in Pakistan and employ around 70 percent of the non-agriculture labor force. These enterprises also contribute over 30 percent to GDP and 25 percent to the country’s total export earnings. Their share in value-added manufacturing is estimated at 35 percent. In view of the critical importance of SMEs in low-cost job creation and poverty reduction, successive governments have tried in the past to focus on their development, but the sector remains uncompetitive in world markets owing to structural weakness, obsolete technology, lack of access to credit and marketing and management skills, unfriendly business and regulatory environment, and other factors, despite various initiatives both at the federal and provincial levels.

Small and medium enterprises (SME) sector has a great potential for expanding production capacity and self-employment opportunities in the country. Enhancing the role of financial sector in development of SME sub-sector could mitigate the serious problems of unemployment and low level of exports. The banks may introduce ‘SME Financing Funds’ with various geographical locations. The corporate sector and the commercial banks may set up a network of such funds under the aegis of State Bank of Pakistan or Securities Exchange Commission of Pakistan by establishing institutions under syndicate arrangements or otherwise.


The Fund could be used to support:

– Capacity building and training of financial services providers to promote expansion into rural areas; product and service innovation, including savings, remittances and digital financial services; adoption and integration of new technologies and applications for improving access to financial services;

– Capacity building and training of government and regulatory authorities to support development of an inclusive financial sector and implementation of measures under the Program; and

– Literacy programs (financial and basic) conducted by or on behalf of financial services providers for clients and potential clients to improve access to financial services and the utilization of finance.


In line with the above objectives, proposals for seeking grants under the said Fund shall be evaluatedbased on the following:

(A) Criteria for capacity building grants

  • Organization Profile
  • Systems and Controls
  • Strategy and Management
  • Profitability and Efficiency
  • Social Performance

(B) Criteria for literacy program grants

  • Clear & compatible vision for increasing access to financial services to poor and marginalized groups
  • Resolve to create awareness about/demand for financial services and raise literacy levels
  • Legally recognized entity
  • Experience in family literacy programs that target both parents (adults) and children (optional)
  • Appropriate levels of portfolio quality
  • Appropriate levels of transparency
  • Adequate human resource
  • Outreach to present/potential microfinance clients specially women
  • Rural outreach
  • Estimated number of beneficiaries shall be atleast 100 individuals.

The Fund is proposed to have four components: (i) development of policy, legal, and regulatory frameworks for improving access to finance; (ii) SME finance product diversification and innovation; (iii) capacity building, institutional strengthening, restructuring of FIs; and (iv) basic financial literacy.

The Fund aims to reduce poverty; build a more inclusive, competitive, and efficient financial sector; and promote sustainable economic growth. Its objective is to ensure access to sustainable institutional financial services at competitive prices for poor and low-income households and their microenterprises.

Under the program, the State Bank of Pakistan or Securities Exchange Commission of Pakistan will enact an enabling policy, legal, and regulatory framework, and implement other actions to remove constraints to the growth of financial institutions. These actions include (i) promotion of technology and applications to achieve a national scale of financial services at reduced cost; (ii) expansion of the range and quality of financial products and services provided by financial institutions (FIs); (iii) development of public–private partnerships to expand outreach; (iv) development of reliable business and credit information and systems; (v) provision of fast, reliable, and lower cost remittance services for overseas workers; and (vi) financial literacy and capacity building.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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