PPAF for providing more financial resources to SMEs
In an official communiqué, the PPAF has argued that access to finance remains a critical lever for inclusive economic development, particularly for SMEs, which serve as the backbone of Pakistan's economy.
Citing a report of the State Bank of Pakistan (SBP), it said that despite this central role, the sector remains starved of formal financial services, limiting its potential to drive innovation, productivity, and employment growth.
As per the SBP's quarterly performance review of the banking sector (Q1 2024), only 6.3 percent of total private sector credit is directed towards SMEs, reflecting a deeper structural mismatch in Pakistan's financial landscape.
The reasons are well-documented as SMEs typically lack formal credit histories, possess inadequate financial documentation and struggle to meet collateral requirements. A large number remain outside the formal registration net. Financial institutions tend to offset their risks through rigid risk-assessment models that exclude smaller, informal enterprises and have historically favoured the large corporates whilst investing mostly in government instruments. In rural and semi-urban areas, the challenges are compounded by limited banking infrastructure, weak market linkages, and higher exposure to climate and seasonal risks.
While several initiatives have been launched in recent years to address this gap, their impact on expanding access to finance for small and medium enterprises has been limited. Much of the support remains urban-centric and heavily reliant on financial channels that are not fully adapted to engage with new or informal borrowers.
As per the World Bank's 'Pakistan Development Update' (April 2024), only 24 percent of SMEs in Pakistan report having access to formal financial services, compared to a South Asian average of over 35 percent. A reality like this calls for more adaptive models, grounded in local realities and designed to strengthen the full enterprise ecosystem.
To address the issue, the International Trade Centre (ITC) in partnership with PPAF with the financial support of European Union (EU) is working on the Growth for Rural Advancement and Sustainable Progress (GRASP) project which marks a meaningful shift towards more inclusive, ground-up approach that is tailored to the needs of small and medium enterprises. The project is aimed at improving the access to finance while addressing critical barriers across the business cycle.
At the core of the project, the PPAF is committed to poverty reduction through community-driven development. GRASP is in line with PPAF's vision; through its integrated approach it links financial inclusion with enterprise development, skills training, market connectivity, and promotion of green technologies.
The access to finance component of the project is further divided in two categories and performance-based matching grants and strengthened linkages with formal financial institutions.
While matching grants supports SME growth through co-financed approach, institutional linkages offer entrepreneurs access to larger credit lines, tailored to their business needs and repayment capacity.
According to project records, GRASP has signed MoUs with 25 financial institutions bringing them on board for the latter component. These partnerships not only help getting affordable credit but, in some cases, also extend insurance coverage protecting farmers, their land and livestock from climate-induced shocks and unforeseen natural hazards.
These efforts are complemented by business coaching, financial literacy training, and enterprise development services equipping SMEs with the skills to manage finances, maintain records, develop business plans, and engage effectively with financial institutions.
According to data reviewed from project reports, a total of 378 SMEs, 39 percent of which are women-led, have received performance-based matching grants amounting to almost Rs848 million; whereas, 415 SMEs have developed linkages with financial institutions translating in loans worth more than Rs739 million.
As Pakistan looks to foster inclusive and resilient growth, tapping into the vast potential of SMEs is essential. GRASP offers a practical blueprint: one that shows that improving access to finance requires enabling ecosystem that supports entrepreneurs, not just disbursing loans. The model offers valuable insights for national policy: prioritise blended financing, strengthen public-private collaboration, and tailor products to local needs.
In parallel, at the macro level, Pakistan's growing digital and financial landscape transformation presents further opportunities to expand inclusion particularly for Tier-2 and Tier-3 cities. FinTechs, alternative or AI-based credit scoring, and mobile wallets can play a critical role in extending services to un-banked SMEs. But for these solutions to scale, enabling regulation and robust digital infrastructure must follow.
By empowering SMEs, especially in rural Pakistan, easy access to finance can become the cornerstone for a more equitable and prosperous future. With continued innovation and commitment, these enterprises can shift from being underserved to becoming the true engines of national development.
Copyright Business Recorder, 2025
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