It is often suggested that Pakistan’s credit problem is a policy oversight, a bug in the system; a legacy issue. Anything but, what it actually is: the intended outcome of a financial architecture built to say no.

Across Pakistan, small businesses without land, or a name that do not already signal comfort to lenders, are routinely excluded from formal credit channels. Not because they are unviable, but because they are invisible. Pakistan’s credit market is not broken; it is functioning exactly as designed. Risk averse, asset-obsessed, and allergic to novelty.

Consider the numbers most often overlooked: Small and Medium Enterprises (SMEs) account for roughly 40 percent of the GDP and 78 percent of non-agricultural employment in Pakistan. Yet they receive less than 7 percent of private sector credit. The unmet credit demand for SMEs is estimated at over Rs 1.7 trillion.

This is not merely a gap. It is deliberate exclusion, crafted under rules that reward financial institutions to avoid complexity; and guarded by a regulatory framework that penalizes risk-taking more than complacency.

Within Pakistan’s banking system, collateral has become the entire underwriting process. SMEs are not assessed on cash flow or operational viability. They are judged on their ability to mortgage a building. This makes sense only if you believe that every growth enterprise starts with inherited property. Banks finance land, not commercial viability. Ironically, many of these small enterprises are profitable, with better margins than large corporates. But good ideas, strong margins, and resilient cash cycles do not weigh much in a credit committee meeting if the borrower lacks fixed assets or a recognizable name that banks already trust, regardless of the business’s fundamentals or cash flows.

And; then there is refinance, the usual policy analgesic for credit policy headaches.

In the past, whenever........

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