State Bank keeps Rs500 million cap on bank stakes in a startup and sets a 20 percent limit for funds
A circular dated 23 October rewrites the equity rules for banks and development finance institutions. The ceiling for a single startup, fintechs included, is unchanged from 2022.
Pakistani banks may put no more than the lower of Rs500 million or 5 percent of their Tier I capital into any single startup, the State Bank of Pakistan has confirmed, while a new 20 percent limit now applies to their holdings in investment funds. The rules are in BPRD Circular Letter No. 22, dated 23 October and addressed to the presidents and chief executives of all banks and development finance institutions. It amends the regulation on acquisition of shares and investments in the State Bank's Prudential Regulations for Corporate and Commercial Banking.
For founders, the startup ceiling is unchanged. It covers fintech startups too, and it matches a March 2022 amendment to the same regulation, so the circular opens no extra room for direct startup investment.
What the circular sets
Two tests now apply to shares and funds, and in each case the lower figure governs. For shares in a single company, the limit is the lower of 5 percent of Tier I capital or 10 percent of the investee's paid up shares. For units of a mutual fund, a real estate investment trust or a private equity fund, it is the lower of 5 percent of Tier I capital or 20 percent of the fund's units. Tier I capital is taken from the latest half yearly reviewed or annual audited accounts.
The fund limit is where the text has moved. The 2022 amendment capped a single real estate investment trust at 15 percent of its paid up shares and applied the share limits, including the 10 percent test, to units of mutual funds. The October circular names private equity funds alongside mutual funds and trusts and sets one 20 percent test for all three.
Every institution must keep an internally approved equity investment policy. Each decision has to pass an internal evaluation that weighs the institution's financial position, existing portfolio, risk appetite, expected returns, in house expertise and business strategy, including how it would exit. Strategic holdings, and units in mutual funds and private equity funds, count toward the aggregate investment limits. Units of the National Investment Trust are excluded until that body is privatised, and all other existing instructions on the subject stay in force. The circular sets no effective date.
Other venture rules in progress
Two other pieces of Pakistan's venture framework are still being built. The Securities and Exchange Commission of Pakistan shared a draft Venture Capital Bill with the Board of Investment in late August, proposing a licence for fund management companies and separate registration for each fund. The World Bank is preparing a $50 million fund of funds to back professionally managed venture capital firms, and its board is expected to consider the project in early 2027.
