Pakistan proposes differentiated rates for nano-loans — Dawn
Pakistan is discussing a possible reduction in the maximum daily rate for nano-loans — short-term loans for small amounts. In an op-ed for Dawn, Pakistan Fintech Network Chairman Nadeem Hussain called for combining borrower protection with preserving access to regulated digital lending for people without a credit history.
According to data cited by the author, the current maximum rate is 0.75% per day. Its annual equivalent reaches about 274%, but the maximum nano-loan term is 90 days, while the average duration of a first loan, according to industry data, is about 25 days. For a loan of 4,000 Pakistani rupees for 25 days, the cost at a rate of 0.75% per day would be 750 rupees, or 18.75% of the principal amount.
Arguments for rate caps
Hussain noted that total charges to the borrower, including interest, fees and penalties, are already capped at 100% of the principal debt amount. In his view, a lower maximum rate could leave borrowers with more money, reduce reliance on expensive short-term loans and encourage lenders to improve efficiency.
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At the same time, the author believes that an excessively sharp rate cap could push new higher-risk customers out of the regulated market. According to industry estimates he cited, a first loan to one customer may result in a loss of about 4,902 rupees. The industry also estimates the share of problematic debt in the first lending cycle at about 21%, while the share of customers who had not previously used banking services is more than 80%.
Proposal for a credit ladder
The author proposes using differentiated rates instead of a single rate cap: retaining the 0.75% daily limit for loans of up to 15,000 rupees, including for new borrowers, and setting a 0.70% cap for larger amounts. For customers with confirmed solvency and a successful repayment history, the rate could, in his view, gradually decrease to 0.60–0.65%.
The industry also proposes increasing the maximum size of a single loan from 50,000 to 100,000 rupees, the aggregate limit from 100,000 to 200,000 rupees, and the maximum lending term from 90 to 180 days. Hussain believes the regulator should require transparent pricing, ban hidden charges, monitor repeat loans, assess customers’ solvency and penalize abuses in debt collection.
