The State Bank of Pakistan has introduced a new financing framework that allows banks to extend credit to small enterprises and small farmers through wholesale and agency arrangements, with the aim of improving 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 each bank’s portfolio for small enterprises and small farmers and will be covered under the Federal Government’s Risk Coverage Schemes for small and medium enterprises and small farmers.
The framework lets participating financial institutions use authorized financial institutions as agents, drawing on their lending capabilities and local 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, and in both cases they must be identifiable and traceable, with reporting to participating banks through integration based on application programming interfaces. By relying on institutions that already work closely with small borrowers, banks can reach customers they would otherwise find costly to serve, while keeping the loans within the national risk coverage system.
Maximum financing limits apply per borrower. For small enterprises, the ceiling is Rs 1 million for non-bank microfinance companies and Rs 5 million for non-bank financial companies and microfinance banks. For agricultural borrowers, the limits are Rs 500,000 for non-bank microfinance companies and Rs 2 million for non-bank financial companies and microfinance banks. The limits apply to individual borrowers and remain subject to the financing capacity and the underwriting and monitoring abilities of the authorized institutions. The tiered structure reflects the different scale and strength of each type of lender, giving larger limits to institutions with greater capacity to assess and manage loans.
Banks must select authorized financial institutions using criteria that include 100 percent operational self-sufficiency and a non-performing loan ratio of no more than 5 percent in small and medium enterprise and agricultural financing. Eligible institutions must have received unqualified audit opinions for the past two years, have 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 countering terrorism financing requirements under the regulations of the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan will also be mandatory. Together, the conditions aim to ensure that wider access to credit comes with careful selection of lenders and clear accountability for the loans they make.
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