FINANCING FOR LOW- & MIDDLE-INCOME GROUP IN PAKISTAN

Introduction

Financing for low-middle-income group in Pakistan has become a central issue in the country’s economic development agenda. A large portion of the population falls into this income bracket, yet access to formal financial services remains limited. This segment includes small traders, daily wage laborers, home-based entrepreneurs, and rural households who often face multiple barriers when trying to secure credit, savings, or insurance products. Improving financing for low-middle-income group in Pakistan is essential not only for poverty alleviation but also for inclusive growth and national economic resilience.

Defining the Low-Middle-Income Segment in Pakistan

The low-middle-income group in Pakistan generally consists of individuals earning between PKR 30,000 to PKR 100,000 per month (approximately USD 150–500). While they are not classified as extremely poor, these individuals often live paycheck to paycheck, unable to afford unexpected expenses or invest in their future. Many works in informal sectors—agriculture, retail, construction, or domestic help—without access to stable incomes or social security benefits.

Financing for low-middle-income group in Pakistan must take into account the unique challenges faced by this population. Traditional banks often consider them high-risk borrowers due to lack of collateral, inconsistent income documentation, and absence from formal credit systems. As a result, many rely on informal lenders who charge exorbitant interest rates, pushing families deeper into debt.

Barriers Hindering Access to Financial Services

Despite ongoing efforts to promote financial inclusion, several systemic issues continue to limit financing for low-middle-income group in Pakistan:

1. Lack of Formal Documentation

Many individuals in this income bracket do not have CNICs (Computerized National Identity Cards), property papers, or bank statements—all of which are required to open accounts or apply for loans.

2. Poor Financial Literacy

There is a widespread lack of understanding about banking terminology, loan mechanisms, interest rates, and repayment structures. This knowledge gap discourages potential users from engaging with formal financial institutions.

3. Limited Credit Infrastructure

Pakistan lacks a robust alternative credit scoring system that can assess informal-sector workers based on mobile usage, utility payments, or rental agreements. Without such data, traditional banks remain reluctant to extend credit.

4. Geographic Disparities

Most branches of commercial banks are located in urban centers, leaving rural populations underserved. Even where infrastructure exists, the process of availing services is often perceived as complex and intimidating.

5. Distrust in Formal Institutions

Due to historical experiences or cultural beliefs, many in the low-middle-income group view banks as institutions meant for the wealthy or those with political connections.

These factors collectively contribute to persistent exclusion from the formal financial ecosystem and hinder progress in expanding financing for low-middle-income group in Pakistan.

Microfinance: Bridging the Gap

Microfinance institutions (MFIs) have played a crucial role in delivering financing for low-middle-income group in Pakistan. Organizations like Khushali Bank, Kashf Foundation, and Tameer Microfinance Bank have successfully reached millions of clients through innovative lending models.

Group lending methodologies, minimal documentation requirements, and doorstep service delivery have made microfinance more accessible to this demographic. These institutions often combine credit disbursement with financial education and capacity-building programs, ensuring that recipients are better equipped to manage their finances.

However, while microfinance has been impactful, it also faces limitations. Operational costs are high due to frequent field visits, and repayment cycles must be carefully managed to avoid over-indebtedness. Moreover, the sustainability of MFIs depends heavily on donor funding and regulatory support.

Digital Finance: Opening New Pathways

One of the most transformative developments in recent years has been the rise of digital finance. Mobile money platforms like Jazz Cash and Easypaisa have expanded the reach of financial services to millions of previously unbanked individuals. These platforms allow users to send money, pay bills, save digitally, and even access microloans via mobile phones.

Digital lending apps are now using alternative data sources—such as call records, app usage patterns, and transaction history—to assess creditworthiness. This has enabled the extension of financing for low-middle-income group in Pakistan without requiring traditional collateral or formal employment proof.

Still, there are obstacles:

• Low smartphone penetration in rural areas
• Limited digital literacy
• Security concerns around online transactions
• Regulatory ambiguity

To fully leverage digital tools for financing for low-middle-income group in Pakistan, there needs to be greater investment in digital infrastructure, consumer protection laws, and localized fintech solutions.

Government Policies and Programs Supporting Inclusion

Recognizing the importance of financial inclusion, the Government of Pakistan has implemented several initiatives aimed at improving access to financing for low-middle-income group in Pakistan.

The National Financial Inclusion Strategy (NFIS) launched in 2018 set ambitious targets to bring 50% of the adult population into the formal financial system by 2023. Programs like Kamyab Pakistan, Bank on Women, and Ehsaas Emergency Cash Program during the pandemic provided critical financial support to vulnerable groups.

Additionally, the State Bank of Pakistan (SBP) introduced policies promoting agent banking and mobile wallets. It also encouraged banks to offer “no-frills” accounts with zero balance requirements, making it easier for people to open formal bank accounts.

