Rs30b allocated to support bank lending to small businesses

The government has allocated Rs30 billion under a credit risk-sharing facility spread over four years for banks to support bank lending to small businesses, according to a statement issued on Wednesday.

“Ministry of Finance and the State Bank of Pakistan have introduced a risk-sharing mechanism to support bank lending to Small and Medium Enterprises and small businesses to avail SBP’s Refinance Facility to Support Employment,” the press release said.

The government has allocated this amount under a credit risk-sharing facility for banks spread over four years to share the burden of losses due to any bad loans in future.

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“Taking cognizance of the SMEs finding difficulties in arranging adequate collateral and banks’ risk averseness in taking exposures for such lending under the SBPs Refinance Scheme to Support Employment and Prevent Layoff of Workers, Ministry of Finance has stepped forward to shoulder risk sharing with banks,” the statement said.

Under the risk-sharing arrangement, the federal government will bear 40% first loss on the principal portion of the disbursed loan portfolio of the banks.

This facility will also incentivise banks to extend loans to collateral deficient SMEs and small corporates with a sales turnover of up to two billion rupees to avail financing under the scheme.

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Under the SBP’s Refinance Scheme to Support Employment and Prevent Layoff of Workers due to the impact of COVID-19, businesses that commit to not lay off workers in the next three months can avail credit through banks for the three months of wages and salaries expenses at a concessional mark-up rate.

“The new mechanism was developed on the basis of feedback received from relevant stakeholders and in collaboration between the finance ministry and the central bank,” the statement further said.