Failing Factories, Fearful Finance: Reimagining Pakistani Banking Through the German Hausbank Lens

Abstract

This paper compares Pakistan's commercial banking sector and Germany's universal Hausbank model in order to determine why Pakistani small and medium enterprises suffer from credit starvation while large corporations secure adequate financing. Legal constraints, court recovery bottlenecks (judicial liquidation delays), and high fiscal borrowing force Pakistani commercial banks to rely on heavy physical collateral and low-risk sovereign securities such as Treasury bills rather than industrial lendings. The feasibility of implementing the Hausbank model in Pakistan is discussed by gathering data collected from qualitative interviews involving high-ranking banking officers and from secondary sources. It highlights why some senior bankers reject the Hausbank model, referring to opaque family-owned businesses that dominate Pakistan's corporate governance. Similarly, it explores how government debt causes the banks to shift their liquidity, removing financial incentives to extend credit to the private sector. Regardless, the paper discusses a third approach to tackle the risky, complex economic climate of Pakistan.

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