The State Bank of Pakistan (SBP) has introduced a new financing framework allowing banks to extend credit to small enterprises and small farmers through wholesale and agency arrangements, aiming to improve access to loans under the government’s Risk Coverage Facility.
Under the framework, banks can work with eligible microfinance banks, non-bank microfinance companies and non-bank financial companies to reach borrowers, subject to prescribed eligibility criteria, lending limits and risk management requirements.
The financing extended through these arrangements will be reported as part of banks’ portfolios for small enterprises and small farmers and will be covered under the Federal Government’s Risk Coverage Schemes for SMEs and small farmers.
Financing limits set for businesses and farmers
The framework allows participating financial institutions to use authorized financial institutions as agents, leveraging their lending capabilities and outreach.
These agents will be responsible for loan origination, appraisal, approval, monitoring, recovery and reporting. Loans may either be recorded directly on the participating bank’s books or handled through the agency arrangement.
In both cases, loans must be identifiable and traceable, with reporting to participating banks through API-based integration.
The maximum financing limits for small enterprises will be Rs. 1 million per borrower for non-bank microfinance companies and Rs. 5 million for non-bank financial companies and microfinance banks.
For agricultural borrowers, the ceilings will be Rs. 500,000 for non-bank microfinance companies and Rs. 2 million for non-bank financial companies and microfinance banks.
The limits will apply to individual borrowers and remain subject to the financing capacity and underwriting and monitoring capabilities of the authorized institutions.
Eligibility criteria for participating institutions
Banks will select authorized financial institutions based on criteria that include 100 percent operational self-sufficiency and a non-performing loan ratio of no more than 5 percent in SME and agricultural financing.
Eligible institutions must have received unqualified audit opinions for the past two years, possess at least three years of experience in enterprise lending or agricultural financing, and meet relevant regulatory capital adequacy requirements where loans are recorded on their books.
They must also maintain sound governance and risk management systems, including a functional board, independent internal audit and compliance functions, and effective credit origination, monitoring and reporting mechanisms.
Compliance with anti-money laundering and counter-terrorism financing requirements under SBP or Securities and Exchange Commission of Pakistan regulations will also be mandatory.
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