"I believe that if you don't give people an education you're robbing them of their liberty," says Hussain Dawood. You might not expect such a sentiment from one of the driving forces behind a business school. But neither Dawood nor the Karachi School for Business and Leadership are ordinary.

Dawood is chairman of the Karachi Education Initiative (KEI), a not-for-profit company set up by Pakistani businessmen to launch a business school in the country's biggest city. The Karachi School of Business and Leadership is nothing if not ambitious. It aims to be the first international business school in Pakistan and to be world class at that, to raise $100m (£60m), to educate men and women, to set high moral standards and to elevate the country's intellectual level to address its difficulties.

The school has already signed a five-year agreement in April with the Judge Business School at Cambridge; the first such agreement that Judge has entered into. Under the deal, Judge will help to find the dean and faculty, lay on executive education courses, and advise on the curriculum, the building, the school's organisation and its accreditation. Dr Lawrence Abeln, deputy director of Judge and the link with the Karachi school, says Judge had to be convinced that the school would have an impact. "Dawood was successful in sharing his vision of the project with us. He has the capacity to get others excited," he says. "We see education of management leaders as a key to economic development and political stability. It's truly a start-up. This is academic entrepreneurship."

The KEI had approached US universities, including MIT, Babson and Boston, about a collaboration. But Dawood wanted someone who would be a true partner and felt that the US schools did not fully understand what KEI was trying to do. Dawood was educated in Britain, so he particularly appreciated Judge's interest when he approached them at the suggestion of a Cambridge friend.

"They had a hunger," he says. "They had a desire to work with us. Cambridge has gone through a fundamental change. They're the Cambridge that wants to have a presence internationally. Our desire to associate with them coincided with that."

The starting point for Karachi Education Initiative was that Pakistan had become ill-equipped to deal with the problems of economic development, social division and religious extremism. "Over the past 40 years, what you notice is that there's been a perceptible decline in the intellectual capacity of the country," says Dawood. He is also concerned about the integrity and sense of social purpose – the ability to lead effectively – of the country's elite.

"There has to come a time when the private sector says, we're going to have to take responsibility," he says. KEI's vision was not only that a new institution would improve the skills of managers and equip a privileged few with prestigious MBAs. One of the project's most important purposes is that many graduates will go into schools, hospitals and similar places to pass on their knowledge and skills. Hence, through a multiplier effect, they would start to solve Pakistan's problems.

The plan will only work if the school can hold its head high internationally. "We want to be world class. We must feel that we can get a world-class institution here and produce first class people without having to go abroad," Dawood says. If standards are high enough, the school will attract students from the region and from the large Pakistani diaspora, as well as from the country itself. But he accepts that it will be a while before Karachi entices students from Europe or North America.

The first executive education courses will begin in Karachi in 2011, and those passing will receive Cambridge certificates. But the school intends to award its own degrees, and the first MBA intake will be in 2012. By then, a campus is planned to been built in Karachi at a cost of $25m (£15.6m). KEI is raising funds by asking Pakistani companies to take equity in the project. Students will pay market fees, although Dawood expects them to be lower than for an MBA in Britain.

Dawood is hard-headed about funding and students. "Institutions are not charitable. People are. When you make institutions charitable you cannot ensure their sustainability, thus consigning them to the dustbin of history," says Dawood. The school will have to make a surplus to invest for the future and students will be able to raise loans from banks once they are accepted. Admission will be strictly on merit – a highly symbolic principle in a country rife with patronage and influence peddling. "If you don't have ability, you won't get in. Every student must know that every other student has got in on the basis of their merit," says Dawood.