Govt allocates Rs30 billion to support banks lending to small businesses

ISLAMABAD: Federal government has allocated Rs30 billion to support bank lending to SMEs and small businesses as well as Small and Medium Enterprises (SME).

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

Ministry of Finance has stepped forward to shoulder risk sharing with banks who are averse to lending businesses arranging adequate collateral to under the central bank’s refinance scheme to support employment and prevent layoff of workers.

The government has allocated the 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.

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 incentivise 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.