SBP unveils SME Asaan Finance scheme sans collateral

The State Bank of Pakistan (SBP) on Monday introduced 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 cannot offer security/collateral to access bank finance.

The initiative has been named, ‘SME Asaan Finance’ or SAAF to emphasize the SME facilitation feature of this scheme to provide clean lending i.e. lending without collateral to SMEs.

According to Central bank, SAAF is a refinance and credit guarantee facility that has been developed through a wide-ranging consultative process and is aimed at assisting SME’s that are creditworthy but are still unable to access finance as they cannot offer the security required as collateral by banks.

The SBP will provide refinance to banks while the Government of Pakistan will support via partial credit guarantees to the participating banks. This support is being provided initially for three years to facilitate investments by banks 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.

Speaking about the collateral free lending scheme, Finance Minister, Mr Shaukat Tarin said “the MOF welcomes and supports this innovative initiative of the State Bank, which would enable SMEs without collateral to access bank finance. We look forward to seeing strong participation from commercial banks to take this initiative forward.”

What is SME Asaan Finance (SAAF) scheme?

Under the scheme, SBP will provide refinance for three years to the selected banks. After three years, refinance will be repaid by banks in ten equal yearly installments.

Selected banks will get refinance from SBP at 1 percent p.a. and extend financing to SMEs at the end-user rate of up to 9 percent p.a, which is very attractive compared to informal finance costs. Under SAAF, all SMEs that are new borrowers of a bank will be eligible to avail financing of up to Rs. 10 million.

The collateral-free (clean) financing will be available to SMEs for long-term fixed capital investment and working capital finance requirements. Shariah-compliant Islamic modes of finance, as well as conventional, will be offered. The scheme will be available to SME borrowers towards the end of September 2021.

An attractive feature of the scheme is that the Government of Pakistan will provide risk coverage of 40 to 60 percent to the selected banks against losses depending on the size of loans. This risk cover will be 60 percent for small loans up to Rs. 4 million, 50 percent for midsize loans from above Rs. 4 million to Rs. 7 million, and 40 percent for relatively large loans of Rs. 7 million to Rs. 10 million.