An interview with Kashif Umar Thanvi, chairperson National Credit Guarantee Company Limited (NCGCL)

Business Recorder

26-06-2025

Credit Guarantee Co seeks to build lender confidence, and then move on to the next unserved frontier
Kashif Umar Thanvi is the Chairperson of the National Credit Guarantee Company Limited (NCGCL), Pakistan's first purpose-built institution for risk-sharing in SME and agricultural lending. He also serves as Investment Director at Acumen, where he leads investments in businesses driving systemic change in climate resilience and agricultural value chains.
Kashif began his career at Engro in 1996, where he received the Marketing Excellence Award for supply chain optimization.Since then, he has held transformative roles across agribusiness, banking, and development finance. At Khushhali Bank, he helped pioneer scalable microfinance distribution models.
Later, as Head of Agricultural Finance at HBL, he restructured rural banking into a commercially viable vertical, positioning HBL as the country's largest agri-lender and earning it multiple awards for Best Bank for Agriculture. In recent years, he has focused on global AgTech, leveraging digital agriculture and remote sensing to strengthen financial decision-making and ecosystem-wide outcomes. In addition to NCGCL, he also serves on the board of Pakistan Agricultural Coalition, a multi-stakeholder platform focused on market-driven reforms in agriculture.
Earlier this month, NCGCL received a long-term AAA credit rating by PACRA, Pakistan's premier credit rating agency. This marks a significant institutional milestone for a company still in its early phase of operations. BR Research sat down with Mr. Thanvi to unpack what the AAA rating means for Pakistan's SME finance ecosystem, how credit guarantees operate in practice, and what disruption they can bring to a credit market long dominated by collateral, caution, and concentration.Editedexcerpts and a summary of the conversation are published below:
BR Research (BRR): What are the most binding constraints in Pakistan's credit market today: capital adequacy, collateral rigidity, cost of funds, or deeper institutional risk aversion?
Kashif Thanvi (KT): All of these constraints matter, but if I were to force-rank them based on what is most relevant in Pakistan's context, I would place institutional risk aversion at the top. There is a deeply embedded path dependence in the financial industry. The system is simply not used to doing priority sector lending in the way it needs to be done.
Collateral rigidity comes next. The dominant mindset is still to lend against hard collateral, rather than underwrite based on the business model or project cash flows. This poses a structural hurdle. When tangible collateral becomes non-negotiable, large segments of potential borrowers, especially in priority sectors, are automatically excluded.
The cost of funds is important, but I would argue that access to credit is a bigger challenge than the price of credit. More efficient and inclusive access would naturally lead to more competitive pricing over time. In fact, many borrowers still turn to the informal market. Not because it is cheaper, but because it is faster, more convenient, and less burdensome than the formal system.
As for capital adequacy, I do not view it as a constraint for commercial banks. While crowding out remains a macro-level concern, the banking industry today has an average capital adequacy ratio north of 20 percent. That said, it may be more of a binding constraint in the microfinance sector, which faces different pressures.
BRR: What is the root cause of this deeper institutional risk aversion, and how has it shaped the way banks approach priority sector lending?
KT: Our commercial banks were never built to serve priority sectors. The institutional memory does not exist. Whether at the level of sponsors, boards, senior management, regulators, or even depositors, the industry lacks the foundational capability to lend without collateral or to clients with limited financial visibility.
Historically, banks were not intended to take on the role of development finance institutions. In the 1960s and 70s, Pakistan had DFIs such as PICIC and HBFC to play that role. These institutions were far from perfect, but they were at least structured to absorb this type of risk. Commercial banks, on the other hand, have always been geared toward lending to the sovereign or to large corporates. That model offered easy returns and little incentive to build the systems, staffing, and governance needed to serve underserved sectors.
Priority sector lending is fundamentally different. It requires hiring SME relationship managers across geographies, decentralizing credit operations, and building risk assessment models that go beyond balance sheets and boardrooms. This is not how most banks are set up. When your core clientele consists of corporate and government entities, you do not need armies of field officers or adaptive credit processes.
Another key driver of risk aversion is the lack of quality information. In many cases, either the data does not exist, or where it does, its quality is not good enough to support reliable lending decisions. That creates inflated perceptions of risk. As a result, banks either avoid these sectors altogether, or they lend in ways that protect themselves through excessive collateral requirements and high pricing. In both cases, we see a breakdown in risk-based pricing. The spreads being charged often have little relationship to the actual risk on the ground. That is a major distortion in Pakistan's credit market.
BRR: What is the fundamental gap that NCGCL aims to address, and how does it intend to do so?
