SME Lending Jumps 33% to Rs943 Billion as Banks Open Up to Small Businesses
Bank lending to small and medium enterprises in Pakistan climbed 33 per cent year-on-year to Rs943 billion by June 2026, according to State Bank of Pakistan data compiled by Arif Habib Limited, marking one of the strongest credit expansions the sector has seen in recent years.
The 33 per cent jump in SME lending well outpaced overall bank lending, which grew 14 per cent over the same period, suggesting banks are finally opening their books to smaller borrowers after years of caution.
SME lending Pakistan on track for Rs1.5tr target
The brokerage said the growth keeps the country on course for the State Bank’s target of expanding SME financing to Rs1.5 trillion by June 2027. Prime Minister Shehbaz Sharif had earlier this year pressed banks to speed up lending to smaller firms to support exports and job creation.
The numbers point to a steady thaw in a market where small businesses have long complained that banks lend mostly to the government and large corporations. For a sector that contributes heavily to employment, easier credit could translate into more hiring and higher output.
Bad loan ratio improves sharply
The quality of SME loans has improved alongside the volume. The infection ratio, the share of non-performing loans in total SME lending, dropped to 11.7 per cent in the April-June 2026 quarter from a peak of 23 per cent in the July-September 2024 quarter.
Arif Habib noted that total SME bad loans have stayed within a band of Rs80 billion to Rs125 billion, so the ratio improved partly because overall lending grew faster than defaults. The brokerage cautioned, however, that bad loans could rise in coming quarters as recently issued loans mature and their true credit quality becomes clear.
The Securities and Exchange Commission of Pakistan also proposed last month to raise the ceiling on micro and small business loans, which would let lenders write bigger tickets to small borrowers.
Newer figures show the momentum continuing
The finance ministry’s own numbers suggest the pace has held up since June. At its fifth meeting earlier this month, the Access to Finance Steering Committee chaired by Finance Minister Muhammad Aurangzeb was told that outstanding SME finance had risen by Rs23 billion to more than Rs1.137 trillion by the end of September 2026, with the number of borrowers climbing by over 25,000 to about 350,862.
The committee set its sights higher still: Rs1.5 trillion in SME financing and 565,000 borrowers by June 2027, and Rs2 trillion with 775,000 borrowers by June 2028. Aurangzeb directed banks, microfinance institutions and SMEDA to align their work so that financing actually reaches the businesses that need it.
FAQ
How much did SME lending grow in Pakistan?
SME lending rose 33 per cent year-on-year to Rs943 billion by June 2026, based on State Bank data compiled by Arif Habib Limited. Overall bank lending grew 14 per cent in the same period.
What is the State Bank’s SME financing target?
The State Bank aims to expand SME financing to Rs1.5 trillion by June 2027. The finance ministry’s committee has set a further goal of Rs2 trillion and 775,000 borrowers by June 2028.
Are bad loans in SME lending rising?
The SME infection ratio fell to 11.7 per cent in the April-June 2026 quarter from 23 per cent in late 2024. Total SME bad loans have stayed between Rs80 billion and Rs125 billion, though the brokerage warns defaults could pick up as new loans mature.
How many SME borrowers are there in Pakistan?
By end-September 2026, about 350,862 businesses had SME loans, up by more than 25,000 borrowers in a single quarter.
