But this was not driven by the manufacturing sector at all, which remained weak in the long-term financing category as well. Evidently, the manufacturing contraction setting in due to the shrinking demand for most consumptions goods, and particularly luxury products—such as cars and home appliances—reduced industries’ demand for credit. There is an evident shift in strategy here though. Last year when the economy had just started to cool down, demand was low, inventories were building up and cost-push inflation was causing liquidity concerns for many manufacturers. This led to great working capital borrowing. However, this came at an added cost at a time when interest rates were high—as per the SBP report, average lending rate rose from 8.4 percent in Sep-18 to 13.6 percent in Sep-19.

This propelled a call for a change in strategy against further leveraging the balance sheets. Hence, an evident reduction in working capital loans ensued, which shows in the final numbers (see table). Quantitatively, banks received a reduced number of loan application— 6.5 percent lower than the period last year. Though this is not to say that the cash flow constraints are gone. Amongst sectors where liquidity concerns were grave—including steel and automobiles—short-term loan offtake grew.

The fixed investment borrowing was positive mainly due to long term loans taken out by transmission and distribution companies in the power sector and borrowing by the telecom companies to pay for the renewal of their GSM licenses. Within manufacturing, long term loans remained rare and limited to a handful of sector. Textile dominated the borrowing share. As part of the SBP’s subsidised long term financing facility (LTFF), the sector increased borrowing to purchase imported machinery. The sector is well-positioned in the exports market particularly in the EU where it enjoys concessionary treatment. Other manufacturing sectors however remained out of action.

Arguably, this is a tough time for businesses. And given the economic environment and high costs associated to borrowing, evidently not the right time for financial inclusion either.