Pakistan’s Microfinance Sector Records 92% Decline in Losses During 2025

Pakistan’s microfinance banking sector continued to operate under pressure but showed notable improvement in 2025, with losses narrowing significantly after several years of weak performance.

According to the State Bank of Pakistan (SBP) in its Financial Stability Review, the sector’s pre-tax loss declined sharply to Rs. 2 billion in 2025, down by 92 percent compared to Rs. 25 billion in 2024.

This improvement also reflected in key profitability indicators. The sector’s after-tax return on assets (ROA) improved to -0.2 percent in 2025, from -1.9 percent in 2024, while return on equity (ROE) strengthened to -8.2 percent, compared to -49.6 percent in the previous year.

Operational performance also showed recovery, with Operational Self Sufficiency (OSS) rising to 84.7 percent in 2025, up from 75.2 percent in 2024. Administrative expenses declined by 8.5 percent, marking the first drop after years of sharp growth.

The SBP noted that the sector had faced sustained stress over the past seven years due to pandemic-related disruptions, weak borrower repayment capacity, and severe climate events, including heavy rains and flooding, all of which impacted loan recoveries.

Despite challenges, the number of borrowers reached 8.3 million by end-December 2025, reflecting continued financial inclusion growth, with a compound annual growth rate (CAGR) of 20.6 percent between 2015 and 2024.

Financial Stability Still Under Pressure

While conditions improved, the sector remains under stress. The infection ratio declined slightly to 9.1 percent in 2025 from 9.7 percent in 2024. However, non-performing loans (NPLs) increased to Rs. 48 billion, compared to Rs. 44 billion in the previous year.

The SBP explained that the infection ratio improved mainly due to strong portfolio growth, as gross advances rose by 15.5 percent, outpacing the increase in NPLs.

A key structural shift was also observed as microfinance banks increasingly moved toward secured lending. The secured portfolio rose to Rs. 244 billion in 2025, from Rs. 188 billion in 2024, driven largely by a 26.2 percent increase in gold-backed loans.

Provisioning coverage for bad loans also strengthened significantly, improving to 138.1 percent in 2025, compared to 95.2 percent in 2024. Total provisions increased from Rs. 42 billion to Rs. 67 billion during the year.