Rs30 billion allocated to support bank lending to small businesses

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 the future.

“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.

Under this risk-sharing arrangement, the federal government will bear 40 percent 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 two billion rupees 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

SBP said that this risk-sharing mechanism 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.