Moaaz Manzoor

Pakistan’s non-bank financial institutions (NBFIs) recorded exceptional growth in FY25, expanding 41.6 percent their fastest pace in eight years to Rs 5.64 trillion in assets, driven primarily by mutual funds, the State Bank of Pakistan (SBP) reported in its Governor’s Annual Report 2024-25.

The report said the NBFI sector’s share in total financial assets increased to 7.5 percent as investors sought diversified savings options in a declining-interest-rate environment. The fund-management segment dominated the industry, accounting for 91 percent of NBFI assets at end-June 2025. Mutual-fund portfolios alone grew 45 percent to Rs 3.93 trillion, led by income and money-market funds during the first half of the year when banks redirected liquidity toward NBFIs to meet advance-to-deposit-ratio requirements.

Although temporary outflows occurred after withdrawal of that tax-linked policy, inflows resumed in the final quarter as corporate investors returned following amendments to the Minimum Deposit Rate rules that excluded institutional deposits. This change made mutual funds a more attractive alternative for corporates seeking higher yields.

The SBP said other fund-management vehicles, including discretionary and non-discretionary portfolios, also expanded 35 percent to Rs 776 billion. On the lending side, growth was equally strong: non-bank microfinance companies increased assets 51 percent to Rs 297 billion, while modarabas and investment-finance companies posted gains of 24 and 15 percent, respectively. The addition of new entities and improving macroeconomic conditions further supported this rebound.

According to the report, the lending segment’s share declined slightly to 8.8 percent of total NBFI assets, yet its absolute expansion contributed significantly to financial intermediation. Lower interest rates, easing inflation, and renewed investor confidence spurred demand for capital-market instruments. The SBP viewed this surge as evidence of a maturing non-bank ecosystem that complements the banking sector by channeling savings into productive investment.

The central bank said NBFIs’ growth enhances competition, deepens the domestic capital market, and broadens financing sources for businesses. The sector’s stability also benefits from regulatory oversight by the Securities and Exchange Commission of Pakistan, which continues to align prudential frameworks with international standards. Together, these reforms are expected to strengthen Pakistan’s financial architecture.

Credit: INP-WealthPk