Ministry of Finance and State Bank of Pakistan have introduced a risk-sharing mechanism to support bank loans for SMEs, allowing them to avail of SBP’s Refinance Facility to support employment.
Taking cognizance of 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 the risk with banks.
Accordingly, the Federal Government has allocated Rs. 30 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.
Under this risk-sharing arrangement, the Federal Government will bear a 40% first loss on the principal portion of the disbursed loan portfolio of the banks. This facility will incentivize banks to extend loans to collateral deficient SMEs and small corporates with a sales turnover of up to Rs. 2 billion to avail financing under the SBP refinance scheme.
Under 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 salary expenses at a concessional markup rate.
The risk-sharing mechanism being introduced today is expected to increase the banks’ incentive to lend to SMEs and small corporate under this scheme, 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 a circular has been issued today.
SBP will continue to monitor the implementation of this scheme.