The State Bank of Pakistan (SBP) has rolled out the mechanism of PM’s Youth Business and Agriculture Loans Scheme (PMYB&ALS) for commercial and microfinance banks adding that its officials will conduct regular inspections to review the eligibility of loan borrowers including their status of loans.
According to the circular issued by the SBP, the officials of the banking regulator, during regular inspection of the banks and microfinance banks, shall conduct inspections of their borrowers’ portfolios on a sampling basis using their own techniques.
SBP inspectors shall randomly select credit files and review them from the perspective of eligibility of borrowers under the scheme, the status of the loan (regular or NPL), and the government’s subsidy claim, the circular stated.
Banks shall evaluate loan applications as per the parameters of the scheme approved by the Federal Cabinet. The loan facility for a borrower shall be sanctioned and disbursed by the EAs after the completion of documentation formalities. These loans shall be entitled to mark-up subsidies and credit loss subsidies. No further evaluation of the eligibility of borrowers would be conducted by the SBP.
The government launched the Prime Minister’s Youth Business & Agriculture Loan Scheme to provide subsidized loans to micro, small, and medium enterprises (SMEs) and the agriculture sector last year.
PM’s Youth Business and Agriculture Loans Scheme
According to the scheme, a financing facility of up to Rs 0.5 million will be provided to applicants at a zero rate. Loans ranging from Rs. 0.5-1.5 million will be charged a 5 percent interest rate and loans from Rs. 1.5 million to 7.5 million will be charged an interest rate of 7 percent accordingly.
Besides mark-up subsidy, the government will also bear credit losses (principal portion only) on the disbursed portfolio of the banks depending on the loan size. The government shall absorb the difference between the bank rate and end-user rate as a mark-up subsidy.
Banks will be given an interest/ profit rate margin at the rate of KIBOR plus 3 to KIBOR plus 9 depending on the size of the loans. On behalf of the government, the payment of credit loss subsidy to banks will be made on the disbursed portfolio under the scheme on a quarterly basis SBP BSC Head Office Karachi.
Banks will declare default or file bankruptcy/ insolvency and recovery is no more possible from respective financial institutions. Banks under the small business category will be eligible to claim a 10 percent government guarantee on the first loss basis on the disbursed portfolio when their loans are classified as “loss” as per the Prudential Regulations (PR) of SBP for Microfinance Banks.