Although the 325i has a bigger 6 Cylinder engine and more horsepower, in Pakistan the most common BMW variant is a 318i 4 door sedan. The 320i and 325i and 330i models are also available but the price jumps are very significant. So the 318i is a means for many people who are after the badge to get them self into a BMW.
But that's not to say that the 318i is a slouch. It's quite a brisk drive and certainly got adequate power especially when the revs are high. The bigger engine models just do it a lot easier and with a lot less stress to the engine's internals.
In some parts of the world like Pakistan, the road taxation scheme is directly related to the capacity of the engine.
So for most people, 318i E36 is actually a good package for overall Total Cost of Ownership and is brisk enough for spirited driving.
Certainly in stop start traffic, the smaller engine will eat less gas, so much the better for the environment and of course the pocket (Oil @ around $ 100 per barrel likely to stay). I own a 318i M E36 and can vouch for its Km per litre (Around 9 – 10 in City).