SBP Allows Loans Up to Rs5 Million for Small Businesses

The State Bank of Pakistan (SBP) has introduced a new financing framework enabling banks to extend credit to small businesses and farmers through microfinance banks and non-bank financial institutions. Individual loan limits can reach Rs5 million for small enterprises and Rs2 million for agricultural borrowers, depending on the type of intermediary institution.

Issued on October 28, 2026, through SH&SFD Circular No. 07, the framework allows banks to use wholesale financing and agency-based arrangements to expand lending through institutions with established customer networks and experience in serving smaller borrowers.

Under the system, participating banks will serve as Participating Financial Institutions (PFIs), while eligible microfinance banks (MFBs), non-banking microfinance companies (NBMFCs) and non-bank finance companies (NBFCs) will act as Agent Financial Institutions (AFIs).

The intermediary institutions will identify potential borrowers, evaluate their creditworthiness, approve financing, complete documentation, monitor repayments, pursue loan recoveries and report financing data. Participating banks, meanwhile, will select eligible intermediaries, allocate financing limits, monitor their portfolios and ensure compliance with SBP requirements.

Loan Limits for Businesses and Farmers

The SBP has established different lending ceilings based on the type of intermediary providing the financing.

For loans originated through NBMFCs, the maximum amount will be Rs1 million per small enterprise borrower and Rs500,000 per agricultural borrower.

For financing arranged through NBFCs and microfinance banks, individual loan limits will be higher, reaching Rs5 million for small businesses and Rs2 million for farmers.

These ceilings apply to individual borrowers and will be subject to the intermediary's financing capacity, credit assessment standards and monitoring capabilities.

Two Financing Models Introduced

The framework provides two mechanisms through which participating banks can support lending: agency arrangements and wholesale financing.

Under the agency model, loans will be recorded on the participating bank's balance sheet, and funds will be transferred directly to borrowers' designated accounts. The intermediary institution will handle customer identification, credit assessment, documentation, loan servicing and recovery.

Under the wholesale model, loans may instead be recorded on the intermediary's balance sheet. The intermediary will disburse funds to borrowers and subsequently seek reimbursement from the participating bank against reported disbursements.

Both models require financing transactions to remain separately identifiable and traceable through secure application programming interface (API) connections between banks and intermediary institutions.

Eligibility Requirements for Intermediaries

The SBP has prescribed financial and operational standards for institutions seeking to participate in the framework.

Eligible institutions must maintain operational self-sufficiency of at least 100% and keep non-performing loans in their small enterprise and agricultural financing portfolios at or below 5%.

They must also have unqualified audited financial statements for the previous two years and at least three years of experience in enterprise or agricultural lending.

Institutions recording loans on their own balance sheets must meet the minimum capital adequacy ratio or other capital requirements established by their respective regulators.

Additional requirements include effective corporate governance, a functioning board, independent internal audit and compliance arrangements, and adequate systems for originating, monitoring and reporting loans.

Intermediaries must also comply with applicable anti-money laundering and counter-terrorism financing regulations issued by the SBP or the Securities and Exchange Commission of Pakistan.

Due Diligence and Formal Agreements

Participating banks must conduct comprehensive due diligence before entering agreements with intermediary institutions. This process will cover ownership structures, financial performance, governance, loan portfolio quality, technological capabilities and regulatory compliance.

Banks may partner with one or several eligible institutions but must assign financing limits according to each intermediary's operational capacity, branch network, customer base and available systems.

Formal agreements must specify the overall financing limit, maximum loan size, responsibilities of both parties, interest or financing rates charged to borrowers, and fees payable to intermediaries.

The agreements must also grant participating banks access to the intermediary's systems, records, accounting books and financing documents.

Digital Verification and Loan Monitoring

Under the operational requirements, intermediaries must verify borrowers' identities through biometric and PMD verification systems, using their branches or digital platforms. They must assess cash flows, evaluate collateral or guarantor arrangements where applicable, and complete financing agreements.

Borrower information and loan data must be shared with participating banks through secure digital connections.

Borrower accounts may be maintained in the participating bank's books or, where microfinance banks act as intermediaries, in the intermediary's own books, subject to the prescribed reporting and data-sharing requirements.

Participating banks must maintain separate records for each intermediary and distinguish between financing provided to small enterprises and agricultural borrowers.

The framework also requires ongoing monitoring of outstanding financing, overdue loans, repayment performance, collection efficiency and overall portfolio quality. Digital reporting should preferably take place in real time or near real time.

Restrictions When Loan Performance Deteriorates

To manage credit risks, the SBP has introduced restrictions on additional lending when an intermediary's loan portfolio deteriorates.

Further use of financing limits must be withheld or stopped if the non-performing loan ratio under either wholesale or agency arrangements exceeds 10%.

A separate provision for wholesale financing requires banks to freeze additional disbursements when an intermediary's non-performing loan ratio reaches 10% and take corrective measures in accordance with the financing agreement.

Participating banks must also periodically reassess exposure limits and monitor compliance with lending conditions, borrower eligibility criteria and portfolio concentration limits.

Banks using wholesale arrangements must maintain separate ledgers and report retail and wholesale financing portfolios separately for small enterprises and farmers. Intermediaries recording wholesale loans on their own balance sheets must likewise distinguish between loans supported by participating banks and financing provided from their own resources.

Link With Government Risk Coverage Schemes

The SBP has linked financing under the framework to existing federal government risk coverage schemes for small and medium-sized enterprises and small farmers.

Eligible financing provided through wholesale and agency arrangements may qualify for coverage, provided the applicable eligibility criteria and risk coverage conditions are met.

However, participating banks will remain solely responsible for verifying that loans qualify for coverage and ensuring that the necessary checks are completed before submitting claims.

The central bank has also directed participating banks to include financing extended to small businesses and farmers under these arrangements in their respective lending portfolios for regulatory reporting purposes.