Banks remain cautious despite SBP’s startup framework

The State Bank of Pakistan (SBP) has introduced a separate category for startups under its revised Prudential Regulations for SME Financing, marking the first formal recognition of early-stage businesses within the country's banking framework.

 

Under the updated regulations, businesses operating for up to five years will be classified as startups, while SME turnover thresholds have also been revised. Micro enterprises will have annual sales of up to Rs30 million, small enterprises above Rs30 million to Rs400 million, and medium enterprises above Rs400 million to Rs2 billion.

 

The new framework is expected to expand access to formal financing by bringing more businesses under the SME category and providing banks with a regulatory basis to develop financing products for startups, which have traditionally struggled to secure credit.

 

Experts welcomed the move, saying it aligns the regulatory framework with Pakistan's evolving business landscape and could encourage entrepreneurship, investment, and job creation. They added that Islamic banks may also benefit by offering Shariah-compliant financing tailored to startups and SMEs.

 

However, industry experts cautioned that regulatory recognition alone will not significantly boost lending, as banks continue to rely heavily on collateral-based financing. They stressed the need for complementary measures such as government-backed credit guarantees, cash flow-based lending, dedicated startup financing programs, and stronger collaboration between banks, regulators, incubators, and venture capital firms.

 

They also urged broader reforms to improve the startup ecosystem, including startup-focused government procurement, expanded regulatory sandboxes, and policies that help retain high-growth businesses within Pakistan rather than seeing them relocate abroad.

 

Overall, experts said the revised SME framework modernizes Pakistan's financing regulations, but its success will depend on whether banks and policymakers convert the new startup recognition into practical funding opportunities.