SBP unveils Asaan unsecured SME finance program
The State Bank of Pakistan (SBP) on Monday presented an innovative initiative to improve access to finance for small and medium enterprises (SMEs) in collaboration with the Government of Pakistan with the express aim of enabling businesses that do not cannot offer security / guarantee to access bank finance.
The initiative was named “PME Asaan Finance” or SAAF to highlight the SME facilitation function of this program to provide clean loans, ie unsecured loans to SMEs.
According to the central bank, SAAF is a refinancing and credit guarantee facility that was developed through an extensive consultative process and aims to help SMEs that are creditworthy but still cannot access finance because they cannot offer the security required as collateral by banks.
The SBP will provide refinancing to banks while the Pakistani 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.
Speaking on the unsecured loan program, the Minister of Finance, Mr. Shaukat Tarin, said that “the Ministry of Finance welcomes and supports this innovative initiative of the State Bank, which would allow SMEs without collateral to access bank financing. We look forward to seeing strong participation from commercial banks to move this initiative forward. “
What is the SME Asaan Finance (SAAF) program?
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 1% per annum and will extend financing to SMEs at the end-user rate of up to 9% per annum, which is very attractive compared to informal financing costs. Under the SAAF, all SMEs that are new borrowers from a bank will be able to benefit from financing of up to Rs. 10 million.
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 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 Pakistani 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 Rs. 4 million, 50 percent 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.