Ignoring the little guy.

It was barely a year ago when the ruling party and the State Bank (SBP) were exuberant about economic growth. Some were denying inflation by comparing fuel prices with California, while others were busy doing publicity stunts for their ambitious housing finance projects. It was an era of cheap money, well, the Pakistani version.

Unlike the west, our nominal interest rate was at seven per cent, not zero. But there was a way around that: refinancing schemes, a lot of them. From low-cost housing to the import of capital equipment, there was something for everyone. The smarter ones were quick to cash on them, be it in the form of a new plant or payroll support loan. Private sector credit activity heated up and grew by over Rs1.5 trillion between April 2020 (the beginning of monetary contraction after Covid-19) and December 2021.

But then, inflation eventually caught up to it, and the ruling administration (whichever one you pick) and the SBP had to cut down on their extravaganza. The ambitious Naya Pakistan Housing Scheme almost choked, and God knows what came of the other initiatives. The slowdown is now spilling over to small and medium enterprise financing, which already has a meagre share in overall credit.

The gross outstanding loans to the small and medium enterprises (SME) sector came in at Rs460.2 billion by September 2022, marking the third consecutive quarter of decline after peaking at Rs524bn in December 2021. However, it's still 5pc year-on-year. The more noticeable trend is the decrease in the number of borrowers, which fell to just 160,736 - the lowest since December 2015. However, this seems to predate our cyclical problems and has not yet neared its peak from March 2020.

The usual cyclicality in SME financing volumes aside, the sector's access to credit hasn't improved despite a number of regulatory measures, particularly from the SBP

Similarly, the share of SME financing in overall private sector credit slipped to 5.4pc - the lowest value since the SBP started publishing the data. For context, the sector accounts for almost 60pc of Pakistan's gross domestic product. As of September, domestic private banks accounted for Rs317.6bn, or 69pc, of all outstanding loans, while another 20pc came from public sector banks. On other hand, Islamic Banks - which despite a deposit base of Rs4tr - have an SME financing portfolio of only Rs35.5bn.

Sector-wise, the decline in SME...

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