Pakistan wants to double the money its banks lend to small and medium businesses. Prime Minister Shehbaz Sharif has told the authorities to raise SME financing from Rs1.1 trillion to Rs2.2 trillion by 2028. On paper it is the biggest push for small industry in years. But the Finance Ministry’s own numbers show how far reality is from the target: banks added only Rs23 billion in three months, while the goal needs about Rs118 billion every quarter. The promise needs lending to run more than five times faster than it does today.
The head of the Pakistan Businessmen and Intellectuals Forum, Mian Zahid Hussain, welcomed the directive this week but said the target cannot be met unless credit becomes far cheaper and far easier to get. He pointed to official data: SME financing stood at Rs1.114 trillion at the end of June 2026 and Rs1.137 trillion at the end of September, reaching about 350,862 borrowers. At that speed, the 2028 goal is unreachable.
The promise: double the loans by 2028
The prime minister issued the directive while chairing a meeting of the Small and Medium Enterprises Development Authority (SMEDA) in Islamabad this month. The plan raises SME loans from Rs1.1 trillion to Rs2.2 trillion by 2028, aiming to improve access to credit, help businesses expand and create jobs.
This is the second time the goalposts have moved. In July 2026, the prime minister set targets of Rs2 trillion in SME financing and 775,000 borrowers by June 2028. The new directive lifts the money target to Rs2.2 trillion. The borrower target still needs more than 400,000 new borrowers beyond the roughly 350,000 businesses that currently get bank financing.
The maths: Rs23 billion a quarter against Rs118 billion needed
The gap between ambition and reality is visible in three numbers. SME lending grew by Rs23 billion between June and September 2026. To reach Rs2.2 trillion by 2028, banks would need to add roughly Rs118 billion every quarter. That is more than five times the current pace.
The borrower arithmetic is just as demanding. About 350,862 businesses currently hold SME loans. Reaching 775,000 borrowers by June 2028 means adding over 400,000 businesses to the banking system. The new money must reach new enterprises, small industries and underserved areas, including businesses in the remote districts of Balochistan, rather than staying with existing borrowers.
Why banks do not lend: 17 to 18 percent is too expensive
The biggest obstacle is the price of credit. The benchmark KIBOR stands at 11.5 percent, and banks add another five to six percentage points on SME loans, pushing annual borrowing rates to around 17 to 18 percent. Small firms in India borrow at around 4.5 percent, in China at about 3 percent and in Vietnam at 4.5 percent. For businesses on narrow margins, that difference can decide whether a factory expands or cuts a shift. Concessional schemes at 5, 7 and 9 percent exist, but their success should be measured by how many businesses actually receive money.
Even where rates look bearable, the process blocks many firms. Loan approvals take too long, documentation is complicated and collateral demands are strict. The call this week is for banks to lend against business cash flows, transaction records and verified supply orders, backed by stronger credit guarantee schemes so lenders do not carry the full risk alone.
The proposed fix: 6 percent below KIBOR, half the risk covered
The specific demand before the government is direct: give SMEs financing at six percent below KIBOR, with risk-sharing coverage of at least 50 percent. Banks should get clear targets, applications should be processed digitally, and performance should be monitored online every quarter. Since the target has now risen to Rs2.2 trillion, the Finance Ministry and the State Bank should jointly announce revised targets and an implementation plan.
Cheaper loans alone will not close the gap. Business leaders point to expensive energy, a complicated tax system and delayed payments by large buyers as constraints on small firms. The tax side is already under review ahead of FBR’s Oct 19 overhaul deadline, while import costs track the USD to PKR exchange rate today. For small industrial units, the squeeze mirrors what households feel from expensive fuel and energy costs facing small industry. SMEDA has been asked to provide feasibility studies in local languages and work with chambers so entrepreneurs can prepare proper business plans, with loan tenors matched to production cycles.
The promise is real and the arithmetic is public. Doubling SME financing by 2028 means quintupling the lending pace, onboarding 400,000 new borrowers and cutting rates toward regional levels. Without that package, the target stays a headline. For more, follow PakMirror’s Pakistan business and economy news coverage.
