Karachi: The State Bank of Pakistan (SBP) has introduced a separate category for start-ups under its revised Prudential Regulations for SME Financing, marking a significant policy step to improve access to formal financing for early-stage businesses.
The move is aimed at strengthening Pakistan’s entrepreneurial ecosystem by bringing start-ups into the formal regulatory framework and encouraging greater access to banking and financial services.
For the first time, the central bank has formally defined start-ups as businesses that have been operating for up to five years and are in the early stages of development, bringing a sector that has largely remained outside traditional bank lending into the regulatory framework.
The revised regulations are expected to provide banks with greater regulatory clarity to design financing products for emerging businesses that have historically faced challenges in securing formal credit.
As part of the revised framework, the SBP has also expanded the definition of small and medium-sized enterprises (SMEs) by increasing annual turnover thresholds.
Under the new criteria:
- Micro enterprises are businesses with annual sales of up to Rs30 million.
- Small enterprises are businesses with annual sales exceeding Rs30 million and up to Rs400 million.
- Medium enterprises are businesses with annual sales above Rs400 million and up to Rs2 billion.
The revised classifications are expected to increase the number of businesses eligible for SME financing and improve access to the formal banking sector.
Analysts described the formal recognition of start-ups as one of the most significant changes in the updated regulations, saying it creates a regulatory foundation for banks to develop financing products specifically for early-stage companies.
However, they cautioned that the policy change alone is unlikely to significantly increase lending to start-ups.
Experts noted that commercial banks may remain reluctant to finance young businesses because many start-ups lack sufficient collateral, established credit histories and proven business records.
They said broader structural reforms, including risk-sharing mechanisms, stronger credit guarantee schemes and targeted incentives for financial institutions, would be necessary to encourage greater lending to the start-up sector.
According to analysts, while the revised regulations represent an important step toward expanding financial inclusion for entrepreneurs, additional policy measures will be essential to improve access to capital and support the sustainable growth of Pakistan’s start-up ecosystem.
