The State Bank of Pakistan (SBP) has introduced a new financing framework allowing banks to extend loans to small businesses and farmers through partnerships with eligible financial institutions, in a move aimed at expanding access to credit under the federal government’s risk coverage schemes.
Under the framework, banks can work with microfinance banks, non-bank microfinance companies and non-bank financial companies to reach borrowers through wholesale financing and agency arrangements.
The initiative is designed to broaden lending outreach while maintaining defined eligibility criteria, financing limits and risk management requirements.
Financing provided through these arrangements will be included in participating banks’ portfolios for small and medium enterprises (SMEs) and small farmers. Such loans will also qualify for coverage under the federal government’s relevant risk coverage schemes, subject to the applicable conditions.
SBP Sets Loan Limits for Businesses and Agricultural Borrowers
The framework allows participating banks to use authorised financial institutions as agents to facilitate lending to eligible businesses and farmers. These institutions can undertake key lending activities, including loan origination, credit appraisal, approval, monitoring, recovery and reporting.
Loans may either be recorded directly on the participating bank’s balance sheet or managed through an agency arrangement. In both cases, institutions must ensure that individual loans remain identifiable and traceable, with information reported to participating banks through application programming interface (API)-based integration.
The SBP has established different financing ceilings according to the type of institution providing the loans.
For small enterprises, the maximum financing limit is Rs1 million per borrower through non-bank microfinance companies. The ceiling rises to Rs5 million for loans provided through non-bank financial companies and microfinance banks.
For agricultural borrowers, the maximum limit is Rs500,000 through non-bank microfinance companies and Rs2 million through non-bank financial companies and microfinance banks.
These limits apply to individual borrowers and remain subject to each institution’s lending capacity, underwriting standards and ability to monitor and manage credit risk.
Strict Eligibility Criteria for Partner Institutions
Banks must ensure that institutions selected to participate in the framework meet the SBP’s prescribed financial and operational standards.
Eligible institutions must demonstrate 100% operational self-sufficiency and maintain a non-performing loan ratio of no more than 5% in SME and agricultural financing. They must also have received unqualified audit opinions for the preceding two years and possess at least three years of experience in enterprise lending or agricultural finance.
Where loans are recorded on an institution’s own books, the institution must also meet the relevant regulatory capital adequacy requirements.
The framework further requires participating institutions to maintain sound governance and risk management arrangements. These include a functioning board, independent internal audit and compliance functions, and effective systems for credit assessment, loan monitoring and reporting.
Compliance with anti-money laundering and counter-terrorism financing requirements is also mandatory under the applicable regulations issued by the SBP or the Securities and Exchange Commission of Pakistan (SECP).
How the Framework Could Improve Access to Credit
The new arrangement gives banks an additional channel to serve small businesses and farmers by drawing on the existing lending networks and outreach capabilities of specialised financial institutions.
Small enterprises often require financing to manage working capital, purchase equipment and sustain day-to-day operations. Agricultural borrowers may need credit to meet eligible cultivation expenses and other farming costs. Access to suitable financing can help these borrowers manage cash flow and support productive economic activity.
The government’s risk coverage schemes are intended to support lending by providing protection against eligible credit losses under the applicable terms.
However, the framework does not guarantee loan approval for every applicant. Borrowers will remain subject to eligibility checks, credit assessments and the lending policies of participating institutions.
The impact of the initiative will depend on how effectively banks and their partner institutions implement the arrangements, maintain lending standards and extend financing to eligible borrowers.
For regulatory information and official updates, readers can consult the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan. The specific SBP circular or notification governing this framework should be linked once verified to provide readers with direct access to the primary source.
