Five million SMEs; 2pc banked

ASK any banker in the country to name the single largest untapped commercial opportunity on their balance sheet, and the honest answer will not include corporates, nor consumers, not even mortgages. It is the roughly five million small and medium enterprises (SMEs) that are ostensibly bankable but sit almost entirely outside the formal credit system today. Ask the same banker why these have not been pursued, and the answer becomes more revealing: a mixture of risk language, regulatory caveats and a quiet acknowledgement that the sector is, in some fundamental way, simply too hard to read. That difficulty lies at the heart of the matter, and it deserves to be stated plainly rather than being dressed up in the vocabulary of risk. SMEs generate close to 40 per cent of GDP, 25pc of exports and around 80pc of non-agricultural em­­ployment. Yet by December 2025, only 302,922 of them were formally banked. The South Asian average for firms reporting access to a bank loan sits above 31pc; Pakistan’s figure is a dismal 2.1pc. The very conditions that would make an SME bankable are those that it cannot afford to meet — precisely because it is not bankable. The cost of exclusion is concrete. An SME that is locked out of formal credit borrows, if at all, from informal sources at 30pc to 60pc per annum. At those rates, no enterprise modernises machinery, builds working capital cushions, or invests in compliance. The very conditions that would make an SME bankable are those that it cannot afford to meet — precisely because it is not bankable. It is tempting to attribute this to risk aversion in the banking system. But this would be wrong. Pakistani banks are not unusually conservative by global standards — they are unusually starved of information. The median SME operates on cash, holds no audited statements, files no returns, and records sales in ledgers that no credible auditor will certify. A bank cannot underwrite what it cannot see. The problem is not that SME risk is high; i