SMEs: priority on paper

Pakistan cannot achieve broad-based growth through large businesses, mega-projects, and periodic credit announcements alone.

Small enterprises and small farmers remain central to employment, exports and rural prosperity, yet decades of policy declarations have produced disappointingly little structural progress. The problem is no longer a lack of official recognition; it is the failure to translate that recognition into institutional capacity, accessible finance and sustained economic opportunity.

The renewed attention of the Prime Minister, the Finance Minister and the Governor of the State Bank of Pakistan to finance small and medium enterprises (SMEs) and small farmers is welcome. Yet the more pertinent question is why these sectors, repeatedly declared national priorities, remain peripheral to Pakistan’s economic transformation.

Finance Minister Muhammad Aurangzeb recently chaired the sixth meeting of the ‘Access to Finance Steering Committee’ to review progress in expanding affordable and inclusive financing across priority sectors, including SMEs and agriculture. The State Bank has also introduced a financing framework for small enterprises and small farmers under wholesale and agency arrangements, supported by the government’s ‘Risk Coverage Facility’. Meanwhile, there is occasional investment interest in the agricultural sector by foreign investors. Recently, a US business delegation to Lahore is reported to have explored investment and partnership opportunities in Punjab’s agriculture and livestock sectors.

These initiatives may offer opportunities. But announcements, meetings, and financing frameworks should not be mistaken for economic outcomes. Pakistan has a long history of recognising the importance of smaller businesses and farmers without building the ecosystem required to enable them to grow.

The missing link is the implementation and sincerity of the government to make things happen for small businesses.

Small businesses face a familiar combination of obstacles: limited access to affordable credit, inadequate collateral, complicated documentation, high compliance costs, uncertain taxation and weak access to technology and markets.

For many, formal borrowing remains prohibitively difficult. Banks, operating within their own risk and compliance constraints, tend to favour established borrowers with documented cash flows and acceptable security.

The very enterprises that need financing most are consequently the least equipped to obtain it.

Risk-sharing facilities can help correct this imbalance, but only if they result in additional lending rather than merely protecting financial institutions against losses.

Wholesale financing and agency arrangements may extend the reach of participating institutions, particularly in underserved areas. Their effectiveness, however, must be judged by the number of viable enterprises and farmers financed, the affordability of credit, repayment performance and the economic activity generated.

The same distinction applies to agriculture. Small farmers are not simply borrowers requiring seasonal loans. They need reliable access to quality seeds, fertilisers, modern machinery, water-efficient technologies, storage, processing facilities and competitive markets. Without these complementary services, credit may finance another production cycle without materially improving productivity or incomes.

The government’s challenge is therefore to move beyond the narrow definition of agricultural finance as the disbursement of loans. Financing must support a transition from low-productivity subsistence farming towards commercially viable, technology-enabled agriculture. Livestock, dairy, horticulture, and food processing offer substantial opportunities for rural employment and value addition, provided farmers can participate in organised supply chains.

The proposed engagement with foreign investors could contribute investment, expertise, and market access. But foreign investors will not transform the sector through meetings alone. Investment requires predictable policies, commercially viable projects, transparent regulations and dependable infrastructure.

Equally important, partnerships must connect local farmers and smaller enterprises with technology, processing capacity and export markets rather than confining benefits to a few large investors.

Perhaps the most glaring institutional failure is the limited effectiveness of the Small and Medium Enterprises Development Authority (SMEDA). Established to promote entrepreneurship and develop the SME sector, it should be a central instrument of industrial policy. Yet it has not emerged as the dynamic, adequately empowered institution capable of transforming the country’s small-business landscape.

SMEDA should be helping enterprises formalise, improve productivity, adopt technology, access finance, develop export capabilities and integrate into domestic and international supply chains. It should also identify sector-specific opportunities and work with provincial governments, banks, industry associations and educational institutions to address practical business constraints.

Instead, the sector continues to depend heavily on fragmented initiatives without a sufficiently visible, sustained and measurable national development effort.

The consequences extend far beyond individual businesses. SMEs can diversify exports, generate employment, encourage entrepreneurship and reduce economic concentration. Small farmers can strengthen food security, raise rural incomes and supply domestic industry with agricultural raw materials. Their development would broaden the tax base organically, reduce dependence on a narrow group of established taxpayers and distribute the gains of economic growth more widely.

Pakistan does not lack policy documents, committees, or declarations of intent. It lacks the institutional continuity, execution discipline and accountability required to convert them into results.

The government must establish measurable targets for SME financing, productivity, formalisation, employment and exports, alongside improvements in farmers’ incomes and agricultural yields.

Small enterprises and small farmers cannot remain a priority in speeches while being an afterthought in economic policy. Pakistan’s economic revival will remain narrow and fragile until those who produce, employ and create value at the grassroots become central to its development strategy. The test of the government’s renewed attention is not how often it announces support, but whether it finally delivers growth.

Copyright Business Recorder, 2026