KT: We are operating in a credit market that has consistently under-served priority sectors. Pakistan's private sector credit-to-GDP ratio stands around 12 to 13 percent. By comparison, India is at 50 percent, Bangladesh at 40 percent, and Thailand at 120 percent. This underperformance has resulted in systemic financial exclusion.
In real terms, credit supply to agriculture, SMEs, and other priority sectors has declined significantly over time. These sectors collectively contribute more than two-thirds of our GDP, yet their share in total bank advances remains below 10 percent. Meanwhile, formal lending to consumption segments, whether it is credit cards or auto loans, has surpassed credit to these productive sectors. That mirrors our broader economic composition, where consumption accounts for disproportionate share of GDP.
Even more concerning is the quality of lending. SME portfolios have a non-performing loan ratio of nearly 20 percent, and those in rural lending are also well above the industry average. This points to two simultaneous problems. First, we are not even scratching the surface of real financial inclusion. Second, where lending does occur, outcomes have often been poor, making banks understandably risk averse.
NCGCL is designed to address this supply-side gap through credit guarantees. These guarantees are meant to shift part of the risk away from banks, making them more willing to lend to sectors they have typically avoided. But more than that, NCGCL's deeper objective is to reshape institutional behaviorto create space for lenders to develop confidence, capacity, and eventually, better risk appetite.
BRR: Can credit guarantees meaningfully shift lending behaviour in Pakistan's financial sector?
KT: Credit guarantees are a powerful tool, but they are not a silver bullet. NCGCL is focused on addressing the supply-side constraints in the credit market. However, unless we simultaneously deal with the demand-side challenges, the underlying risk environment will remain unchanged.
Take agriculture, for example, where I have spent much of my professional life. Farmers face both perceived and real risks. Climate-induced shocks are becoming more frequent and more intense. Yet our risk mitigation mechanisms have not evolved. Yes, crop loan insurance exists for five major crops, but it does not cover large systemic events such as the floods of 2010, 2011, or 2022. Nor did it address the myriad shocks in between; the coverage has been woefully insufficient.
Then there is the question of viability. If a particular segment of farming is not profitable, how can we expect the farmer to repay a loan? If the underlying enterprise is structurally loss-making, even the best-designed credit guarantee cannot make that risk bankable.
Similarly, farmers face limited access to markets and poor price realization, both of which erode their ability to generate stable cash flows. These are real, structural barriers, and they sit outside the mandate of NCGCL.
The point is this: unless demand-side risks are addressed in parallel - whether through improved risk mitigation, price stability, or profitability - credit guarantees alone will not fix the market. They are a necessary intervention, but not a sufficient one.
BRR: How should policy respond to credit market gaps where commercial viability is critical but limited in the short run, especially in ways that avoid falling into a long-term subsidy trap?
KT: This is a critical question. Across lower middle-income countries, the poverty line is defined as approximately $4.20 per day, the cost of meeting basic needs. In Pakistan, the average farmer earns less than $2 per day. That is not just a poverty statistic; it is a structural signal that markets alone are not reaching the most economically relevant segments.
When a sector such as agriculture contributes over 20 percent to national GDPbut remains underserved by formal finance, then the solution cannot be purely commercial at the outset. Market failure of this magnitude requires a blended policy response. That is where the design of NCGCL becomes particularly relevant. Its ownership structure combines public sector commitment, through the Ministry of Finance, with an impact-driven mandate via Karandaaz. This creates the institutional flexibility to pursue commercially sustainable development outcomes.
The goal is not to replace the market or distort it through subsidies. On the contrary, NCGCL is structured as a market reform institution. It aims to distinguish between perceived risk and real risk, and to help financial institutions approach, price, and structure the latter more accurately. Guarantees are priced based on actual risk. If a segment has higher probability of default, the guarantee fee will reflect that. Everything will be built on a market-based foundation.
What NCGCL will not do is dictate terms to lenders. It will not impose ceiling on markup rate, mandate reductions in markup, or interfere in loan pricing. The reduction in the cost of credit should be a natural outcome of reduced risk perception over time, not a regulatory demand. As guarantees are deployed, and lenders begin to familiarize themselves with previously underserved markets, that confidence will translate into better pricing through repeated lending cycles.
This is how guarantees should function: not as a subsidy trap or a liquidity drip, but as a temporary bridge to help banks internalize risk where they once saw only uncertainty. The solution to market failure is not to abandon market principles, but to use market-aligned tools that enable inclusion without distortion.
BRR: Pakistan's formal credit system has long excluded most borrowers who lack traditional collateral or formal documentation. How can NCGCL help expand the definition of who qualifies as 'bankable,' or is it bound by the same filters that have historically excluded most?
