Client Name

HBL

Faculty Advisor

Dr. Azima Khan

SBS Thought Leadership Areas

Investment Decision Making

SBS Thought Leadership Area Justification

This project aims to fill the gap between traditional collateral-based creditworthiness assessment of SMEs and data-driven lending. The main recommendation is to add alternate data to HBL's credit engine; such as merchant transaction data, POS data and banking data, as a proxy measure to assess cashflow. This reflects IBA-SBS's dedication to using alternate data to support more effective financial decisions. The inefficiency being corrected is systematic and unnecessary exclusion of credit worthy SME borrowers, based on excessive reliance on documentation, not on transactions. Each of the credit decision-making accuracy of the proposed risk scoring engine, early warning system, and portfolio monitoring dashboard contributions are designed to help reduce losses and enhance the accuracy of credit decision-making by identifying borrower stress earlier.

Aligned SDGs

GOAL 10: Reduced Inequality

Aligned SDGs Justification

The existing SME lending framework in Pakistan is designed in a manner which systematically excludes small and less formal SMEs due to their smaller size and limited documentation from the formal financial system. The integration of merchant transaction data and cashflow-based underwriting instead of the traditional documentation approach can expand the bankable SME base by 20-40%, including those in secondary cities and lower income groups, and bring these previously unbanked entrepreneurs into the formal financial services system. This access gap reduction symbolizes a significant structural contribution to reduction of economic inequality

NDA

No

Abstract

This Experiential Learning Project evaluates the viability and strategic design of end-to-end digital onboarding of financing for Small and Medium Enterprises in Habib Bank Limited, Pakistan's largest commercial bank, under the revised SME Prudential Regulations by the State Bank of Pakistan. The regulations call for a paradigm shift in SME loan origination and management by banks, including the introduction of digital onboarding infrastructure, video-based KYC verification, electronic agreement execution, geolocation-based business verification, a Credit Proposal Tracking Mechanism, and a maximum turnaround time of 15 working days.

The study used a diagnostic and advisory approach, involving regulatory document analysis, secondary benchmarking of over 30 local and international institutions and primary stakeholder interviews with senior representatives of the fintech sector. The six stages of the SME loan lifecycle at HBL were assessed for pain points, regulatory compliance gaps, and structural gaps.

The results indicate that the SME lending process of HBL is completely manual, paper-based and structurally non-compliant with five SBP Prudential Regulations, namely R-10, R-12, R-14, R-16 and R-19. The current end-to-end turnaround time of 6-9 weeks is more than 300% higher than the regulatory cap. The findings from the benchmarking show that a significant digitization project cannot be achieved with just digital front-end additions, but needs to be accompanied by architectural redesign of internal lending workflows.

Accordingly, eight integrated digitization pathways are recommended, including a centralized, cloud-based dashboard, API-led integration, layered digital KYC, merchant transaction data underwriting, straight-through processing of qualifying segments, and real-time risk analytics engine. These are divided into a phased 18-month implementation roadmap with clear SBP compliance milestones that will see a reduction in TAT by 65-80% and a 20-40% growth in bankable SME population.

Document Type

Restricted Access

Document Name for Citation

Experiential Learning Project

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