SBP Rolls Out Mechanism of Kamyab Pakistan Program for Banks

State Bank of Pakistan (SBP) has rolled out the mechanism for payment of mark-up subsidy and credit loss subsidy to commercial banks working as Wholesale Lenders (WLs) and Microfinance Providers/Housing Finance Companies working as Executing Agents (EAs) under Kamyab Pakistan Program (KPP).

In this regard, commercial banks as WLs are advised to submit their claims and also the claims of their respective EAs to the Program Management Unit (PMU) of Finance Division, Government of Pakistan within 15 working days after the end of the respective quarter.

Kamyab Pakistan Program (KPP) Payment Mechanism:

The Government of Pakistan (GoP) has launched Kamyab Pakistan Program (KPP) to provide subsidized microloans to small businesses, the agriculture sector and the housing sector. Commercial banks/ Development Financial Institutions (DFIs), referred to as Wholesale Lenders (WLs), will provide liquidity to Executing Agents (EAs) i.e. Microfinance Providers (MFPs) and Housing Finance Companies (HFCs) for onward lending to borrowers. Microfinance providers include Microfinance Banks (MFBs), Microfinance Institutions (MFIs) and Rural Support Programs (RSPs).

KPP has three components related to financing i.e. (i) Kamyab Karobar (ii) Kamyab Kissan and (iii) Naya Pakistan Low Cost Housing (NPLCH). MFPs shall extend financing under all three components of KPP, whereas HFC will only extend financing under the NPLCH component.

Mechanism for Payment of Mark-up Subsidy:

Government shall pay the difference of “customer rate” and “bank rate” as a mark-up subsidy. The bank rate shall be determined through a competitive bidding process by ensuring transparency and compliance with Public Procurement Regulatory Authority (PPRA) Framework in letter and spirit.

The bank rate is defined as the WLs rate approved by the government through a competitive bidding process and includes both the WLs and EAs spread. Within the approved bank rate, WLs and EAs will negotiate and decide the rate which covers the EAs operational cost for financing under KPP. Markup subsidy claimed by WLs will be the difference of bank rate and markup rate charged by EAs from customer(s). EAs shall prepare and submit their subsidy claims (as the difference of EAs operational cost rate agreed with WLs and customer rate) to WLs on the standard format.

WLs will also prepare their mark-up subsidy claims. WLs will arrange an audit of the subsidy claims by External Audit Firms and submit the audited claims to PMU for receiving mark-up subsidy on outstanding regular KPP portfolio of WLs and EAs.

The audited claims of EAs/WLs along with a certificate from an external auditor relating to the accuracy of markup subsidy calculations shall be submitted through WLs to PMU within 15 working days after the end of the respective quarter for payment of mark-up subsidy claims.

The EAs/WLs shall submit their credit loss claims on the standard formats and Prudential Regulations (PR) of SBP on Microfinance Banks to determine the default i.e. Regulations related to the classification of a loan in the “Loss” category would be the benchmark for this purpose and presently it is 180 days.

However, in case of EAs regulated by the Securities and Exchange Commission of Pakistan (SECP), Non Banking Finance Companies & Notified Entities Regulations, 2008 of SECP shall apply. WLs shall only be eligible to claim 50 percent Pari-Passu Government Guarantee when their respective EAs will declare the default or file bankruptcy/insolvency i.e. WLs shall make all efforts to recover the default amount over and above 10 percent against each component/scheme from the respective EAs and remedy to claim Pari-Passu 50 percent Government Guarantee shall only be available to WLs when EAs will declare default/file bankruptcy and recovery is no more possible from EAs.

Mechanism for Payment of Credit Loss Subsidy:

EAs shall prepare and submit their credit loss claims to WLs. WLs will also prepare their credit loss claims if any and will arrange an audit of the External Audit Firms for onward submission of both claims (EAs & WLs) to PMU for receiving credit loss subsidy on the outstanding principal amount. The audited claims of EAs/WLs along with a certificate from an external auditor relating to the accuracy of subsidy & loan loss calculations shall be submitted through WLs to PMU within 15 working days after the end of the respective quarter for payment of credit loss subsidy claims. PMU shall, within 5 working days, validate the claim before recommending it for payment by Development Finance Support Department (DFSD), SBP Banking Services Corporation (BSC) Head Office Karachi. DFSD shall apply a sanity check on each claim to maintain the consistency of each claim payment. DFSD shall advise the SBP BSC Karachi office to debit the GoP’s Account and credit the respective WL’s account within three working days from the date of receipt of the claim from PMU.

Role of External Audit Firms:

WLs shall appoint External Audit Firms on the Panel of SBP to undertake audits of at least 50 percent of the subsidy & loan loss claims by EAs/WLs on an ongoing basis. Audit firms shall prepare the format for receipt of mark-up & credit loss subsidy claims for onward submission to PMU.

PMU may conduct a special audit in case EAs credit loss default rate exceeds 10% or in any other case where it is deemed necessary. The PMU will define an arbitration process to resolve issues regarding disputes on amounts of subsidy and guarantee claims, etc. The decision of PMU will be final in a resolution of disputes regarding claims and disputes, if any, between EAs and WL.

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