The State Bank of Pakistan has launched an initiative to allow commercial banks to provide loans to startups of various sizes.
The amendment was made to the regulations of the Small and Medium Enterprises (SMEs) Policy, which was notified by the Government of Pakistan last year in order to promote the business climate of small and medium-sized businesses through various incentives, including access to finance through banks without collateral.
In accordance with the SME definition published in the policy, the central bank harmonized the definitions of small and medium firms with startups of various sizes.
As a result, 5-year-old companies with annual sales of up to $150 million will be classified as small enterprises.
Similarly, startups that are five years old and have annual sales ranging from Rs. 150 million to Rs. 800 million would be classified as medium firms.
These adjustments take effect immediately for new finance. However, because banks/DFIs must segregate their current portfolios based on the updated definition of small and medium companies, they have been granted an extension till June 30, 2022, according to an SBP circular.
A collateral-free lending scheme has been introduced under the SME Policy, which will help about 30,000 SMEs by providing loans up to Rs. 10 million at a reduced interest rate of 9%.
The policy has decreased tax burden for SMEs in the manufacturing sector with yearly revenues of up to Rs. 250 million.
The new one-page tax return form is simpler. Tax exemptions are now offered to SMEs in the manufacturing sector, and they will be extended to IT & ITEs and certain service industries in the near future.
It is worth noting that startups in Pakistan raised $365 million in 2021, representing a significant increase of 450 percent year on year compared to the previous year’s investment of $66 million.
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