The State Bank of Pakistan (SBP) has issued a directive for commercial banks, microfinance banks, and Development Finance Institutions (DFIs) to implement end-to-end digital onboarding for Small and Medium Enterprises (SMEs) under updated prudential regulations. This move is aimed at streamlining SME financing, improving transparency, and fostering financial inclusion in the country.
Under the new framework, financial institutions are now authorized to use advanced technology-based solutions for onboarding SMEs. This includes video KYC recordings, GPS verification, and geo-tagged data to confirm both the identity of business owners and the authenticity of their business premises. The digital onboarding process is expected to significantly reduce paperwork and speed up account opening procedures.
All documentation related to SME credit, including renewals, declarations, and agreements, will now be accepted in digital format. Banks and DFIs are also required to execute e-agreements through secure digital signature platforms, while leveraging confirmations from anchor partners such as manufacturers, distributors, digital aggregators, and online platforms. This approach allows financial institutions to rely on validated third-party information, reducing the need for direct data collection from applicants.
To enhance efficiency, data collected during account opening can be reused across credit assessment processes, eliminating duplication and improving the overall experience for SME clients. Where statutory or regulatory data is accessible via authorized sources, banks will not need to request it from applicants directly, further streamlining operations.
Financial institutions are also expected to establish robust monitoring mechanisms for SME loans and financing. Digital tools will be employed to track operational and financial performance, including account activity, stock reports, and periodic digital or physical verification of business operations. Additionally, banks and DFIs are required to develop in-house digital credit scoring models or collaborate with reputable fintech partners to assess SME creditworthiness. These models will use transactional data, cash flow records, digital supply chain information, and other verifiable alternative data sources.
The SBP’s updated regulations categorize enterprises based on annual sales turnover. Micro Enterprises are defined as those with up to Rs. 30 million in sales, Above Micro Enterprises range from Rs. 30 million to Rs. 150 million, and Medium Enterprises have sales between Rs. 150 million and Rs. 800 million. Startups less than five years old are classified as Startup SEs or Startup MEs.
Under these provisions, Small Enterprises (Micro and Above Micro) can access funded and non-funded facilities of up to Rs. 100 million, while Medium Enterprises are eligible for financing of up to Rs. 500 million from one or more financial institutions. The regulations also allow banks and DFIs to deduct the value of liquid assets such as bank deposits, investment certificates, Pakistan Investment Bonds, Treasury Bills, and National Savings securities held under perfected lien when calculating per-party exposure limits.
By integrating digital tools, video KYC, and advanced credit scoring into SME financing, the SBP’s latest directive aims to simplify banking processes, improve risk assessment, and promote broader financial inclusion across Pakistan’s SME sector.
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