SBP Sets Rs500 Million Startup Investment Limit for Banks in New Prudential Rules

The State Bank of Pakistan has formally opened a door that Pakistani startups have been waiting at for years: commercial banks and development finance institutions can now invest directly in startups, with the central bank setting a clear ceiling of Rs500 million per startup under its revised investment rules.

The move came through BPRD Circular Letter No. 22 of 2026, issued on 23 October 2026 to the presidents and chief executives of all banks and development finance institutions. The circular amends Regulation R-6 of the Prudential Regulations for Corporate and Commercial Banking, which governs how much banks can put into company shares, startups, mutual funds, REITs and private equity funds.

Rs500 million or 5% of Tier-I capital — whichever is lower

The headline number is simple. For investment in any single startup, including fintech startups, a bank or DFI may invest no more than the lower of two figures: 5% of its Tier-I capital, or Rs500 million. If the bank is small enough that 5% of its core capital is less than Rs500 million, the smaller figure applies. For large banks, the Rs500 million ceiling binds.

Tier-I capital, for this purpose, is taken from the bank’s preceding half-yearly reviewed or annual audited financial statements — so the limits move with the bank’s actual capital position rather than being fixed in stone.

The circular also revises neighbouring limits. For shares of a single company, a bank’s aggregate investment must stay within the lower of 5% of its Tier-I capital or 10% of the investee company’s paid-up shares. For units of any single mutual fund, REIT or private equity fund, the limit is the lower of 5% of Tier-I capital or 20% of that fund’s units. The revision builds on earlier changes made through BPRD Circular No. 06 of 2014 and later letters in 2021 and 2022.

Startups named as a separate category for the first time

What makes this circular notable is not just the numbers but the vocabulary. Startups — including fintech startups — are now named as a distinct investment category in the prudential framework, standing alongside companies and funds rather than being buried inside general corporate exposure limits.

That distinction matters because it gives banks a clear, regulated route to take equity positions in young technology companies, rather than treating them as an awkward fit for traditional lending or investment books. The circular covers equity investments in shares or units — not loans — so it is about banks becoming shareholders in startups, not lenders to them.

Commentators in the banking sector have called it a potential game-changer for the local ecosystem: instead of high-interest commercial lending, startups could access equity-like venture capital from institutions sitting on deep balance sheets, while banks’ exposure stays capped at prudent levels.

Banks must adopt a formal equity investment policy

The central bank did not hand out a blank cheque. Every bank and DFI must have an approved equity investment policy backed by an internal evaluation process. That policy has to cover the institution’s financial standing and portfolio, its risk appetite, expected returns, the expertise available to evaluate startups, its investment strategy and, crucially, an exit plan.

The exit-plan requirement is a deliberate one. Startup equity is illiquid and risky; the State Bank wants boards to think about how they will get their money back before they put it in. Units of the National Investment Trust remain excluded from these rules until NIT is privatised, and all other instructions in the prudential regulations continue as before.

What it means for Pakistan’s startup ecosystem

The timing is hard to miss. The rule change lands in the middle of a crowded startup-financing landscape in 2026 — the Pakistan Startup Fund’s equity-free grants are already operational, the SPARK and ELEVATE innovation grants have their own Rs352.5 million allocation, and the World Bank has proposed a $50 million Fund of Funds aimed at Pakistani venture capital that could reach a board vote in early 2027.

Against that backdrop, bank equity is a missing piece. Pakistan’s venture funding has historically been thin, and domestic institutional capital has stayed on the sidelines. A Rs500 million cheque is large by local standards — most Pakistani seed and Series A rounds are smaller — which means a single bank-backed investment could fund a startup’s entire growth round.

Whether banks actually use the new headroom is another question. Startup equity needs specialised evaluation skills that commercial credit teams do not always have, and banks remain conservative by design. But the regulatory signal is clear: the State Bank now treats startup investment as a legitimate, separately governed activity — and the first bank to write the cheque may set the pace for the rest.

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Sources: Mettis Global, Focus Pakistan