Pakistan central bank revises sales turnover criteria for small businesses

Pakistan’s central bank has revised its guidelines for credit disbursement to small and medium enterprises (SMEs), with changes to the definitions of the companies and stricter timelines for processing loan applications.

The State Bank of Pakistan (SBP) has issued the updated Prudential Regulations for Small and Medium Enterprise Financing, with the changes coming into effect on November 6.

The move aims to provide greater support to the SME sector by facilitating responsible, sustainable, and inclusive financing, the guidelines said.

The guidelines have revised the definition of SMEs with new capital limits. The category of small enterprise has been divided into micro and above micro enterprises. The former must have an annual sales turnover of up to PKR 30 million, and former of between PKR 30 million to PKR 150 million. A medium enterprise has to have a sales turnover of PKR 150 million to PKR 800 million.

New enterprises up to five years old are classified as start-ups within these categories.

Lending and risk management

The central bank has set the upper limit for total exposure to small enterprises at PKR 100 million, and for medium enterprises at PKR 500 million per bank. Clean exposure (unsecured by assets) cannot exceed PKR 50 million per SME.

Banks have been mandated to process SME credit applications within 15 working days, supported by automated systems for underwriting and credit assessment. Any delay or violation could result in remedial action.

The revised guidelines have introduced stricter provisions for overdue loans, classifying accounts as substandard, doubtful, or loss based on the duration of default.

Banks and financial institutions must develop internal or partnered business analysis functions for in-depth sector evaluation before extending credit to SMEs. As per the guidelines, credit information checks, advanced risk management systems, and strengthened loan monitoring protocols are required to ensure responsible lending.

While considering any credit proposal (including renewal, enhancement, and rescheduling/restructuring), banks must obtain the latest credit information report on the borrower from relevant organizations.

Moreover, banks and DFIs have been asked to adopt a standardized and simplified loan application form circulated by the Pakistan Banks’ Association and provide the SME borrowers with a list of documents required for processing the loan application at the time of applying for the loan.