Pakistani banks increased lending to small and medium-sized enterprises (SMEs) by 33 percent year-on-year to Rs. 943 billion by June 2026, according to State Bank of Pakistan data compiled by Arif Habib Limited (AHL).

The growth was more than double the 14 percent increase in overall bank lending during the same period, indicating a faster expansion in financing for smaller businesses.

SME Loans on Track to Reach Rs. 1.5 Trillion

AHL said the increase puts SME financing broadly on course to meet the State Bank of Pakistan’s target of raising loans to the sector to Rs. 1.5 trillion by June 2027.

Earlier this year, Prime Minister Shehbaz Sharif called for faster lending to small businesses to help boost exports.

Fewer SME Loans Are Turning Bad

The share of SME loans classified as non-performing loans, commonly called the infection ratio, fell to 11.7 percent in the April-June 2026 quarter. It had reached a peak of 23 percent in the July-September 2024 quarter.

According to AHL, the improvement partly reflects the expansion in total SME lending, while the value of non-performing loans has remained between Rs. 80 billion and Rs. 125 billion.

However, the brokerage cautioned that bad loans could increase as recently issued loans mature and banks gain a clearer picture of borrowers’ ability to repay.

Last month, the Securities and Exchange Commission of Pakistan (SECP) proposed increasing the financing limit for micro and small businesses to Rs. 5 million.