KT: That risk exists. Afterall, these filters are embedded in credit policy manuals, which themselves are shaped by prudential regulations and legacy risk frameworks. Over time, this has produced a fixed definition of what constitutes a 'bankable' borrower, usually someone with formal collateral, audited records, and a credit history. That entire hierarchy of policies, procedures, and behaviors has shaped the traditional banking DNA.
NCGCL must intentionally guard itself against this risk and consciously avoid reinforcing those same exclusionary norms. If it is to be a meaningful tool for financial inclusion, the intervention must break through that inherited mold. That is why it is so important for NCGCL to co-create its product structures in partnership with financial institutions. The objective is to anchor a new ecosystem that expands the definition of creditworthiness: one that is based on viability and cash flows, not just fixed assets.
Credit guarantees can play a catalytic role in this transition. They can give banks the confidence to relax hard collateral requirements and begin underwriting based on business potential, repayment capacity, and the borrower's track record, even if informal. Over time, this shift toward cash flow–based lending will also help build new credit histories for underserved segments. As these histories develop, the very filters that once excluded these borrowers will begin to erode, one step at a time.
That said, a note of caution is important. Guarantees must be structured to ensure that financial institutions always retain skin in the game. Prudence and discipline should never be compromised. The goal is not to make banks careless. It is to reduce perceived risk, prove that underserved markets can be viable, and then move on to the next frontier.
BRR: Will NCGCL's credit guarantees provide risk coverage for both existing and incremental priority sector portfolios?
KT: NCGCL's focus must remain firmly anchored in the principle of additionality. The goal is not to subsidize business-as-usual lending but to enable financial institutions to serve markets, products, and borrowers they would not have otherwise reached.
This means targeting new-to-bank customers, not simply enhancing the terms for existing clients. It also means supporting new credit products that were previously unavailable, for example, long-term loans for borrowers who have historically only had access to short-term working capital. In some cases, it could mean helping financial institutions offer larger loan sizes, or structured financing that would have been deemed too risky without a guarantee mechanism in place.
To make this happen, NCGCL must build safeguards into its product design, eligibility criteria, and monitoring processes to ensure that guarantees are deployed where market gaps exist. The institution's credibility and impact depend on ensuring that it drives incremental lending into underserved segments, not merely de-risks portfolios that banks would have financed anyway.
BRR: Does offering a first-loss guarantee reduce the incentive for lenders to maintain adequate skin in the game?
KT: That is a fair concern, but let me state upfront: NCGCL will never offer 100 percent credit guarantees. The entire structure is designed to ensure that lending institutions retain meaningful skin in the game, both financially and operationally.
The guarantee issued by NCGCL will always be anchored in well-defined product programs. Each program will be based on specific assumptions about expected default or loss, tailored underwriting criteria, a clearly identified target segment, and a thorough understanding of the associated risks and mitigants. This means the lender's exposure is not eliminated. In addition to bearing a share of the credit risk, financial institutions will continue to incur origination, servicing, and loan management costs. That cost commitment also ensures alignment.
That said, assumptions can go wrong. Risk dynamics evolve, and outcomes do not always follow models. When that happens (if defaults exceed expectations), NCGCL will revisit the parameters in the next loan cycle. This includes adjusting the guarantee coverage, revising underwriting thresholds, and increasing the guarantee fee to reflect the updated risk profile. It is a learning process, not a one-time intervention. Think of it like insurance. If claims are more frequent than anticipated, the premium rises. Guarantee pricing will follow the same logic: iterative, adaptive, and performance-linked.
More importantly, the insights will not come post-mortem. NCGCL shall remain committed to putting in place robust monitoring systems that allow for real-time feedback and course correction. The institution must develop internal capacity to track leading indicators of default, not just react to rising NPLs. Early warning systems will be essential to ensure that corrective action happens before portfolios deteriorate.
So yes, first-loss guarantees can preserve and even reinforce skin in the game, provided the design and governance are disciplined. NCGCL is not looking for financial institutions that treat it as a backstop for pre-existing risk. This is not a rescue mechanism. It is looking for partners who are genuinely committed to growing their presence in underserved markets. Institutions must be willing to co-create what we call the minimum viable ecosystem for inclusive finance.
That means banks and lenders must be willing to share the risk and build internal capacity. We want partners who believe in this space and, through repeated cycles of guarantee-backed lending, graduate borrowers into standalone, unguaranteed credit. The guarantee is not the destination. It is the enabler of transition, and we want to work with institutions that see it the same way.
Concluded.
Copyright Business Recorder, 2025