KARACHI: Ministry of Finance and State Bank of Pakistan (SBP) introduce risk-sharing mechanism to support bank lending to SMEs and small businesses to avail SBP’s Refinance Facility to Support Employment.
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. Accordingly, the Federal Government has allocated Rs30 billion under a credit risk sharing facility for the banks spread over four years to share the burden of losses due to any bad loans in future. Under thisrisk sharing arrangement, Federal Government will bear 40% first loss on principal portion of disbursed loan portfolio of the banks.
This facility will incentivize banks to extend loans to collateral deficient SMEs and small corporates with sales turnover of upto Rs2 billion to avail financing under SBP refinance scheme.
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 risk-sharing mechanism being introduced today, that is expected to increase the banks’ incentive to lend to SMEs and small corporate under this scheme, was developed on the basis of feedback received from relevant stakeholders and in collaboration between MOF and SBP.
Ministry of Finance’s swift approval of the subsidy to provide risk coverage to banks has made it possible for the SBP to launch this credit risk sharing facility for which relevant circular has been issued today.
SBP will continue to monitor the implementation of the scheme.
With a view to incentivize banks/DFIs for financing to SMEs and small corporates under above mentioned schemes, Government of Pakistan has approved budgetary allocation for ‘Risk Sharing Facility for State Bank of Pakistan (SBP) Refinance Scheme to Support Employment and Prevent Layoff of Workers’.
Accordingly, the risk sharing facility is being provided with immediate effect, with following key features.
|The financing extended to businesses with maximum sales turnover of Rs 2 billion, under SBP refinance scheme to support employment and prevent layoff of workers is eligible for Risk Sharing Facility by the GOP.
|GoP will bear 40% first loss on disbursed portfolio (principal portion only) for eligible borrowers. Note: In case of non-repayments, after being classified as ‘Loss’ (as per the classification criteria laid down under respective SBP Prudential Regulations, credit loss subsidy claim will be paid by the GOP).
|Security arrangements will be as per executing agency’s own credit policy after taking into account the factor of this risk sharing facility. Hence, banks are encouraged to facilitate collateral deficient borrowers. In any case, banks will not be asking for additional collaterals over and above 60% of the principal amount and markup thereon.
|Banks and DFI assigned limits under SBP scheme will be eligible Executing Agencies (EAs).
|EAs shall develop and implement robust mechanism to ensure that the loans are utilized for intended purpose only.
|Development Finance Support Department (DFSD), SBP BSC will manage operational aspects of the risk sharing facility. DFSD will submit data under the risk sharing facility on quarterly basis to the Finance Division.
|EAs shall submit credit loss subsidy claims to DFSD on quarterly basis within 15 working days after the end of each quarter. DFSD after scrutiny of the claims shall submit the same to Finance Division, GOP. FD will release payment against submitted claims within 15 working days. Upon receipt of subsidy from GOP, SBP BSC Karachi will credit the account of EAs with the subsidy amount.
The banks/DFIs are advised to ensure immediate implementation of ‘Risk Sharing Facility for SBP Refinance Scheme to support employment and prevent layoff of workers’ and facilitate the eligible businesses to avail financing under this facility.