EVERY time interest rates rise in Pakistan, a familiar chorus emerges from industrial lobbies, chambers of commerce and TV experts: investm­e­­nt will collapse, industry will die, and growth will disappear unless the State Bank immediately cuts rates ‘in the national interest’. The argument is pre­­sented as self-evident. Cheap loans equal growth.

At first, this sounds reasonable. Businesses need money to build factories, buy machines, and expand. If borrowing money is cheap, companies can invest more easily. But such framing hides a much bigger issue ignored for years. There are two main ways to raise money for investment. One is by borrowing from banks, ie debt financing. The other is by putting in their own money or widening ownership — selling shares to investors. Both methods help companies raise money yet they create very different kinds of businesses and economies, shaping not only investment but also control, governance and distribution of wealth.

In Pakistan, business owners seek cheap bank loans, but avoid selling shares to the public, raising uncomfortable questions: why is equity participation narrow and often speculative despite decades of the ‘capital market development’ rhetoric? Why are ordinary savers expected to accept low returns on their savings so companies can keep borrowing cheaply? A deep structural issue has silently shaped Pakistan’s long-term productivity, corporate culture and growth path: the unshakable reliance of the private sector on borrowing to finance capital investment instead of injecting additional equity from its own resources or by raising equity from markets.

For decades, the playbook for corporate success in Pakistan hasn’t changed; it has been passed down through........

© Dawn