The article “Missing middle”, authored by Zafar Masud was published in Dawn on June 12, 2026 — For most of the past two decades, venture capital has sat at the margins of Pakistan’s economic conversation. Every economy that has crossed from emerging to advanced over the past half-century built its technology sectors and employment engines on equity-based risk capital, not bank lending.
Missing Middle — Overview
The article ‘Missing Middle’ written by Zafar Masud and S. Sohail Naqvi emphasizes the urgent need for Pakistan to develop its venture capital ecosystem, which has largely been neglected over the past two decades. The authors articulate a central thesis around the necessity of transforming research output into high-tech exports by fostering a culture of innovation supported by venture capital. The tone underscores a blend of concern and optimism, pointing out that while Pakistan has a robust framework for academic research, it lags critically in the commercialization of that research.
Zafar Masud discusses Pakistan’s transition from a purely bank-lending based economy to one that embraces equity-based risk capital as a cornerstone for technological advancement. The authors present compelling arguments grounded in substantial economic data showing that while Pakistan’s indexed research output has significantly increased, its ability to convert this into high-value exports remains abysmally low compared to regional peers like India. This data serves as a catalyst for their central arguments, reinforcing the need for a structured approach to venture capital and innovation.
They outline essential reforms that could make a difference, including the establishment of a competitive grant program, restructuring pension funds to support venture investments, and creating a framework for private capital engagement without relying solely on government funding. The potential economic impact of these measures could add significant value to Pakistan’s GDP and create jobs, showcasing the broader implications of the authors’ proposals.
In conclusion, Masud and Naqvi urge stakeholders—ranging from government entities to private investors—to rethink their roles and responsibilities in fostering a thriving venture capital environment. The overarching message is clear: without deliberate action to bridge the gap between research and commercial viability, Pakistan risks missing out on critical opportunities for economic growth and development.
Article Summary
In this article, Zafar Masud and S. Sohail Naqvi argue that Pakistan is at a crucial juncture in evolving its venture capital landscape, which has historically been underdeveloped. They discuss the importance of establishing a robust framework for venture capital investment, highlighting the significant gap between Pakistan’s research output and its application in high-tech exports compared to countries like India. They advocate for government-backed funding mechanisms and reforms to leverage private investments, stressing that the key to unlocking economic potential lies in bridging the gap between academic research and practical application.
Missing middle — Article by Zafar Masud
By Zafar Masud, S. Sohail Naqvi. published in Dawn on June 12, 2026
FOR most of the past two decades, venture capital has sat at the margins of Pakistan’s economic conversation. Every economy that has crossed from emerging to advanced over the past half-century built its technology sectors and employment engines on equity-based risk capital, not bank lending. That’s starting to change. The federal grant programme for qualifying VC rounds is operational. Most consequentially, Pakistan’s first state-anchored co-investment fund — Pakistan Venture Fund (PVF) — has been put out for tender. Another VC fund is being raised by Gobi Partners.
Single-digit allocations via diversified private funds, with risk spread across dozens of portfolio companies and contained by prudential caps, are a normal feature of functioning financial systems. What’s less recognised is the asset this capital will actually finance. Between 2000 and 2025, Pakistan’s annual indexed research output grew 35-fold to over 45,000 papers. In engineering, computer and agricultural sciences, Pakistani citations per paper — net of self-citations — are comparable to those of the US, India and Israel. The asymmetry lies in what happens next: India converted that research base since 2000 into roughly $250 billion of high-technology exports — and Pakistan? Merely $3.8bn. The gap is not the research, which exists. It is the conversion machinery, which doesn’t.
Every functioning innovation economy operates a three-phase competitive small-business research grants programme. Money flows to firms rather than universities, topic solicitations come from demand-side ministries, intellectual property stays with the firm, and a hard performance gate decides which awardees advance. America’s Small Business Innovation Research programme produced companies like Qualcomm and iRobot and generated over 700,000 jobs. A Pakistan version, sized at Rs80-100bn a year at steady state, could add $8-12bn to annual economic activity and some half a million high-skill jobs within a five-year horizon. The supply-side grant becomes a commercial outcome only when demand is pulled through; Pakistan should adopt a 20 per cent domestic-innovation procurement set aside in technology categories.
Who provides the patient capital the venture industry needs? Typical sources are governments, pension funds, life insurers, etc. Given fiscal constraints, the most realistic path is to leverage whatever the government can commit through structures such as priority loss guarantees as in PVF, and impact financing as in the Pakistan Skill Impact Bond. The real work, however, lies in attracting private capital without leaning on the exchequer.
Pakistan’s research output remains trapped on paper.
Pension fund assets in Pakistan sit at under 1pc of GDP, against an Asian range running to 82pc in Singapore, with India, Malaysia, Indonesia and Thailand materially deeper. Insurance penetration is under 1pc of GDP. Two reforms matter most. First, putting pension, provident and life insurance pools on a sustainable footing through actual wage contribution, mandatory independent actuarial valuations and professional trustee boards. Second, each institution’s investment regulations must carry a qualifying private fund sleeve, embedded with taxation advantages, capped at around 5pc of assets and accessed through the SECP-regulated fund of funds.
The federal civil service pension stock, almost entirely unfunded and consuming over Rs1 trillion of the budget each year, should be converted through a public-private partnership pension architecture. The government would contribute assets at independently valued fair-market levels into properly governed pension trusts, while private institutional investors contribute matching cash for proportionate beneficial interest.
Exits are the third leg. The OECD’s Asia Capital Markets Report places Pakistan in a group of four alongside Bangladesh, Sri Lanka and Cambodia whose market capitalisation is below 40pc of GDP. However, when Pakistan aspires to join the Vietnam-to-Korea cohort, four moves would build out the exit architecture in a single policy cycle: deepening the growth enterprise listing pathway; unblocking mergers and acquisitions through clearer capital-gains treatment and streamlined competition approvals; rewriting secondary share transfer rules with transparent valuation guidance and recognised platforms. Most importantly, the dual book-keeping tendency must go.
Risk capital may not be risk-free — around half of early-stage portfolio companies fail. But across emerging markets, VC has been a consistent contributor to high-quality employment and productivity growth. Our youth population ranks among five largest globally where disruptive research output accounts for a larger share. The missing middle is the translation layer: competitive grants, risk capital and patient institutional money that converts papers into products.
Zafar Masud is a banker.
S. Sohail Naqvi is an academic.
Authored by Zafar Masud, S. Sohail Naqvi. Originally published in Dawn on June 12, 2026