PBF for encouraging cash-flow-based lending

KARACHI: The Pakistan Business Forum (PBF) has urged policymakers and financial regulators to introduce forward-looking prudential regulations to encourage cash-flow-based lending and unlock the immense potential of Pakistan’s small and medium enterprise (SME) sector.

Speaking with a delegation of business community, PBF President Khawaja Mehboob ur Rehman stated that Pakistan’s future prosperity will come not from a handful of large corporations, but from hundreds of thousands of small enterprises that produce, innovate, and employ. “If we want truly inclusive and sustainable growth, empowering SMEs is not optional it is essential.”

With over 5.2 million businesses operating across manufacturing, services, and trade, 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 7 percent of private sector credit one of the lowest ratios in South Asia.

According to PBF, 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 Rs686 billion figures the Forum described as “far below potential” and indicative of vast untapped opportunities.

President PBF highlighted that strict collateral requirements remain a major obstacle for small businesses, even those with strong market potential and viable business models. The Forum 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.

The Forum 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.

The Forum also stressed that Pakistan’s reform agenda will remain incomplete unless the SME sector flourishes. It warned that over-taxation, excessive bureaucratic friction, and outdated credit models are stifling entrepreneurial energy.

Every developed economy has built its foundation on SMEs. “Protecting small businesses from regulatory burdens and ensuring their access to affordable finance is not charity, it is smart economics”.

Khawaja Rehman further mentioned the government must act now to provide SMEs with the resources, regulatory support, and financial access they need to thrive.”