SBP launches an unsecured financing program for SMEs


KARACHI: The State Bank of Pakistan (SBP) on Monday launched a program to provide unsecured financing of up to Rs 10 million to small and medium-sized enterprises (SMEs) with the aim of spurring sustainable growth in the sector to short of cash.

The central bank in a statement said that “PME Asaan Finance” or SAAF was an innovative initiative to improve SMEs’ access to finance in collaboration with the government.

Under this program, SBP will provide refinancing for three years to the selected banks. After three years, the refinancing will be repaid by the banks in ten equal annual installments. The selected banks will benefit from SBP refinancing at a rate of 1% per annum and will extend financing to SMEs at an end-user rate of up to 9% per annum, which is very cost-effective. informal financing.

Unsecured (own) financing will be available to SMEs for long-term fixed capital investments and working capital financing needs. Sharia-compliant, as well as conventional, Islamic financing methods will also be offered. The device will be available to SME borrowers towards the end of September 2021.

An interesting feature of the program is that the government will provide 40 to 60 percent risk coverage to selected banks against losses depending on the size of the loans. This risk coverage will be 60% for small loans up to Rs4 million; 50% for medium-sized loans over Rs 4 million to Rs 7 million and 40% for relatively large loans of Rs 7 million to Rs 10 million. “This initiative is expected to enable sustainable growth in financing for SMEs, as it aims to solve the fundamental problems facing this important sector, “the central bank said in its statement.

SAAF is a refinancing and credit guarantee facility that has been developed through an extensive consultative process and aims to help creditworthy SMEs that still cannot access finance as they cannot offer the security required as collateral by banks. The SBP will provide refinancing to banks while the government will provide support through partial credit guarantees to participating banks. This support is provided initially for three years to facilitate banks’ investments in technology, infrastructure and team building specialized in SME lending, after which SME financing by banks is expected to be sustainable without SBP or government support. government.

Commenting on the development, Minister of Finance Shaukat Tarin said: “The MOF (Ministry of Finance) welcomes and supports this innovative initiative of the State Bank, which would allow unsecured SMEs to access bank financing. We look forward to seeing strong participation from commercial banks to move this initiative forward. “

The SME sector plays a central role in the Pakistani economy and is estimated by SMEDA (Small and Medium Enterprises Development Authority) to contribute 40 percent of GDP and 25 percent to export earnings. However, despite this, SMEs are struggling to access formal bank finance, as SME finance stood at Rs 444 billion as of March 31, 2021, which is only 6.6% of total private sector credit. . This is due to several reasons, including relatively higher loan losses, high costs in bank financing models, low use of the appropriate technology needed for SME financing, and lack of acceptable security. SMEs therefore often turn to exorbitant informal credit and face barriers to growth. The majority of informal sector SMEs that do not have collateral currently borrow in cash or in kind at rates of at least 25%. This program is mainly aimed at these SMEs.

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