SBP increases clean lending limit for SMEs to Rs10 million

KARACHI: The State Bank of Pakistan increased the clean lending limit for small and medium enterprises (SMEs) to Rs10 million on Friday, aiming to facilitate access to finance for this sector.

Accordingly, it has amended the prudential regulations for SME financing.“Banks & DFIs can take clean exposure (facilities extended based on cashflows of an SME secured solely against personal guarantees) of up to Rs10 million on an SME borrower,” the SBP said in a circular.

“It may be noted that the clean exposure limit shall not include the clean consumer financing limits (credit card and personal loans, etc) allowed to a sponsor of the said SME under prudential regulations for consumer financing.”

Previously, the clean lending limit for SMEs was Rs5 million.The SBP has instructed banks and development finance institutions (DFIs) to ensure that the recent amendment is circulated to all their offices and branches for strict compliance. Non-compliance with prudential regulations will result in punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.

The SBP has urged all banks and DFIs to prepare a comprehensive SME specific credit policy, approved by their boards of directors, to enhance financing to the SME sector. The credit policy should specifically address financing for small enterprises while considering their specific characteristics and business conditions.

As part of its Vision 2028, the SBP has set a goal to double SME financing to Rs1.1 trillion over the next five years. This includes adding Rs100 billion to the outstanding portfolio for SMEs by the end of June 2025.

The SME sector contributes significantly to national GDP, employment generation, and export earnings. Hence, the impact of financial inclusion of SMEs has important implications for economic growth, competitiveness, and job creation.

The potential for this sector to contribute to the economic development objectives of Pakistan, in areas like creating jobs, increasing incomes, improving competitiveness, boosting exports, and fostering economic growth is the justification for a strategy of support to unleash the sector’s potential.