Pakistan Faces Credit Access Gap as Millions Remain Outside Formal Lending System: Report

Millions of Pakistanis remain outside the formal credit system despite demand for financing from small businesses, farmers, gig workers and low-income households, highlighting an access gap that technology and digital lending could help bridge, according to a report. According to a report by The News Pakistan, formal credit penetration among small and medium-sized enterprises in Pakistan is estimated at around 5 per cent, significantly below levels in several regional and emerging markets.

It further noted that limited access to financing constrains the ability of micro, small and medium-sized enterprises (MSMEs) and underserved borrowers to expand businesses, create jobs and increase their contribution to the economy. Traditional lending models often require extensive documentation, collateral, established banking histories and physical visits to branches. For borrowers in remote areas, these requirements, coupled with limited financial awareness, can make formal credit difficult to access, the report said.

Technology-driven lending models are increasingly being seen as a way to address some of these barriers. Industry reports suggest artificial intelligence-based lending tools can reduce operational costs by 20-70 per cent in targeted areas and lower default rates by up to 30 per cent, it said. Digital lenders can use transaction histories and other alternative data to assess borrowers who may lack conventional credit histories. Such data can provide insights into income, cash flows and repayment capacity, potentially allowing financial institutions to offer faster and more tailored financing. For instance, Pakistan-based easypaisa Digital Bank uses digital transaction data through products including easyCash and Merchant Cash Loans to extend financing to individuals and small businesses, particularly those with limited access to traditional banking.

However, the broader expansion of digital credit will require stronger digital infrastructure, financial literacy, consumer protection and data governance, alongside collaboration between regulators, banks, fintech companies and telecommunications providers. The shift towards alternative-data-based lending also needs to be accompanied by robust risk management and explainable credit models to ensure that greater access does not come at the expense of responsible lending.

For Pakistan, the challenge is therefore increasingly being framed not simply as creating more credit, but ensuring that viable borrowers can access formal financing quickly, securely and responsibly, according to the report. Wider access to payments, savings, insurance and credit could strengthen financial resilience while supporting entrepreneurship and economic activity, particularly among currently underserved segments of the population, it said.

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