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SBP Introduces SME Asaan Finance Scheme (SAAF) That Does Not Need Collateral

The State Bank has 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 who cannot offer security/collateral to access bank finance.

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This initiative has been brand 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.


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SAAF is a refinance and credit guarantee facility that has been developed through a wide-ranging consultative process and is aimed at assisting SMEs 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.

Details of SME Asaan Finance scheme (SAAF)

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.

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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.


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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.

SMEs Importance in Economy

The SME sector plays a pivotal role in Pakistan’s economy and is estimated by SMEDA to contribute 40 percent to GDP and 25 percent in export earnings. However, despite this, SMEs find it difficult to access formal bank finance as SME financing stood at Rs. 444 billion as of March 31, 2021, which is only 6.6 percent of total private sector credit. This is due to several reasons, including relatively higher loan losses, high costs in bank finance models, low usage of appropriate technology needed for SME finance, and the lack of acceptable security.

SMEs, therefore, often turn to exorbitantly expensive informal credit and face impediments to growth. The majority of SMEs in the informal sector that do not have collateral is currently borrowing in cash or the kind at rates of at least 25 percent. This scheme is primarily targeted at such SMEs.

Banks and Fintechs Cos To Participate in Scheme

In order to overcome these challenges, the SBP has adopted a fresh and innovative approach to address both SME and Bank issues. SBP will provide refinancing only to those banks that desire to specialize in lending to the SME sector.


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Interested banks will be selected through a transparent bidding process to offer concessionary refinance facilities which would also carry partial risk coverage from the Government of Pakistan. Banks winning through this bidding process will need to invest in human resources, technology, and processes to successfully develop expertise and capability to attract the SME finance market.

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In order to participate in SAAF, interested banks will submit Expressions of Interest (EOI) to SBP in order to build their SME loan portfolio during the three-year validity period of the scheme. The banks offering the largest portfolio size and the highest number of borrowers will be selected for participation. SBP will encourage banks that partner with Fintechs to provide an opportunity to innovative financing techniques in a cost-effective manner. It is expected that this initiative will enable sustainable growth in SME Finance as it aims to address the core issues facing this important sector.

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