These government-led initiatives have laid a strong foundation for improving financing for low-middle-income group in Pakistan, but sustained policy commitment and targeted implementation are needed to achieve long-term success.

Private Sector Initiatives and Innovations

Private banks and fintech startups are increasingly recognizing the untapped market potential in the low-middle-income group. By designing affordable and user-friendly products, they can serve a growing customer base while contributing to financial inclusion.

Several banks have launched basic savings accounts, short-term insurance schemes, and micro-insurance products tailored to lower-income clients. Some have partnered with telecom operators and e-commerce platforms to integrate financial services into everyday transactions.

Moreover, private equity and venture capital firms are investing in fintech innovations that target this segment. Startups offering digital lending, budgeting apps, and point-of-sale (POS) systems for small merchants are gradually reshaping the landscape of financing for low-middle-income group in Pakistan.

Social Impact and Economic Benefits

Expanding financing for low-middle-income group in Pakistan can lead to significant positive outcomes. When individuals gain access to credit, they can invest in education, health, and small enterprises—improving household stability and community development.

Examples include:

• A woman receiving a loan to start a home-based tailoring business
• A farmer securing agricultural credit to purchase seeds and equipment
• A daily wage worker building an emergency fund through a savings account

On a macro level, financial inclusion stimulates consumption, increases tax revenues, and reduces reliance on informal economies. It fosters entrepreneurship, empowers marginalized communities, and contributes to national economic resilience.

Case Studies Demonstrating Success

Several examples highlight how targeted interventions have improved financing for low-middle-income group in Pakistan:

Kashf Foundation – Empowering Women Entrepreneurs

This organization provides microloans and financial education to women in urban slums and rural areas. Its programs have created thousands of micro-businesses, boosting household income and gender equality.

Telenor’s Easypaisa – Expanding Financial Access

Telenor Pakistan’s mobile money platform allows millions of previously unbanked individuals to perform financial transactions easily. It has significantly increased access to remittances, bill payments, and savings.

SBP’s Agent Banking Model

Trained agents operate mini-banking outlets in remote areas, enabling people to open accounts, deposit money, and apply for loans. This model has expanded financial access in underserved regions.

These case studies illustrate that with the right tools and support, financing for low-middle-income group in Pakistan can yield life-changing results.

Challenges to Scaling Solutions

Despite encouraging developments, several hurdles continue to restrict the expansion of financing for low-middle-income group in Pakistan:

Regulatory Complexity

Financial regulations must evolve to accommodate new technologies and business models. Overly rigid rules can stifle innovation and deter investment in inclusive finance.

Cultural and Social Norms

In conservative parts of the country, especially rural areas, women face additional barriers to accessing financial services. Social norms often restrict their mobility and decision-making power regarding finances.

Infrastructure Deficits

Poor internet connectivity, unreliable electricity supply, and inadequate transportation networks make consistent delivery of financial services difficult across all regions.

Funding Constraints

Microfinance institutions and fintech startups often struggle to secure long-term funding at favorable interest rates. Without sufficient capital, their ability to serve more clients is limited.

Overcoming these barriers requires coordinated efforts from regulators, investors, civil society, and the financial sector.

Strategic Recommendations

To enhance financing for low-middle-income group in Pakistan, the following strategic actions should be prioritized:

Strengthening Financial Literacy Programs

Collaborative campaigns by the government, NGOs, and financial institutions can raise awareness about managing money, using credit responsibly, and saving for the future.

Promoting Gender-Inclusive Finance

Tailored financial products, safe service points, and female-focused outreach can empower women economically and financially.

Investing in Digital Infrastructure

Expanding broadband connectivity, increasing smartphone affordability, and supporting local language fintech applications will bridge the digital divide.

Encouraging Innovation and Regulation

A balanced regulatory framework that supports fintech experimentation while protecting consumers is essential for sustainable growth.

Expanding Rural Banking Networks

More investment is needed to increase the presence of banks and financial agents in rural and remote areas.

Facilitating Access to Affordable Insurance

Micro-insurance products should be developed to protect low-income individuals from health emergencies, crop losses, and other risks.

Conclusion

Financing for low-middle-income group in Pakistan remains a pressing challenge with immense opportunities for growth and development. While strides have been made through microfinance, digital banking, and government-led initiatives, much work remains to ensure universal financial inclusion.

By addressing the root causes of financial exclusion—lack of documentation, poor literacy, distrust, and insufficient infrastructure—Pakistan can unlock the economic potential of millions. Collaborative efforts between public and private sectors, supported by technology and sound policy, are key to achieving lasting change.

Ultimately, expanding access to financing for low-middle-income group in Pakistan is not just a matter of economic efficiency—it’s a moral imperative. When every citizen has the opportunity to participate in the financial system, the entire nation moves closer to prosperity, equity, and sustained development.

Also read: Affordable Housing for Low- and Middle-Income Earner in Kenya