Page 53 - CMA Journal (Sep-Oct 2025)

Focus Section

c) Challenge Fund for Digital Innovation- In July 7) Conclusion
2024, SBP introduced the Challenge Fund for SMEs,
Pakistan’s SME sector is an integral part of the economy
inviting banks and fintechs to pilot innovative digital
and is already in an evolutionary phase. For sustainable
lending solutions using alternative credit data. The
future growth, SBP is incorporating the approach of
aim is to target beneficiaries, focus on origination of
refinance and risk-sharing mechanisms with digitaliza-
digital loans and processing systems, develop new
tion and prudential supervision to expand SME financing.
digital financial products like digital scorecards,
Though early data reflects positive momentum,
enable digital onboarding of SMEs for account
long-term success will depend on continuous capacity
opening, and upgrade or develop digital banking
building, increasing digital literacy, and collaborative
platforms.
innovation between banks and fintechs. If effectively
5) Evidence and Market Outcomes implemented, these initiatives can significantly enhance
productivity and employment and also boost the export
The SBP’s data indicates:
potential of SMEs, allowing them to better compete in
• Outstanding SME financing: Rs. 490.96 billion regional and global markets, ensuring inclusive econom-
ic growth across Pakistan.
• SME share in private sector credit: 5.5%
(previously 5.2%) References
• Total SME borrowers: approximately 176,246 Dawn. (2024, August 25). Banks hesitant despite SME risk coverage scheme.
https://www.dawn.com/news/1851514
(up from 154,229)
Dawn. (2025, March 10). Non-performing loans rise in SME portfolio.
https://www.dawn.com/news/1930286
• Portfolio composition: Working capital Rs. 265
Global Trade Review. (2024, June 11). Pakistan regulators’ supply-chain finance edict
billion, fixed investment Rs. 198 billion, and a first step in USD 9 bn market. https://www.gtreview.com/news/asia/pakistan-
trade finance Rs. 26 billion regulators-supply-chain-finance-edict-a-first-step-in-us9bn-market
Small and Medium Enterprises Development Authority (SMEDA). (2023). SME policy
• Sectoral distribution: Trading 43%, review report 2023. Government of Pakistan.
State Bank of Pakistan (SBP). (2017). Credit Guarantee Scheme for Small and Rural
manufacturing 30%, services 27%
Enterprises [Circular SMEFD 01/2017]. https://www.sbp.org.pk/smefd/circulars/
2017/C1-Annex-Credit-Guarantee-Scheme.pdf
• Non-performing loans: 16.58% (down from
State Bank of Pakistan (SBP). (2021). Refinance Facility for Modernization of SMEs.
17.12% a year earlier) https://www.sbp.org.pk/smefd/circulars/2021/C3.htm
State Bank of Pakistan (SBP). (2022). SME Asaan Finance (SAAF) Scheme Guidelines.
Despite macroeconomic challenges, these figures https://www.sbp.org.pk/smefd/circulars/2022/C4.htm
suggest a gradual expansion in SME credit outreach State Bank of Pakistan (SBP). (2024a). Development Finance Statistics (June 2024).
and improved portfolio quality. The new risk-sharing https://www.sbp.org.pk/sme/PDF/DFG/2024/Jun.pdf
State Bank of Pakistan (SBP). (2024b). Risk Coverage Scheme for SMEs (2024–2029)
mechanism is expected to further enhance these
[Circular SMEFD 02/2024]. https://www.sbp.org.pk/smefd/circulars/2024/C2.htm
trends. State Bank of Pakistan (SBP). (2024c). Prudential Regulations for Small & Medium
Enterprises Financing (Updated 2024). https://www.sbp.org.pk/ zpublications/
6) Challenges and Path Forward prudential/SME-PRs-Updated.pdf
https://cc.gov.pk/assets/images/Downloads/assessment_studies/enhancing_the_ec
The policy is sound, but major implementation gaps onomic_efficiency_of_smes_in_pakistan.pdf
remain: State Bank of Pakistan (SBP). (2024d). Promotion of Digital Supply Chain Finance
(DSCF) [Circular SH&SFD 01/2024]. https://www.sbp.org.pk/smefd/
• High opportunity costs for banks, as risk-free circulars/2024/C1.htm
government securities often yield higher returns State Bank of Pakistan (SBP). (2024e). Challenge Fund for SME Banking – Call for
Proposals. https://www.sbp.org.pk/smefd/circulars/2024/C5.htm
at elevated rates
State Bank of Pakistan (SBP). (2024f). SME Finance Data (June 2024).
https://www.sbp.org.pk/sme/PDF/DFG/2024/Jun.pdf
• Banks must integrate DSCF platforms, which
The Express Tribune. (2024, August 18). SBP unveils risk-coverage scheme for SMEs.
involve significant technological investment https://tribune.com.pk/story/2484835
and require allocation of digital inclusion costs
About the Authors: Abbas Raza Varyala is a senior international
• Many SMEs lack the capacity or knowledge of trade, Islamic finance and compliance expert with over 20 years of
e-KYC and digital invoicing systems, impeding experience in trade finance, Islamic banking, regulatory compliance
onboarding and strategic leadership. He currently serves as Executive Vice
President at a top-tier commercial bank in Pakistan.
• Pakistan’s credit bureau data remains limited,
Maria Shahab is an educationist and teachers’ trainer at
making risk assessment difficult for small or Dastak Teachers Training powered by The Citizen Foundation
informal enterprises with expertise in quality management in higher education. She
is dedicated to empowering teachers, students and women
• Efficient processing of first-loss guarantee claims
through strategic capacity building and financial literacy
is essential to maintain bank confidence
initiatives in collaboration with financial institutions.
ICMA’s Chartered Management Accountant, Sep-Oct 2025 51