Youth loan rejections under scrutiny

The Small and Medium Enterprises Development Authority (Smeda) and the Prime Minister's Youth Programme (PMYP) have joined hands to expand financial literacy, business planning and awareness of formal financing among young entrepreneurs and micro, small and medium enterprises (MSMEs). The partnership will support applicants seeking financing under the Prime Minister's Youth Business and Agriculture Loan Scheme.

It will help them understand eligibility requirements, prepare documentation and develop business plans capable of meeting lenders' requirements. Smeda will conduct awareness and training programmes and provide entrepreneurs with pre-feasibility studies, financial tools, business-plan templates and other technical resources.

Its regional offices and help desks will also be used to reach businesses outside major urban centres. PMYP will distribute these resources through its Digital Youth Hub and social media platforms, potentially giving a much larger pool of young people access to information that is often difficult for first-time borrowers to obtain.

The initiative also seeks to address a less visible problem in the lending process – why applications fail. Under the agreement, Smeda and PMYP will share agreed data on rejected loan applications, including reasons for rejection.

The information is expected to help identify whether applicants are being held back by weak business plans, incomplete documentation, lack of financial knowledge or other shortcomings. "This is where the real test of the programme will lie.

An entrepreneur may have a viable business, but without collateral, proper accounts or a documented cash flow, the banking system can still remain out of reach. Financial literacy can help, but it cannot by itself solve the structural barriers to SME lending," said an SME sector stakeholder.

For small businesses, the financing challenge extends beyond simply obtaining a loan. Entrepreneurs often operate with limited financial records and informal accounting practices, making it difficult for banks to assess their creditworthiness.

Smaller firms may also have limited assets to offer as collateral, while the cost and complexity of complying with formal banking requirements can discourage them from seeking credit altogether.

Advisor to the Prime Minister on Industries and Production Haroon Akhtar Khan said the collaboration would help bridge the gap between financing opportunities and potential beneficiaries by improving awareness, financial literacy and access to business development resources. "Improving financial literacy and the quality of business proposals is essential for expanding meaningful access to formal financing," he said.

The programme will particularly target underserved regions and women entrepreneurs, who often have fewer links to formal financial institutions and business-support networks. The collaboration will also support Smeda's target of providing financial literacy to 92,480 MSMEs.

Quarterly reviews between the two organisations will assess implementation and identify areas requiring further support. The broader objective is to move the youth financing programme beyond simply advertising loans and towards preparing entrepreneurs to become credible borrowers – a distinction that could determine whether greater awareness ultimately translates into more businesses receiving formal financing.