The State Bank of Pakistan has taken an initiative for allowing commercial banks to extend financing to various sized startups.
The step was taken through an amendment in the regulations of the Small and Medium Enterprises (SMEs) Policy notified by the Government of Pakistan last year to promote the business climate of small and medium-sized businesses through various incentives including access to finance through banks without collaterals.
The central bank aligned the definitions of small and medium enterprises with startups of different sizes in accordance with SME definition announced in the policy.
Accordingly, 5-year old startups having an annual sales value of up to 150 million will be considered small enterprises. Similarly, 5-year old startups having annual sales ranging from Rs. 150 million to Rs. 800 million will be considered as medium enterprises.
These amendments are applicable with immediate effect on new financing. However, since the banks/DFIs need to segregate their existing portfolio according to the revised definition of small and medium enterprises, they are allowed an implementation period up to June 30, 2022, according to a SBP circular.
Under the SME Policy, a collateral-free lending scheme that will benefit about 30,000 SMEs has been launched that will provide loans up to Rs. 10 million with lowered interest rates of 9 percent.
The policy has reduced the tax liability for manufacturing sector SMEs with annual revenues of up to Rs. 250 million. The new one-page tax return form has been simplified. Currently, the tax exemptions are available to manufacturing sector SMEs and they will be extended to IT & ITEs and selected service sectors in near future.
It is pertinent to mention here that startups in Pakistan raised an investment of $365 million in 2021 depicting a significant growth of 450 percent year-on-year compared to the investment of $66 million in the previous year.
