In Pakistan, businesses grow despite the government, not through its support. According to the World Bank, only six per cent of businesses in Pakistan use banks to finance investments, compared to a whopping 56pc in India. Even in Bangladesh, the percentage is more than double ours.
In Pakistan, nine out of 10 enterprises are classified as micro, small or medium enterprises and employ roughly 80pc of the non-agricultural workforce. Here, the average household size is 6.4 people per home.
Imagine a typical lower-middle-income family. Their livelihood is the small corner shop that sells little more than bread, eggs and candies that can still be bought with coins. The father would like to expand his offerings.
An extended line of credit from his suppliers may allow him to stock a few Shan masala sachets and sufi soap. But if he dares dream of selling ice cream, he better have a working fridge and electricity to power it.
Suppose he gets a branded fridge, courtesy of the now boycotted soft drink companies, but needs space to keep it. He has no surplus cash lying around to buy floor space next door, whereas rent would cut into his meagre earnings.
Friends and family tend to be in similar social circles and thus constrained for finances as well. An informal money lender may charge an interest rate in triple digits. Regardless of his small dreams of expansion, his means of raising revenue are limited.
The children inherit the problems of the father. When his sons grow, they will start sitting in the shop but eventually outgrow it because the father never had the funds to expand. Eventually, they will start looking for jobs in a market that has over five million unemployed.
When small dreams remain unfulfilled, it is the next generation that suffers. The millions of entrepreneurs across the country who run micro-businesses in the informal sector are unable to pass on the gains to the rapidly rising population.
If one goes through recent financial results, several banks boast of record numbers despite the monetary policy rate being at an all-time high, squeezing demand for credit. And why should a bank give a loan to expand the neighbourhood kiryana store when it is so much easier to lend to the government?
Published in Dawn, The Business and Finance Weekly, February 12th, 2024