State Bank revises prudential regulations for SME financing

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KARACHI: The State Bank of Pakistan (SBP) on Tuesday issued revised Prudential Regulations (PRs) for Small and Medium Enterprise (SME) financing to ensure smooth flow of funds to the sector.
The revised PRs focus more on small enterprise and formulate more specific and simpler regulations for them, said the central bank. The new set of regulations is believed to further improve the current regulatory environment and would boost the efforts to meet financing needs of SMEs. The revised regulations underscore importance of cash flow analysis and other tools assessing the primary source of repayment of SME borrowers.

It also emphasizes the use of technology and documentation for disciplined credit control for monitoring of credit quality. Since the SMEs are relatively less credit constrained in accessing loans compared to small enterprises, the regulations governing them have not been changed.

However, the definition for medium enterprises has been changed and their individual and aggregate borrowing limits revised upwardly. After review, the SME Prudential Regulations have now the following structure:

a) General Prudential Regulations that apply on both Small and Medium Enterprises.
b) Specific Prudential Regulations for Small Enterprise Financing.
c) Specific Prudential Regulations for Medium Enterprise Financing.
The revised PRs are applicable with immediate effect for the fresh financing facilities, the state bank said.

However, since the banks and DFIs need to segregate their existing SME portfolio according to the new definitions and revised classification criteria, they are allowed a maximum implementation period up to September 30 (2013) for the existing portfolio.

Courtesy: Pakistan Today

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