SBP Revises Interest Rates At 4% For Financing SMEs

State Bank of Pakistan (SBP) has revised interest rates at 4% to encourage banks and DFIs to promote flow of long-term loans and financing to Small and Medium Enterprises (SMEs).

On the other hand, the refinancing rates have been slashed down to 2 percent for the banks that offer loans to entrepreneurs at 6 percent for a period of up to 10 years.

The new rates of bank spread and refinancing will be effective from June 01, 2017, as per SBP.

The increasing interest or financing rates for commercial banks will help them earn interest income with improved margins while at the same time, offering loans for SMEs.

The restructuring of the bank spread and refinancing rates is likely to be a win-win situation for banks and customers. Not only will bankswill benefit from higher profit margins but customers (entrepreneurs) will also be able to avail low refinancing rates.

A refinance occurs when a business or person revises a payment schedule for repaying debts. Accordingly, the old loan is paid off and replaced with a new loan that is offered under different terms.

Spread & Refinancing Rates in The Past

Back in 2015, the central bank set different spread rates for banks varying from 2.50 percent to 3.50 percent. These rates vary, depending on the how long it was borrowed. Also, the refinancing rates were set from 3.50 to 2.50 percent for the banks under the schemes of Refinance Facility for Modernization of SMEs and Financing Facility for Storage of Agricultural Produce (FFSAP).

SBP launched these schemes in 2009 as a part of its overall strategy to focus on the development of SME sector in the country. At that time, the spread rates were set from 2 percent to 3 percent, whereas the interest and finance rates from customers had varied from 8 percent to 10 percent on borrowings for specific periods of time.

It is high time for SMEs to avail loans from commercial banks under these schemes. They can help them expand their business through investment and take advantage of finance intensive opportunities.

SBP Instructions For Banks

SBP directed banks/DFIs to effectively contribute in proper dissemination/awareness creation of schemes among potential customers.

Banks and DFIs are advised to undertake these actions:

  • To place brochures containing information on the above-mentioned schemes in their branches as well as near ATMs.
  • To update their websites with information about these SBP Schemes.
  • To regularly conduct awareness sessions on above schemes to their prospective customers.

Assessment of Banks

In this regard, banks/DFIs shall inform SBP by submitting their annual plan of the awareness sessions with SME Associations. Further, banks & DFIs will submit quarterly updates on awareness sessions held by them to Development Support Finance Department, SBP BSC, Head Office, Karachi.

Further, in case of failure to carry out the above-stated instructions on creating awareness among their staff and SMEs, punitive action can also be initiated against the concerned banks/DFIs under the respective provisions of BCO, 1962.