PM scheme: Loan requests rise, but pace of approval remains slow

Applications of only 16,951 people out of 71,644 were approved by June 30, 2016

ISLAMABAD: Contrary to the perception that people have lost interest in Prime Minister’s Youth Business Loan Scheme, the number of fresh applicants has increased by 12% but the pace of approval and disbursement remains slow.

The April-June Quarterly Review, released by the State Bank of Pakistan (SBP) on Friday, revealed that 7,679 people applied for the business loan in the second quarter of 2016, which was 12% higher compared to the first (January-March) quarter.



National Bank of Pakistan (NBP), the country’s largest state-owned bank, received 7,353 applications in April-June 2016.

The results dispel the impression that people have lost interest in PM’s flagship loan scheme.



Last month, the head of a government-owned bank told a parliamentary committee that about 100 to 200 people were applying for the loan every quarter, indicating lack of interest on their part.

With fresh applications, 71,644 people applied for the scheme by June 30, 2016, according to the central bank. Of these, 14% were female.

However, applications of only 16,951 people - less than one in every four - have been approved. The number of people who actually got cash was even lower at 8,472 - one out of every nine applicants.

Prime Minister Nawaz Sharif launched the scheme in December 2013 with the aim of providing loans to youth in the range of Rs500,000 to Rs2 million and required funds valuing Rs100-200 billion. Average loan size has so far remained at Rs961,402.

Growing unemployment is one of the main challenges but government policies are not in tune to address it.

The government is extending loans at 6% interest to borrowers while the rate of return for banks is one-year average Karachi Inter-bank Offered Rate (Kibor) plus 5%, bringing total interest rate to 11.35%. It has also assured banks of 5% portfolio risk coverage.

Eighteen commercial banks are offering the loan and Bank Alfalah is the latest entrant. Of these, two private commercial banks have not yet received any application while Meezan Bank is the leading private-sector lender.



Recently, the prime minister expressed his dissatisfaction over the pace of loan disbursement and denial of credit to the applicants.

In the April-June quarter, commercial banks sanctioned Rs680 million in fresh loans, up just 4% from the January-March quarter. In the second quarter, NBP approved Rs524 million worth of credit whereas other commercial banks sanctioned Rs156 million.

Since the launch, 16,951 applications have been approved with a loan amount of Rs17.2 billion, far below the levels the premier desired to see.

Of the Rs17.2 billion, the NBP sanctioned Rs16.7 billion, though disbursements were not even half the sanctioned loans.

By June 30, 2016, banks had made total disbursements of Rs8.2 billion, of which NBP disbursed Rs7.8 billion. First Women Bank approved release of Rs157 million and remaining commercial banks gave Rs214 million.

In the April-June 2016 quarter, disbursements stood at Rs716 million, a growth of 10% over the January-March quarter. It was the slowest growth, coming down from the peak of 17% in the October-December quarter of 2015.

With the addition of 656 fresh loans in the second quarter, the cumulative number of beneficiaries reached 8,472 at the end of June 2016, a growth of 8%. NBP has so far disbursed 8,130 loans or 96% of the total disbursed loans.

Published in The Express Tribune, September 10^th, 2016.

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