Crypto Lending and Borrowing as a Licensed Activity

Crypto lending platforms took several different shapes before regulators caught up with the sector — some matched individual lenders to borrowers, some pooled assets and lent from their own balance sheet, and some simply connected two parties who then dealt directly with each other. Pakistan’s Virtual Assets Act, 2026 does not try to license each business model separately. Schedule I item 5 covers all of them under a single definition of Lending and Borrowing Services.

This article sets out what item 5 actually covers, why its single-paragraph structure differs from the multi-limb drafting used elsewhere in Schedule I, and what a lending business should check before assuming it sits outside the licensed category.

What are Lending and Borrowing Services under Schedule I item 5?

Unlike several other Schedule I entries, item 5 is drafted as one continuous definition rather than a list of separate limbs. The Act states:

“means the facilitation, arrangement, intermediation or direct-provision (as principal) of lending or borrowing arrangements involving Virtual Assets, where one or more lenders transfer, lend or make available Virtual Assets (or rights thereto) to one or more borrowers, subject to a contractual obligation for the borrower to return equivalent Virtual Assets (together with any agreed interest, fees or rewards) at a specified time or upon demand.”

The definition names four distinct roles a business can play — facilitation, arrangement, intermediation, or direct-provision as principal — joined by “or,” meaning any one of them is enough to bring a business within the category. It then describes the underlying transaction the definition is built around: one or more lenders transferring or making available Virtual Assets to one or more borrowers, with a contractual obligation on the borrower to return equivalent Virtual Assets, together with any agreed interest, fees or rewards, at a specified time or on demand.

What is the difference between facilitation, arrangement, intermediation and direct provision as principal?

These four words describe a spectrum of involvement, from the lightest touch to the deepest. Facilitation and arrangement both describe a business that helps a lending or borrowing arrangement happen without necessarily becoming a party to the resulting obligation — connecting a lender and a borrower, structuring the terms, or operating the platform on which the arrangement is agreed. Intermediation describes a business standing between the lender and the borrower, potentially holding a role in both legs of the transaction without being either the ultimate source or ultimate recipient of the Virtual Assets.

Direct-provision as principal is different in kind, not just degree: it covers a business that itself acts as the lender or the borrower, lending its own Virtual Assets to customers or borrowing Virtual Assets from customers onto its own balance sheet. Because the Act joins all four with “or,” a business does not need to be lending as principal to be caught — a platform that only arranges or facilitates lending between two other parties, without ever holding the assets on its own account, is still carrying on a Lending and Borrowing Service under the facilitation or arrangement limb alone.

What makes an arrangement a “lending” arrangement under item 5, as opposed to some other transfer of Virtual Assets?

The definition supplies its own test: a contractual obligation for the borrower to return equivalent Virtual Assets, together with any agreed interest, fees or rewards, at a specified time or upon demand. This is what separates a lending arrangement from an outright sale or a gift of Virtual Assets — the borrower’s obligation to give back the equivalent value is the feature that makes the transaction a loan rather than a transfer of ownership.

The phrase “or rights thereto,” describing what a lender may transfer, lend or make available, extends the definition beyond a straightforward handover of the Virtual Asset itself, to arrangements where a lender makes rights over a Virtual Asset available to a borrower without necessarily transferring outright possession — a broader formulation than one limited only to direct transfers of the underlying asset.

Does item 5 require interest or a fee to be charged for an arrangement to count as lending?

No. The definition covers the return of equivalent Virtual Assets “together with any agreed interest, fees or rewards” — the word “any” signals that interest, fees or rewards are optional additions to the arrangement, not a required feature of it. An arrangement where a borrower simply undertakes to return the same quantity of a Virtual Asset at a specified time or on demand, with no interest, fee or reward attached, still meets the Act’s core test: a contractual obligation to return equivalent Virtual Assets.

This reading means a business offering fee-free or interest-free crypto lending — for example, an arrangement structured purely around a return obligation without compensation — does not automatically fall outside item 5 simply because no interest changes hands. The obligation to return equivalent assets is what triggers the definition, not the presence of a return on the loan.

Is Lending and Borrowing Services one of PVARA’s phased AML-Registered Services?

No. PVARA’s No Objection Certificate Regulations 2025 designate exactly four Virtual Asset Services as “AML Registered Services” under Regulation 2.3 — Broker-Dealer Services, Custody Services, Exchange Services, and Virtual Asset Derivatives Services. Lending and Borrowing Services is not among them.

Regulation 2.3 states that “all other Virtual Asset Services defined under the Ordinance not otherwise constituted as an AML Registered Service may only be provided following the grant of a full license under Section 17, unless otherwise agreed with PVARA.” A crypto lending business should therefore plan around the full licensing timeline set out in section 21 of the Act, following the No Objection Certificate stage under section 19, rather than the shorter phased pathway available to the four AML-Registered Services. The NOC Regulations do leave room for a different arrangement “unless otherwise agreed with PVARA,” so a lending applicant with a strong operational readiness case may wish to raise the possibility of an earlier start directly with the Authority, rather than treating the general rule as absolute in every case.

How does the segregation and rehypothecation rule under section 24 apply to a lending business?

Directly, and in a way that shapes how a principal lending business can structure its balance sheet. Section 24(1) of the Act requires a Licensee to “at all times, hold Customer Assets in segregated accounts separate from its own assets,” and section 24(4) prohibits a Licensee from rehypothecating, lending, pledging or otherwise encumbering Customer Assets “without the customer’s explicit, informed, and revocable written consent.”

For a business lending as principal — taking in Virtual Assets from customers and lending them out to borrowers, or the reverse — section 24(4) is the provision that determines whether that lending activity is even lawful with respect to a given pool of customer funds: the customer whose assets are being lent out must have given explicit, informed and revocable written consent to that specific use of their assets, not simply agreed to the platform’s general terms of service. A lending business relying on pooled customer assets to fund the loans it makes as principal should treat that consent requirement as a precondition for the activity, not a disclosure formality.

What should a business assessing whether it needs a Lending and Borrowing Services licence check first?

• Test each of the four roles separately — facilitation, arrangement, intermediation and direct-provision as principal are joined by “or,” so a platform that only connects lenders and borrowers without ever holding assets on its own account is still caught.
• Confirm whether a return obligation exists, regardless of whether interest, fees or rewards attach to it — the Act’s core test is the borrower’s contractual obligation to return equivalent Virtual Assets, not the presence of a yield.
• Plan for the full licensing pathway, since Lending and Borrowing Services sits outside PVARA’s four AML-Registered Services, unless a specific arrangement is agreed directly with the Authority.
• Map any principal lending model against section 24(4)’s consent requirement before pooling or redeploying customer assets into loans, since rehypothecation without explicit written consent is prohibited outright.

About this analysis

This analysis was prepared by the CoinConnect research desk from the Virtual Assets Act, 2026 — Schedule I item 5 and section 24 — read alongside PVARA’s No Objection Certificate Regulations 2025, Regulation 2.3. Where practice is not yet settled or guidance has not been issued, that is stated in the text above.

Regulatory positions change and specific requirements should be verified against the current position published by the relevant authority before you act on them. This is information and analysis, not legal advice, and it does not create an advisory relationship. Take professional advice on your own circumstances.