Barriers and Strategies of Financial Inclusion of SME’s: A Lender and Borrower Perspective of Khyber Pakhtunkhwa

  • Asif Ali
  • Dr. Hamid Ullah
  • Dr. Shahid Jan


Fostering financial inclusion of SMEs is one of the top priorities of State Bank of Pakistan and the Government of Pakistan. In this way, the State Bank of Pakistan has announced National Financial Inclusion Strategies (NIFS) under the banner of the NIFS 100days agenda in order to attain various targets including financial inclusion of SMEs by 2023. In this regard the research study is conducted to explore the demand-side barriers and supply-side barriers in the main stream of financial inclusion of Small and Medium-sized Enterprises (SMEs) and to provide comprehensive ways and strategies for greater financial inclusion. To fulfill the research aims, the research used a qualitative technique followed by thematic approach. Semi-structured interviews with SMEs and banks were used to acquire primary data. The report reveals a number of demand side constraints that SMEs encounter, such as financial illiteracy, lack of collateral, lack of financial statements, lack of information about accessible financial products and services, and many others; the supply side barriers that financial institutions confront in reaching out to and supporting SMEs include lengthy and complex procedure, demand of collateral, high transaction costs, and so on and other constraints. These demand-sides, supply-sides and other sides’ barriers contribute to SMEs' reluctance to participate with formal financial channels. In response to these impediments, the research developed a number of formal financial channels. In response to these barriers, the research established various strategies that incorporate both demand-side, supply-side and other side factors in order to create a conducive environment to SMEs' inclusion in the formal financial system.