The financial results for the third quarter have started pouring in, and for banks, it’s a bonanza with triple-digit bottom-line growth. However, what the numbers really represent is a broken economy where the sovereign can’t keep its house in order and financial institutions fail to do their job. And the biggest casualty of this collective incompetence is perhaps borne by the small and medium enterprises of the country.

We have heard this story countless times before: of how small and medium enterprises (SMEs) in Pakistan, despite making up 90 per cent of all businesses and employing 30pc of the labour force, are not realising their potential. The reason is simple: they lack access to credit because, you know, banks here don’t do any funny business. Unless, of course, you are a certain oil marketing company.

As of June end, the total outstanding SME financing through financial institutions stood at Rs457.1 billion. This is 5.7pc down compared to the same period last year and 4.6pc over the preceding quarter. Meanwhile, the number of borrowers reached 154,229 — the lowest since June 2015 levels.

Similarly, the share of SMEs in private sector credit — which itself is a big problem — fell to just 5.22pc by FY23. This is the worst since at least June 2015. Now, obviously, given the political and economic environment of the last year and a half, it’s not surprising to see a decline in numbers. But this is a far older problem, one we have barely done anything to solve.

Only 2.1pc of the firms in the country have a bank loan or line of credit, compared to 23.7pc in the region

According to the World Bank’s latest Enterprise Surveys, 40.9pc of the firms in Pakistan are fully, and another 15.2pc are partially credit constrained. This is considerably worse than the South Asian average of 17.1pc and 17.7pc, respectively. In most indicators, we lag behind. Sample this: only 2.1pc of the firms in the country had a bank loan or line of credit, compared to 23.7pc in the region.

Over the years, there have been multiple attempts to address this problem, and the regulator has talked about it more times than there are SME borrowers. But nothing seems to have come out of it. In its recent report, the Better than Cash Alliance produced a pretty telling tale: as of December 2021, total outstanding SME credit stood at Rs460bn, as against the Rs800bn target set by the National Financial Inclusion Strategy of 2015. As a share of overall private sector financing, we missed the goal of 17pc by only 11.6 percentage points.

More recently, when the then government and its cheerleaders were still selling the growth story, the regulator introduced SME Asaan Finance Scheme (SAAF). Under this programme, small businesses were to be given uncollateralised loans with capped pricing and the federal government guaranteeing part of the credit risk. As of June end, the total bank borrowings through this scheme stood at Rs7.8bn or only 0.44pc of the industry’s borrowings under all refinancing facilities.

The subsequent unravelling of macroeconomic indicators and the change in government unsurprisingly impacted the uptake of the SAAF scheme, which again is a recurring feature of every policy in the country. For SMEs, this is perhaps best exemplified by the name-shifting entrepreneurship initiatives by Pakistani prime ministers.

During his time, Imran Khan launched the much-hyped Kamyab Jawan Programme, under which 25,825 disbursements worth Rs41.1bn were made by March 2022. It continued until December of the same year, reaching figures of 29,990 and Rs51.9bn, respectively.

But it was apparently too difficult to digest for the successor as Shehbaz Sharif revamped and introduced the Prime Minister’s Youth Business and Agriculture Loan Scheme. It’s all in the name, actually. Under this initiative, 29,351 SME loans worth Rs14.9bn were disbursed in April-June.

Now, both the contenders are gone and may not be back again for the top role, albeit for entirely different reasons. And with that, the loan schemes will fizzle out, only to be replaced by the next guy with a new nomenclature. What will remain constant is the serious lack of financing that Pakistani SMEs can access while a far more incompetent sovereign continues to scoop all the possible loans.

Don’t worry though, the regulator may launch a new policy document and the bankers will certainly try to score a few brownie points at conferences talking about the lopsided state of credit. It will be business as usual, where everyone walks away with something, except for the SMEs.

Published in Dawn, The Business and Finance Weekly, October 23rd, 2023