Pakistan’s microfinance banking sector showed signs of recovery in 2025, with losses declining sharply after several years of financial stress.
According to the State Bank of Pakistan (SBP) in its Financial Stability Review, the sector’s pre-tax loss narrowed to Rs 2 billion in 2025, compared to Rs 25 billion in 2024.
Profitability indicators also improved. The sector’s return on assets (ROA) improved to -0.2 percent in 2025, from -1.9 percent a year earlier, while return on equity (ROE) strengthened to -8.2 percent, compared to -49.6 percent in 2024.
Operational performance showed similar improvement, with Operational Self Sufficiency (OSS) rising to 84.7 percent, up from 75.2 percent last year. Administrative expenses also declined by 8.5 percent, marking the first reduction after years of continuous growth.
The SBP noted that the sector has faced prolonged pressure over the past several years due to the impact of COVID-19, weak borrower repayment capacity, and climate-related disruptions such as heavy rains and flooding, all of which affected loan recoveries.
Despite these challenges, the number of borrowers in the sector increased to 8.3 million by end-2025, reflecting continued expansion in financial inclusion. The sector recorded a CAGR of 20.6 percent between 2015 and 2024.
Financial Stress Still Persists
While performance improved, risks remain elevated. The infection ratio slightly declined to 9.1 percent in 2025 from 9.7 percent in 2024, indicating marginal improvement in asset quality. However, non-performing loans rose to Rs 48 billion, compared to Rs 44 billion a year earlier.
The SBP explained that the infection ratio improved mainly because total lending grew faster than bad loans, with gross advances increasing by 15.5 percent during the year.
A notable structural shift was also observed as microfinance banks increasingly moved toward secured lending. The secured portfolio rose to Rs 244 billion in 2025, up from Rs 188 billion in 2024, largely driven by growth in gold-backed financing.
Provisioning coverage improved significantly as well, rising to 138.1 percent in 2025, compared to 95.2 percent in the previous year, while total provisions increased from Rs 42 billion to Rs 67 billion.
