Mohsin Siddiqui (Chief Reporter)
The Small and Medium Enterprises (SMEs) sector, the State Bank of Pakistan (SBP) has recently announced an amendment to the Prudential Regulations for SME Financing. This amendment effectively doubles the clean lending limit for SMEs, now allowing them to secure financing up to Rs 10 million against personal guarantees.
Previously, under the SME R-4 regulation, banks and Development Financial Institutions (DFIs) could extend clean exposure, which is financing secured only by personal guarantees, up to Rs 5 million per SME borrower. The new amendment, titled “Limit on Clean Facility,” increases this limit to Rs 10 million. This adjustment is designed to simplify access to finance for SMEs by reducing the need for collateral, thereby encouraging more businesses to seek funding.
The revised SME R-4 paragraph clarifies that the clean exposure limit does not encompass clean consumer financing limits like credit cards and personal loans provided to the SME’s sponsor under the Prudential Regulations for Consumer Financing. This distinction ensures that the increased limit is specifically for business operations, not personal credit.
SBP has also mandated that all banks and DFIs circulate this amendment to all their branches and offices to ensure strict compliance. Non-compliance with these regulations could result in punitive measures under the Banking Companies Ordinance, 1962, highlighting the seriousness with which the SBP views adherence to these new rules.
This policy shift is part of a broader strategy outlined in SBP’s Vision 2028, which aims to double SME financing to Rs 1.1 trillion over the next five years. By the end of June 2025, the SBP plans to increase the outstanding portfolio for SMEs by Rs 100 billion. This initiative not only supports existing SMEs but also encourages the growth of new ventures, potentially revitalizing the economic landscape of Pakistan.
In addition to the increased lending limits, SBP has directed all banks and DFIs to develop a comprehensive SME-specific credit policy, approved by their Board of Directors. This policy should particularly address the financing needs of Small Enterprises (SE), taking into account their unique business conditions and challenges. This directive underscores the SBP’s commitment to tailor financial solutions that meet the specific needs of SMEs, thereby fostering a more inclusive financial ecosystem.
