Pakistan, June 13 — In an era where artificial intelligence predicts consumer behaviour and fintech platforms disburse loans in minutes based on digital footprints, Pakistan’s banking sector remains stubbornly trapped in the past. While economies across the world evolve rapidly toward service-led growth models, our financial institutions continue to measure creditworthiness by the square footage of land a borrower owns. The result is a gaping mismatch between capital demand and financial support-particularly for inventory-intensive, asset-light businesses that define today’s entrepreneurial economy. If left unaddressed, this rigid thinking will not only stall economic progress but actively punish the very sectors that are driving innovation and employment.
Pakistan’s service sector contributes over 58% to the GDP, yet access to finance for service-based entities remains disproportionately low. The conventional banking approach in the country still privileges borrowers with land titles, plant and machinery, or immovable property-tangible assets that can be easily mortgaged. But the reality of modern business is different. Many firms, especially in sectors such as retail distribution, agriculture inputs, logistics, and e-commerce, operate with lean balance sheets, leased properties, and rapid inventory cycles. These are legitimate, fast-growing, and high-potential businesses-yet they are systematically denied financing because they lack traditional collateral. What they do have, however, is valuable inventory, receivables, bonded stock, and data-assets that the rest of the world has already learned to monetize.
Globally, banks and regulators have adapted to this shift. In the United States, for example, the Uniform Commercial Code (UCC) has long allowed borrowers to use inventory and receivables as loan collateral. Lenders rely on warehouse inspection reports, real-time inventory management systems, and third-party verifications to reduce lending risk. In Singapore, banks actively extend credit against trade flows and bonded stock, while fintech solutions integrate supply chain monitoring with automated credit approvals. India’s Warehouse Development and Regulatory Authority (WDRA) has institutionalized warehouse receipt financing, allowing farmers and distributors to obtain loans against agricultural produce stored in accredited warehouses. Even in Kenya, digital platforms like M-Kopa have transformed credit scoring by analyzing inventory movement and customer payment patterns instead of requiring hard collateral.
By contrast, Pakistan’s banking sector remains deeply reluctant to engage in such modern practices. Even when businesses are willing to pledge inventory stored in bonded warehouses, with full documentation, insurance, and traceability mechanisms, commercial banks often refuse to extend working capital lines. The argument typically hinges on perceived risk-“inventory can disappear” or “warehouses are hard to monitor.” However, these arguments reflect more about the institutional laziness of the lenders than the actual risk profile of the borrower. With GPS-enabled tracking, RFID tagging, real-time warehouse monitoring, and inventory insurance widely available, the tools to manage and mitigate such risks already exist. The failure is not technological-it is attitudinal.
Banks in Pakistan have built a comfort zone around lending to asset-rich industrialists and government-backed projects. This narrow credit appetite is not only unfair but economically harmful. It locks out thousands of growing businesses that need flexible, cash-flow-linked financing to scale. It also reinforces income inequality, favouring established wealth holders over first-generation entrepreneurs. The same banker who eagerly lends against a depreciating urban plot will reject a company holding millions worth of inventory in a bonded facility, simply because it cannot produce a property deed. This rigid approach does not align with the realities of the 21st-century economy and is grossly inadequate for a country seeking inclusive growth.
The State Bank of Pakistan (SBP) has taken commendable steps in recent years to support SMEs and agricultural borrowers, including introducing the Electronic Warehouse Receipt Financing (e-WRF) platform for small farmers. However its application remains narrowly focused, and the coverage is too limited to make a meaningful impact. What is required now is a bold regulatory push-a complete recalibration of how the system defines acceptable collateral. Pakistan must urgently broaden its acceptable security frameworks to include movable assets such as inventory, warehouse receipts, digital invoices, and verified receivables.
One way forward is to institutionalize a national-level Warehouse Receipt System (WRS) that covers both agricultural and non-agricultural goods. Under this system, any registered and certified warehouse-bonded or otherwise-should be allowed to issue receipts that are tradable and bankable. The warehouse operators can be licensed and regulated, and the inventory insured. These receipts can then become the basis for structured financing, with banks assured of third-party verification and traceable asset movement. This model has worked in India, Indonesia, Brazil, and parts of Africa. There is no reason why Pakistan, with its growing warehousing and logistics sector, cannot adopt a similar system.
Another critical reform is to adopt cash-flow-based lending mechanisms. Banks should be encouraged to assess businesses based on their turnover trends, customer cycles, and repayment behaviour. With access to GST filings, POS data, and digital payment trails, lenders can build far more accurate borrower profiles than a land registry ever could. This approach is particularly relevant for urban retailers, distributors, and service providers who maintain high inventory turnover but little fixed asset base. Algorithms and AI-backed credit scoring can do in seconds what traditional credit officers fail to deliver in months: assess real-time repayment capacity.
To incentivize banks, the central bank can create partial credit guarantee facilities for loans extended against bonded inventory or verified receivables. Similar to how export refinance and agriculture lending is supported, the SBP can offer shared-risk models to commercial banks, reducing their exposure while encouraging them to engage new borrowers. Targeted credit lines, tax incentives, and sector-specific benchmarks for service-sector SME financing can further push the industry in the right direction.
Importantly, the regulatory and policy ecosystem must also recognize that innovation cannot flourish in a vacuum. Fintechs and private credit platforms should be formally integrated into the financing ecosystem, with clear guidelines for digital lending, data sharing, and grievance redressal. In advanced economies, alternate lenders now play a vital role in financing segments traditionally ignored by commercial banks. Pakistan has the opportunity to enable this third force-particularly for tech-enabled inventory management firms, supply chain integrators, and digitally traceable logistics platforms.
This is not just a financial issue-it is a national competitiveness issue. When banks refuse to fund fast-moving consumer distribution, agri-input suppliers, or digital inventory hubs, they are not just harming individual businesses-they are stifling job creation, delaying innovation, and weakening supply chains. The ripple effects are enormous: less growth, fewer tax-paying enterprises, more informal borrowing, and a continued dominance of rent-seeking industrial elites over agile, productive businesses.
Policymakers must acknowledge that our current system is punishing the very entrepreneurs we need to uplift. If a business can demonstrate operational visibility, transactional history, customer base, and robust inventory control, it should not have to beg for capital simply because it does not own a plot of land. The assumption that only bricks and concrete can secure loans is not just outdated-it is economically dangerous. In the age of digital value chains, it is intellectual property, data, customer networks, and operational efficiency that drive enterprise value-not static assets.
Pakistan’s ambition to become an innovation-driven, export-oriented, and youth-led economy depends on breaking these legacy mindsets. The central bank has the tools, the data, and the authority to lead this shift. What it needs is resolve. Commercial banks have the capital, the technology, and the platforms to finance modern businesses. What they need is vision. And entrepreneurs have the drive, the ideas, and the market hunger to grow. What they need is a level playing field. In a world where drones monitor farms and algorithms optimize delivery routes, it is unacceptable that the only collateral Pakistan’s banks recognize is concrete and title deeds. If we are serious about progress, our financial institutions must look beyond the past and start lending to the future. This is not charity-it is smart economics. And it’s long overdue.
