KARACHI: Pakistan’s distributed solar sector holds an estimated Rs800 billion ($2.8 billion) in untapped lending potential across just three major cities, yet structural financing constraints continue to exclude millions of households and small businesses, according to a new study released by Renewables First.
Despite the rapid expansion of solar adoption nationwide, the study finds that benefits have largely flowed to affluent households and large enterprises capable of self-financing installations. In contrast, Pakistan’s banking sector, which holds deposits of around $131 billion, channels only $50 billion into lending, with nearly 63% of banking assets invested in government securities instead of productive economic sectors.
Conducted in knowledge partnership with the Pakistan Banks’ Association (PBA), the National Institute of Banking & Finance (NIBAF) and the Karachi School of Business & Leadership (KSBL), the study was launched at a ceremony in Karachi.
“The issue is not actual risk, but perceived risk,” said climate finance expert and co-author Naveen Ahmed, noting that outdated internal systems and risk frameworks have prevented banks from tapping viable solar financing opportunities.
The report highlights a stark paradox: while electricity tariffs have increased by more than 200% since 2012, solar panel prices have fallen by 73% since 2017, resulting in payback periods of less than two years in many cases. Yet households spending up to 20% of their income on electricity and SMEs struggling with high energy costs remain excluded due to rigid collateral requirements that prioritise asset ownership over cash-flow viability.
Among its key findings, the study notes that banks operate at an advances-to-deposits ratio below 40% and often require double collateralisation for solar loans. Meanwhile, distributed solar portfolios show default rates of under 2%, compared to over 10% for traditional SME lending.
“This reflects a missing middle segment, households and enterprises too large for microfinance but too small or informal for commercial banks,” said banker and co-author Shezad Abdullah.
Speakers at the launch stressed that unlocking the market requires better segmentation and tailored financing products rather than blanket risk aversion. National Credit Guarantee Company Limited CEO Ammar Habib Khan said identifying eligible consumer and enterprise segments and designing risk-appropriate instruments was critical for scaling up solar financing.
PBA Managing Director Nejib Rehman said banks were not opposed to solar lending, but concerns over repayment consistency, property ownership—particularly in apartment buildings—limited historical data and regulatory uncertainty continued to shape lending decisions.
The study proposes several market-ready solutions, including anchor-based and vendor-linked financing, on-lending through development finance institutions and microfinance providers, and securitisation of solar loan portfolios to unlock liquidity.
Renewables First Senior Associate Ummamah Shah highlighted structural gaps, including the absence of credit bureaus for informal borrowers, lack of standardised documentation for small-ticket loans and weak dispute resolution mechanisms.
Looking ahead, panelists identified battery energy storage systems as the next phase of innovation in the distributed energy transition. With Pakistan importing over 50 gigawatts of solar panels in the past five years—equivalent to the country’s entire grid capacity—the infrastructure is already in place.
“What is missing is financial intermediation to ensure equitable access,” the report concludes, adding that the real question is not whether the financial system can support the transition, but whether Pakistan can afford continued inaction.
The event concluded with the launch of the Pakistan Energy Finance Network, a practitioner-led platform aimed at aligning energy policy ambitions with financial market realities.
Story by Kashif Hussain
