Eight banks to roll out unsecured small business loan program


KARACHI: Eight banks will offer unsecured loans to small and medium enterprises under the SME Assan Finance program to help improve access to finance for small and medium enterprises.

“Out of 20 banks that competed to participate in this program, 8 banks in four categories were selected on the basis of the highest amount of funding and the highest number of SME clients to serve,” the State Bank said. from Pakistan in a statement. Wednesday.

These categories include large banks, mid-sized banks, small banks, and banks in conjunction with fintechs, he added.

The winning banks are Habib Bank Ltd, United Bank Ltd, Allied Bank Ltd, Meezan Bank Ltd, Bank Alfalah Ltd, The Bank of Punjab, JS Bank Ltd and The Bank of Khyber. These banks were selected through a transparent tendering process based on prescribed criteria.

Under the SAAF program, SMEs can benefit from unsecured financing of up to Rs 10 million to meet their long-term capital expenditure and short-term working capital needs.

The central bank allocated refinancing limits to eight winning banks for three years. Currently, these banks are finalizing their deployment plans for a successful implementation of the program. The selected banks are expected to roll out their SAAF programs shortly through public announcements and marketing campaigns so that SME borrowers can contact any of these eight banks to request unsecured financing.

SBP Governor Dr Reza Baqir announced that banks have demonstrated an overwhelming response to an innovative financing program for unsecured loans to SMEs introduced by the State Bank and supported by the government. This is the first time that a comprehensive unsecured SME loan program has been introduced by SBP in the country.

While appreciating the enthusiastic response from the banks, Baqir noted the rapid roll-out of the program by the banks. He also stressed the importance of deep awareness and marketing of the program for SMEs to fully utilize its benefits.

Access to finance for SMEs remains low in Pakistan due to a number of factors, including the lack of collateral and the perception of high risk due to the unavailability of track records. To address these issues, SBP has taken an innovative approach by designing the SME Assan Finance, commonly referred to as SAAF, which refers to the unsecured nature of finance. The SAAF was developed after extensive stakeholder consultation.

To implement this program, the SBP decided that instead of advising all banks to offer this product, only willing banks will be encouraged to be part of this initiative and develop their expertise through a transparent process. The SAAF was launched in August 2021 and offers have been solicited from interested banks. Under the SAAF, SBP will provide refinancing to banks at 1% per annum for subsequent loans to SMEs at a maximum end-user rate of 9% per annum.

The end-user rate under the SAAF would be attractive to SMEs compared to the usual cost of financing for them from informal sources which can reach 25-50% per annum The margin available to banks will help them to make an initial investment in human resources, technology and processes to respond to the promotion of SME finance.

This incentive was provided to banks during the first three years of this program, after which it is expected to become self-sustaining. In addition, under SAAF, risk coverage of up to 60% is provided by the government. The SBP governor also pointed out that a Sharia-compliant version of SAAF is also available.

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