Syed Jaffar Abbas Shirazi, Head of NEOBiz, Mashreq Pakistan
Small to medium enterprises (SMEs) in Pakistan, despite generating almost half of the country’s GDP and employing millions, often find themselves constrained by legacy financial systems. An integrated, trust-driven digital ecosystem that incentivizes businesses to formalize is what the country needs today to expand its financial landscape and drive financial inclusion for the benefit of its people and economy.
Despite rapid digital transformation, cash remains king in SME finance. Pakistan’s SMEs generate 40% of the GDP and 25% of overall exports, while contributing to 78% of non-agriculture sector employment, yet they often struggle to gain access to the formal financial system, including credit and scale operations. The State Bank of Pakistan (SBP) is taking steps to address this issue, launching multiple financial inclusion programs. Despite this, cash transactions dominate. As per the latest SBP report, 85% of retail transactions in Pakistan are still conducted over-the-counter (OTC), with only 15% occurring through digital channels, a statistic that suggests friction in adoption rather than a lack of intent. Many small businesses driving our economy still operate on legacy systems, unable to leverage the modern financial tools that could fuel their expansion, reflecting an opportunity to align policy interventions with market realities.
The opportunity to improve extends beyond digital payments. SMEs form the backbone of economies worldwide, accounting for more than 95% of registered firms. They provide over half of global employment and contribute at least 35% of GDP in many emerging markets. Yet in Pakistan, as with elsewhere across the globe, they remain financially underserved. As of December 31, 2023, SME financing stood at PKR 543 billion, covering 175,000 borrowers, with the SBP aiming to double this portfolio to PKR 1,100 billion by 2029. However, financing alone cannot solve the underlying issue; credit extension requires robust digital payment footprints, something most SMEs currently lack due to their informal operations. Digital payments hold the answer to this, offering SMEs an entry point into formal financial systems, improving creditworthiness, and driving sustainable expansion.
The rapid adoption of digital transactions – which eliminate inefficiencies, enhance transparency, and reduce operational costs while making businesses more creditworthy and financially resilient – presents an unprecedented opportunity for SMEs to break free from cash dependence. In FY24, Pakistan recorded a total of PKR 96 trillion in digital payment transactions across various channels, including mobile apps, internet banking, and ATMs. Retail payments overall reached PKR 547 trillion, marking a 35% increase from the previous year. Digital retail transactions alone saw significant growth in volume, driven largely by mobile and internet banking platforms, reflecting growing consumer confidence in digital finance.
Encouragingly, the Person-to-Merchant (P2M) digital payments space is emerging as a critical opportunity. The SBP’s launch of Raast P2M in December 2023 marks a critical step forward. Merchant onboarding for Raast P2M has progressed rapidly, with over 700,000 merchants onboarded and 0.9 million transactions processed, amounting to PKR 2.9 billion in just one quarter. Raast’s user-friendly and efficient infrastructure is expected to drive phenomenal growth in P2M adoption, further reinforcing the case for SME digital transformation.
SMEs cannot make the shift to financial digitalization alone. Financial institutions, particularly digital-first banks, must lead the way by offering seamless and accessible solutions. And infrastructure in isolation is not enough; the key challenge is a behavioral shift, and forSMEs to have confidence that digital banking is secure, cost-effective, and tailored to their needs. Regulatory support plays a crucial role here. The SBP’s efforts to strengthen the digital payments framework are commendable, and we must support these efforts with sector-specific interventions, such as tiered transaction fee reductions, risk-sharing mechanisms for digital credit underwriting, and merchant onboarding programs.
Digitizing SME finance in Pakistan requires more than just infrastructure, it calls for a fundamental shift in how small businesses are supported, financed, and empowered to grow. The goal is not simply to move away from cash, but to build a system where entrepreneurs can access credit, formalize operations, and thrive within a trusted financial ecosystem. At Mashreq, this vision is already underway. Through our digital-first NEOBiz platform, we are designing SME banking from the ground up—simpler, smarter, and more inclusive. By combining advanced technology with local insight and working closely with regulators, we are removing friction from finance and enabling small businesses to play their rightful role in driving Pakistan’s economic future.
