Demand for SME business loans in Pakistan

Last registered on March 12, 2025
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Pre-Trial

Trial Information

General Information

Title
Demand for SME business loans in Pakistan
RCT ID
AEARCTR-0015094
Initial registration date
December 28, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
January 06, 2025, 12:16 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
March 12, 2025, 2:59 PM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country
Pakistan
Region

Primary Investigator

Name
Emma Zhang
Affiliation
University of Chicago Booth School of Business
Contact Primary Investigator

Other Primary Investigator(s)

PI Name
Hamna Ahmed
PI Affiliation
Lahore School of Economics
Contact Investigator
PI Name
Zunia Saif Tirmazee
PI Affiliation
Lahore School of Economics
Contact Investigator

Additional Trial Information

Status
In development
Start date
2025-01-25
End date
2025-12-01
Keywords
Finance & Microfinance
Additional Keywords
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Increasing the number of Small Medium Enterprises that have formal bank loans is of a primary policy concern to the government of Pakistan. Equilibrium levels of formal bank lending are very low for two main reasons: (a) high equilibrium interest rates on loans (~50% APR) with residential property collateral requirements and (b) inefficient credit markets due to information asymmetry—SME bankers reported during exploratory fieldwork that low proliferation of credit scores coupled with unreliable auditing in Pakistan makes evaluating SME loan applications very difficult. These two inefficiencies result in high levels of relationship lending in both the formal and informal marketplace for business loans. The State Bank of Pakistan (Central Bank) frequently offers lending schemes specifically aimed at increasing the amount of money lent to formally registered SMEs. Such schemes remove collateral requirements and reduce interest rates to extremely favorable rates (~9% APR). However, less than 3% of SMEs apply for bank loans per year (World Bank Enterprise Survey 2022). This project attempts to decompose the low levels of demand for formal business loans for the remaining 97% of tax paying SMEs by running a randomized control trial in partnership with the Small Medium Enterprise Development Authority of Pakistan (SMEDA).
External Link(s)

Registration Citation

Citation
Ahmed, Hamna, Zunia Saif Tirmazee and Emma Zhang. 2025. "Demand for SME business loans in Pakistan." AEA RCT Registry. March 12. https://doi.org/10.1257/rct.15094-1.1
Sponsors & Partners

Partner

Name
Small Medium Enterprise Development Authority of Pakistan
Type
government
URL
https://smeda.org/
Experimental Details

Interventions

Intervention(s)
Intervention (Hidden)
We randomly vary information on each SMEs eligibility for a very favorable lending scheme that offered a 9% APR and no collateral. We also randomly offer some firms help from an MBA student with writing the business plan they need to submit as part of a loan application.

Every respondent is offered the opportunity to have SMEDA facilitate an introduction with a business banker to establish a relationship in case of a future business loan application. Participants will all select either yes or no. Participants who select "yes" will have their information sent to a banker. The control group receives no extra information.

T1, which is randomly selected, will receive the same offer as the control group, along with a reminder that every SME in Pakistan was eligible for a favorable 9% markup business loan with no collateral requirements.

T2, which is randomly selected, receives all information from T1, along with an offer to have an MBA student assist with their business application statement.
Intervention Start Date
2025-01-25
Intervention End Date
2025-08-01

Primary Outcomes

Primary Outcomes (end points)
Willingness to have information sent to bankers for review, willingness to meet a banker, applications to loans.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We randomly vary information on existing lending schemes and randomly offer loan writing assistance to participating firms.
Experimental Design Details
Randomization Method
Randomization done with a random number generator within the survey.
Randomization Unit
firm level
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
500
Sample size: planned number of observations
500
Sample size (or number of clusters) by treatment arms
166 split across 3 groups.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
UChicago SBS
IRB Approval Date
2024-10-01
IRB Approval Number
24-1256
Analysis Plan

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Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials