By Muhammad Soban Islamabad, April 08, (INP-WealthPK): The State Bank of Pakistan (SBP) has revised its Prudential Regulations (PRs) regarding small and medium enterprises (SME) financing. According to the new Prudential Regulations, now SMEs up to the age of five years are considered startups. The central bank has revised regulations related to definitions of small and medium enterprises to align them with the definitions prescribed in Pakistan's SME Policy 2021. The New Regulation SE R-1 defines that any enterprise with an annual sales turnover of up to Rs150 million and startups up to five years old will be considered a small enterprise (SE). According to Regulation ME R-1, companies with annual sales turnover above Rs150 million to Rs800 million are considered medium enterprises (ME). Therefore, a medium enterprise that is less than five years old is considered a startup medium enterprise. These amendments are applicable with immediate effect to newly issued financing. As a result, banks and DFIs need time for implementation since they need to segregate their existing portfolio based on the new definition of Small Business and Medium Business. It is scheduled to take place by June 30, 2022. SMEs play an important role in Pakistan's economy. Currently, around 5 million manufacturing units are operating in Pakistan out of which 99 percent are SMEs. These SMEs are not only providing livelihood to the labor force, but also contributing to 40 percent of the GDP. Furthermore, they also have a share of 25 percent of total exports. To further uplift this sector, the government is facilitating the SMEs by providing them with tax relief and financing up to Rs10 million. Talking to WealthPK, Dr. Mehmood Khalid, Senior Research Economist at the Pakistan Institute of Development Economics, said, "The SMEs' role in Pakistan's economy is undeniable. This sector is the backbone of the economy, contributing significantly towards employment generation and export earnings. But unfortunately, it is part of the informal economy. The government has been trying to facilitate them and has approved the SME policy 2021, which provides many incentives to the SMEs." He said, "The culture of new startups is also accelerating, as Pakistan has received more than $360 million investment (in startups) which is a good sign for the economy. The government is incentivizing these startups including tax holidays etc. These amendments to the PRs would help the SMEs to benefit from these incentives and positively contribute to the economy." On the question of recent amendments to the PRs made by the State Bank of Pakistan, Dr. Khalid said the bank had been trying to provide priority financing services to the SME sector to help accelerate its growth and improve the national income accounting.