Credit Policy Template for Pakistan

A Credit Policy sets the ground rules for how a bank or financial institution in Pakistan handles lending decisions. It spells out who can get loans, under what conditions, and how the organization manages credit risk. These rules help banks comply with State Bank of Pakistan regulations while protecting themselves from bad loans.

Good credit policies cover key areas like borrower assessment criteria, collateral requirements, interest rates, and loan monitoring procedures. They also include specific guidelines for different types of loans - from personal financing to business credit - and outline what happens when borrowers can't pay. For Islamic banks, these policies must align with Shariah principles and SBP's Islamic Banking guidelines.

Banks and financial institutions need a Credit Policy when launching new lending products or updating existing ones in Pakistan. This essential framework guides loan officers making daily lending decisions and helps maintain consistent standards across branches. It's particularly crucial when expanding into new market segments or when the State Bank of Pakistan introduces new regulations.

Use your Credit Policy to train new credit officers, standardize risk assessment procedures, and ensure compliance with SBP directives. During economic changes or market shifts, refer to and update your policy to adjust lending criteria, collateral requirements, and risk tolerance levels. Many organizations review their policies quarterly to stay aligned with market conditions and regulatory updates.

• Basic Commercial Credit Policies: Standard lending rules for business loans, covering creditworthiness criteria and collateral requirements
• Islamic Banking Credit Policies: Shariah-compliant guidelines for Islamic financial products like Murabaha and Ijarah
• Consumer Credit Policies: Focused on personal loans, credit cards, and auto financing with specific debt-to-income limits
• SME Credit Policies: Tailored for small business lending, incorporating SBP's SME financing schemes and risk assessment metrics
• Microfinance Credit Policies: Specialized guidelines for micro-loans, aligned with Pakistan Microfinance Network standards

• Bank Board of Directors: Approve and oversee Credit Policy implementation, ensuring alignment with strategic objectives and risk appetite
• Credit Committee Members: Apply policy guidelines when evaluating loan applications and making lending decisions
• Risk Management Department: Draft and update policies, monitor compliance, and suggest revisions based on market conditions
• Branch Managers: Implement policy requirements at the branch level and supervise loan officers' adherence
• State Bank of Pakistan: Reviews policies during audits to ensure compliance with banking regulations and prudential guidelines
• Loan Officers: Use policy criteria daily to assess borrower applications and structure lending terms

• Review Regulations: Gather current SBP guidelines, prudential regulations, and relevant banking laws
• Market Research: Analyze local market conditions, industry trends, and competitor lending practices
• Risk Assessment: Define credit risk appetite, borrower evaluation criteria, and collateral requirements
• Internal Input: Consult with credit officers, risk managers, and branch heads about operational needs
• Documentation Standards: List required documents, verification procedures, and loan processing steps
• Policy Structure: Our platform helps organize these elements into a comprehensive, legally-sound Credit Policy
• Review Process: Set up approval workflows and regular policy review schedules

• Purpose Statement: Clear objectives and scope of lending activities aligned with SBP regulations
• Eligibility Criteria: Detailed borrower qualification requirements and documentation standards
• Risk Parameters: Credit limits, debt-to-income ratios, and collateral requirements
• Approval Process: Authority levels, credit committee structure, and decision-making procedures
• Monitoring Guidelines: Loan portfolio review procedures and early warning systems
• Recovery Procedures: Default management and legal recourse options
• Compliance Framework: Anti-money laundering and Know Your Customer requirements
• Review Mechanism: Policy update procedures and periodic review schedules

A Credit Policy differs significantly from a Credit Agreement. While both deal with lending, they serve distinct purposes in Pakistan's banking sector. A Credit Policy provides the institutional framework for lending decisions, while a Credit Agreement is the actual contract between lender and borrower.

• Scope and Application: Credit Policies are internal documents guiding all lending activities across an institution. Credit Agreements are transaction-specific contracts for individual loans.
• Legal Status: Credit Policies aren't directly enforceable against borrowers but must comply with SBP regulations. Credit Agreements are legally binding contracts between specific parties.
• Content Focus: Credit Policies outline risk assessment criteria and procedures. Credit Agreements detail specific loan terms, repayment schedules, and security arrangements.
• Flexibility: Credit Policies can be updated periodically to reflect market conditions. Credit Agreements remain fixed unless formally amended by both parties.