SBP scheme for small businesses fails to take off

ISLAMABAD: The Refinance Scheme for Small Businesses by the State Bank of Pakistan has so far failed to take off due to multiple reasons as the commercial banks are not designed and fully equipped to provide credit line to Small and Medium Enterprises (SMEs).

“The SBP’s Refinance Scheme for Small Businesses is failing to take off because our banks and their staff have never focused on credit support for SMEs,” top officials dealing with these issues confirmed to The News in the federal capital on Friday. 

This hue and cry from the Small and Medium Enterprises has been increasing despite claims made by the central bank that so far 700 to 1,000 companies approached the commercial banks for seeking the loan facility ranging from Rs65 billion to 90 billion.

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Convincing commercial banks to lend money is hard

Out of these loan applications, the banks have sanctioned loans worth Rs23 to 30 billion, but the disbursement stands at a few billion rupees. The banks are reluctant to go ahead despite the fact that the Ministry of Finance placing cost sharing mechanism with the SBP. 

This provides a Rs30 billion subsidy to banks for absorbing the first 40% out of this scheme to protect jobs after the COVID-19 pandemic. The SME sector is of the view that it is running from pillar to post to convince the commercial banks to lend them money but has had little success.

There is a major reason attached to it as these banks and their staff have been trained to serve only big companies having dedicated departments to fulfill all lengthy and procedural requirements to get loan facility.

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'Verification challenging in these times'

It was the crux of their discussions that most bank branches are yet to receive any guidelines from their headquarters on the refinance scheme and how to deal with the customers, The News reported on Saturday.

"These banks branches are simply clueless how to deal with these loan applications,” said one owner of SME. The SBP's April 22 circular has encouraged banks to provide clean lending up to Rs5 million, but banks are reluctant and are using different excuses.

There are some practical issues for businesses, which are ready to submit collateral as most of the government departments are closed for public dealing. “Property documents’ verification is challenging in these times,” said one loan seeker.

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'Whole purpose is to protect jobs'

Those banks that practice Islamic finance say that they do not have any product or model for clean lending, the seeker added. Another person affiliated with the SME sector said that the whole purpose of this facility was to protect jobs and direct payment to employees accounts. 

"There is a need to focus upon how many small companies have been able to provide monthly salaries with the loan facility provided by banks and the performance of the banks needs to be analyzed on actual disbursement of amounts into accounts of employees," the person said,

If the banks fail to disburse the approved amounts within the next 7 to 10 days, then the companies will not be able to provide salaries to their employees on the eve of coming Eid ul Fitr, The News claimed.

Originally published in The News