Karachi August 2 2024: Considering the critical importance of SMEs in inclusive economic growth and employment creation, the Government of Pakistan, on the recommendation of the SBP, has approved a Risk Coverage Scheme for securing banks’ fresh exposure against SMEs.
The scheme is part of the Government and the SBP efforts to double the size of SME financing to PKR 1,100 billion in next 5 years.
The government has introduced a new financing scheme starting from July 1, 2024, aimed at supporting Small and Medium Enterprises (SMEs). This initiative includes fresh or incremental financing options and involves several key features:
- Proposed Outlay: The financing will be available for fresh or incremental funding from July 1, 2024.
- Credit Guarantee Limits: The State Bank of Pakistan (SBP) will allocate Risk Coverage Limits to each Participating Financial Institution (PFI) against fresh SME finance.
- Eligibility Criteria: Both new and existing SME businesses, as defined by the SBP’s Prudential Regulations for SME Finance, are eligible.
- Loan Size: The loan sizes are specified according to the SBP’s Prudential Regulations for SME Finance, with loans up to Rs 25 million for Small Enterprises (SEs) and up to Rs 200 million for Medium Enterprises (MEs).
- Loan Type: The financing will cover all types of loans, including working capital loans, running finance, and long-term loans.
- Loan Tenor: Loans can be availed for a period of up to five years.
- Security Requirements: The security requirements will be as per the Prudential Regulations for SME Finance.
- Risk Mitigation: The government will absorb credit loss (principal portion only) on the banks’ fresh exposure against SMEs, with a 20% first loss coverage against banks’ fresh exposure to SEs and a 10% first loss coverage against banks’ fresh exposure to MEs.
- Loan Loss Criteria: Loans classified as loss based on time-based criteria as mentioned in the SBP Prudential Regulations for SME Finance for SEs and MEs will be considered the defaulted portfolio for the purpose of payment of claims against the risk coverage.
- Executing Agency: All commercial banks and Islamic banks will act as the executing agencies.
- Submission of Risk Coverage Claims by Banks: Banks will lodge their risk coverage claims electronically with the Financial Inclusion Support Department (FISD), SBP BSC within 15 working days after the completion of the respective quarter.
- Recoveries Against Classified/Loss Loans: Payment of risk coverage claims does not absolve banks from their right of recovery of the defaulted amount. Banks will continue with their regular recovery procedures. Recoveries from delinquent borrowers will be treated in three ways:
- If a bank recovers from delinquent borrowers and has pending subsidy claims with SBP, it can adjust the recovered amount from the quarterly claim by netting it off.
- If a bank recovers from delinquent borrowers without pending subsidy claims, the amount recovered will be deposited into the concerned bank’s account with FISD-SBP BSC and adjusted with other pending risk coverage claims.
- In cases where all banks submit nil claims, the recovered amount will be deposited in a miscellaneous account and quarterly intimated to the Finance Division.
This comprehensive scheme is designed to facilitate SME growth by providing necessary financial support and risk mitigation to banks, ensuring that SMEs have access to the funds needed for their development.
