Karachi, August 16, 2024 – In a significant move to bolster the financing landscape for Small and Medium Enterprises (SMEs), the State Bank of Pakistan (SBP) announced on Friday an increase in the clean lending limit to Rs 10 million.
This enhancement is aimed at facilitating easier access to finance for SMEs, a critical sector in Pakistan’s economy.
In its latest circular, the SBP stated that the clean lending limit has been raised to Rs 10 million as part of its ongoing efforts to support the SME sector. This increase is expected to provide a substantial boost to SMEs by allowing them greater financial flexibility without the need for extensive collateral.
The central bank has accordingly amended Regulation SME R-4 of the Prudential Regulations for SME Financing to reflect this change. The amendment allows banks and Development Finance Institutions (DFIs) to take clean exposure—loans extended based on the cash flows of an SME and secured solely against personal guarantees—up to the new limit of Rs 10 million.
The SBP clarified that this clean exposure limit does not include clean consumer financing limits, such as credit cards and personal loans, which may be extended to the sponsor of the SME under the Prudential Regulations for Consumer Financing. This distinction ensures that the new lending limit is specifically targeted at enhancing the financial capabilities of SMEs.
The SBP has directed banks and DFIs to ensure that this amendment is circulated among all their branches and offices to guarantee strict compliance. The central bank also warned that non-compliance with the revised Prudential Regulations will result in punitive action under the relevant provisions of the Banking Companies Ordinance (BCO), 1962.
This move by the SBP is seen as a proactive measure to address the financing challenges faced by SMEs, which often struggle to secure loans due to stringent collateral requirements. By increasing the clean lending limit, the SBP aims to empower SMEs to expand their operations, invest in new technologies, and contribute more significantly to economic growth.
The enhancement of the clean lending limit to Rs 10 million is expected to provide much-needed relief to the SME sector, enabling it to play a more dynamic role in Pakistan’s economic development. As SMEs are a key driver of employment and innovation, this move is likely to have a positive ripple effect across the economy.
