KARACHI:
To enhance access to finance for small and medium enterprises (SMEs), the State Bank of Pakistan (SBP) has issued a comprehensive draft of revised Prudential Regulations (PRs) for SME financing. Aimed at promoting sustainable, responsible, and inclusive financing practices, the updated framework introduces new regulations while revising several existing ones to make them more principles-based and market-responsive.
“In addition to the introduction of some new regulations, several existing PRs have also been revised to make the PRs principles-based, remove structural barriers in SME finance, encourage banks to leverage technology, and foster partnerships with fintechs and other non-financial service providers to better serve the financing needs of SMEs,” the SBP stated.
The draft PRs have been uploaded on SBP’s official website for public consultation. The consultation period is open from June 5 to June 20, 2025. Feedback may be submitted at SME.PRs@sbp.org.pk using the feedback form provided on the SBP website. “The change is needed from the grassroots level to ensure no one is left out,” said the President of The Union of Small and Medium Enterprises (UNISAME), Zulfikar Thaver.
He said the PRs were much needed because digital banking demands inclusive financing at all levelsfrom micro to medium enterprises. In this connection, the PRs had to be revised to accommodate all categories of SMEs.
“Finance must be made accessible to every entrepreneur, from freelancers and home-based workers to upper-medium entrepreneurs,” he said. “The definition has to be revised, as must the system of registration of entrepreneurs to make access to finance possible and easy.”
Thaver also stressed the need to teach risk management to bankers and to give banks the flexibility to finance entrepreneurs according to their needs. “The limits will have to be revised, as money has been devalued. In view of Islamic banking gaining ground, it is very important that every aspect of Islamic financing is included to make the PRs comprehensive and complete.”
He added that UNISAME has set up a committee of experts for an in-depth study and will submit suggestions accordingly.
“The core issues in Pakistan’s dismal performance in providing formal financing to SMEs (both debt and equity) are simple, somewhat by design, and may not be resolved without a structural change in how Pakistan’s financial markets operate,” said Hashim Raza, former CEO of the Small and Medium Enterprises Development Authority (SMEDA).
“For example,” he said, “our financial markets are crowded by the government, which consumes around 65% of the total debt in any given year. The remaining 35% credit is barely enough to service corporate, trade financing, commercial, personal, etc.”
He explained that under these conditions, it does not make business sense for banks to venture into SME lending — especially when the cost of lending is high and so are the risks, both historically and based on actual performance over the past two decades.
Raza said the SME financing market failure is further aggravated by the absence of a viable public or public-private SME financing bank. “It views SME financing as an issue of affordability when it is, in fact, an issue of access — just as microfinance was in the early 2000s in Pakistan.”
“As a result,” he continued, “informal loan sharks, suppliers’ credit, buyers’ advances, and personal or family savings remain the primary sources of funding for an approximately — and very conservatively estimated — Rs1,500 billion SME debt financing market.”
“Only one-third of this is serviced by banks,” Raza added. “According to SBP data, the total principal outstanding for the SME sector in Pakistan is about Rs470 billion. But even these numbers are misrepresentative — my estimate is that actual credit advanced to SMEs is less than Rs100 billion.”
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