Millions of Pakistanis remain locked out of the formal credit system despite significant financing demand from small businesses, farmers, gig workers, and low-income households, according to a new report. The findings underscore a structural access gap that digital and technology-driven lending models are increasingly being positioned to address.

The Scale of the Credit Gap

Formal credit penetration among small and medium-sized enterprises (SMEs) in Pakistan stands at an estimated 5%, according to the report — a figure significantly below comparable levels across several regional and emerging markets. For micro, small and medium-sized enterprises (MSMEs) and underserved borrowers, restricted financing access directly curtails their ability to scale operations, generate employment, and contribute more meaningfully to the broader economy.

Traditional lending models remain a core part of the problem. They typically demand extensive documentation, collateral, established banking histories, and in-person branch visits. For borrowers in remote or rural areas, these requirements — compounded by limited financial literacy — place formal credit effectively out of reach.

How Digital Lending Could Bridge the Gap

Technology-driven lending models are attracting growing attention as a potential solution. Industry data cited in the report suggests that artificial intelligence (AI)-based lending tools can reduce operational costs by 20–70% in targeted areas and lower default rates by as much as 30%. Digital lenders can draw on transaction histories and alternative data sources to assess creditworthiness for borrowers who lack conventional credit profiles, offering insights into income patterns, cash flows, and repayment capacity.

One example cited is Pakistan-based easypaisa Digital Bank, which leverages digital transaction data through products including easyCash and Merchant Cash Loans to extend financing to individuals and small businesses — particularly those with limited access to traditional banking infrastructure.

The Conditions for Responsible Expansion

Despite the promise of digital credit, the report cautions that wider expansion will require simultaneous investment in digital infrastructure, financial literacy programmes, consumer protection mechanisms, and robust data governance frameworks. Effective collaboration among regulators, banks, fintech companies, and telecommunications providers is identified as essential.

Notably, the shift toward alternative-data-based credit assessments must also be accompanied by rigorous risk management and explainable credit models — ensuring that broader access does not come at the cost of responsible lending practices.

The Broader Opportunity

The report frames Pakistan's challenge as one of quality, not just quantity: the priority is ensuring that viable borrowers can access formal financing quickly, securely, and responsibly. Wider access to payments, savings, insurance, and credit, it argues, could strengthen financial resilience and support entrepreneurship — particularly among currently underserved segments. As digital infrastructure matures and regulatory frameworks evolve, the pace at which Pakistan closes this credit gap will be closely watched by regional development institutions and fintech investors alike.