PM Loan Scheme Interest Rates Explained (2025)

The Prime Minister Youth Business and Agriculture Loan Scheme (PMYB&ALS) is one of Pakistan’s leading initiatives to support young entrepreneurs, small businesses, and farmers. A major factor that makes this program popular is the affordable interest rates offered under different tiers. Understanding the markup structure helps applicants choose the right category and plan repayment effectively.

The article provides a detailed explanation of PM loan scheme interest rates 2025, tier-wise markup, EMI calculation, and tips for selecting the best option based on business requirements.

Overview of PM Youth Loan Interest Rates

The PM loan scheme is divided into three tiers to make financing accessible to all income levels. Each tier has a different loan amount, markup rate, and collateral requirement. The State Bank of Pakistan (SBP) regulates these interest rates to ensure fair lending across participating banks.

Tier 1: Interest-free loans up to PKR 500,000
Tier 2: Low markup loans with 5% interest rate
Tier 3: High-value loans with 7% interest rate

This tier-based structure allows individuals with different financial capacities to benefit from the program, whether they are starting a small shop, expanding a business, or investing in agriculture.

Tier 1 – Interest-Free Business and Agriculture Loans

Tier 1 is the most attractive category as it offers interest-free financing for new entrepreneurs and small businesses.

Loan Amount: Up to PKR 500,000
Markup Rate: 0% (Qarz-e-Hasna)
Repayment Period: Up to 8 years
Collateral: No collateral required

This tier is ideal for individuals with limited resources or those starting micro and small businesses. Because there is no interest, the borrower only repays the principal amount in easy monthly installments.

Who Should Apply for Tier 1?

Students and recent graduates
Home-based entrepreneurs
Farmers with small-scale agricultural projects
Women entrepreneurs looking for zero-cost financing

Tier 2 – Low Markup Financing

Tier 2 targets small and medium businesses that require larger funding.

Loan Amount: PKR 500,001 to 1.5 million
Markup Rate: 5% per annum (fixed)
Repayment Period: Up to 8 years
Collateral: May be required depending on bank policy

A 5% fixed markup is significantly lower than commercial bank rates in Pakistan, making it highly affordable for SMEs. For example, if you borrow PKR 1,000,000 under Tier 2, the annual interest would be PKR 50,000, which is much less compared to regular business loans that often charge 12–18%.

Who Should Apply for Tier 2?

Small manufacturing units
Agriculture and livestock projects
Service providers and retail businesses
Existing entrepreneurs looking for expansion capital

Tier 3 – High-Value Business and Agriculture Loans

Tier 3 is designed for established businesses and large agricultural projects requiring significant investment.

Loan Amount: PKR 1.5 million to 7.5 million
Markup Rate: 7% per annum (fixed)
Repayment Period: Up to 8 years
Collateral: Required

Even with a 7% markup, these loans are cheaper compared to standard commercial loans. Tier 3 applicants usually have to provide collateral, such as property or business assets, to secure the loan.

Who Should Apply for Tier 3?

Large-scale farmers and agribusinesses
Manufacturing and production units
IT startups with higher capital needs
Established SMEs looking for expansion

PM Loan Interest Rate Comparison Table

Tier	Loan Amount	Interest Rate (Markup)	Repayment Period	Collateral
Tier 1	Up to PKR 500,000	0% (Interest-Free)	Up to 8 Years	Not Required
Tier 2	PKR 500,001 – 1.5M	5% Fixed	Up to 8 Years	May be Required
Tier 3	PKR 1.5M – 7.5M	7% Fixed	Up to 8 Years	Required

How PM Loan Markup is Calculated?

The markup is calculated based on the outstanding principal balance using a simple interest method. For example:

Loan: PKR 1,000,000
Interest Rate: 5% (Tier 2)
Annual Interest: PKR 50,000

Repayment is usually structured in equal monthly installments (EMIs), which include both principal and interest. Participating banks like NBP, HBL, BOP, and Askari Bank provide repayment schedules after approval.

PM Loan Scheme Interest Rate Calculator 2025

Use this calculator to estimate your monthly EMI and total repayment under the Prime Minister Youth Loan Scheme.

Calculation Result:

Factors Affecting PM Loan Interest Rates

While the rates are fixed under each tier, some factors can influence the overall cost:

Loan Amount: Higher loan amounts increase total markup.
Repayment Term: Longer repayment periods reduce EMI but increase total interest.
Bank Charges: Processing fees and insurance may apply.
Business Category: Agriculture loans may get preferential treatment under certain SBP policies.

Tips to Choose the Right PM Loan Tier

Assess Business Needs: Estimate the capital required to start or expand your business.
Understand Repayment Capacity: Choose a tier with EMIs you can comfortably manage.
Consider Collateral: Apply for Tier 1 or 2 if you cannot provide security.
Use Loan Calculators: Online PM loan calculators help estimate EMI and total repayment.
Compare Banks: Different banks may offer additional support or flexible repayment schedules.

Benefits of PM Loan Scheme Interest Rates

Affordable Financing: Lower than commercial bank rates.
Fixed Markup: Predictable EMIs without fluctuations.
Interest-Free Option: Tier 1 encourages micro-entrepreneurship.
Economic Growth: Promotes SMEs and job creation.
Inclusive Access: Available to youth, women, and low-income groups.

Common Questions About PM Loan Markup

Is Tier 1 completely interest-free?

Yes. Tier 1 is a 100% interest-free loan. Borrowers only repay the principal amount.

Can interest rates change after approval?

No. The markup remains fixed for the entire repayment period as per SBP guidelines.

Are there any hidden charges?

Banks may charge minimal processing fees or insurance costs, but interest rates are regulated and transparent.

Do women get different interest rates?

No, but women have a 25% quota and may get priority approval under all tiers.

Can I switch from Tier 2 to Tier 1 later?

No. Once approved, the loan tier cannot be changed. Carefully choose before applying.

Final Thoughts

Understanding the PM loan scheme interest rates is crucial before applying. The tier-based markup structure offers flexibility for different business sizes, from small startups to large-scale enterprises. Tier 1’s interest-free loans make entrepreneurship accessible to low-income youth, while Tier 2 and 3 provide affordable financing for SMEs and agricultural ventures.

Before applying, evaluate your business plan, repayment capacity, and collateral options to choose the right tier. With careful planning, the PM Youth Loan Scheme can be a stepping stone toward financial independence and economic growth in Pakistan.

References

State Bank of Pakistan – SBP Official Circular on PMYB&ALS
Prime Minister Youth Program – PMYP Official Portal
National Bank of Pakistan – PM Loan Details
Bank of Punjab – Youth Business Loan Information
Small and Medium Enterprises Development Authority (SMEDA) – Loan Guidelines