Overcoming challenges: Default ratio in youth loans touches 12% mark

ISLAMABAD: Nearly 12 per cent borrowers of the Prime Minister’s Youth Business Loan Scheme have so far defaulted on their payments, marring officials’ efforts to overcome administrative and financial challenges.

The default ratio increased and the National Bank of Pakistan so far sent more than 850 cases to the Credit Information Bureau (CIB), Senior Executive Vice-President and head of NBP’s commercial and retail banking Mudassir Khan said on Thursday.

Mudassir was talking with media persons along with Chairperson of PMYBL scheme programme Leila Khan.

The NBP had so far disbursed 17,051 loans worth Rs17.1 billion: this meant that more than 2,000 persons had actually defaulted on their obligations. The default ratio is twice the earlier reported figure of six per cent.



The NBP bears the entire burden of the default cost, except for the five percent picked up by the government. The bank had urged the government to bear half the default cost, this was not accepted.

According to NBP’s Executive Vice-President Zubair Mirza, the default ratio was inching up. He expressed the hope that the figure was expected to decline to around eight percent by the end of this month.

Leila Khan said that the 12 per cent ratio was “significantly lower” than the industry’s average of 27 per cent defaults in small business loans.

The repayment of loans is scheduled to start after a year-long grace period. The government is subsidising the borrowers’ cost.

Challenges

Since its launch, the loan scheme faced multiple challenges, including high public expectations, NBP’s reluctance, and certain financial and administrative constraints.



In late December last year, the NBP issued a circular and marked all bank accounts of new borrowers as liens, granting the head office the authority to retain the loan in the account despite transferring it in borrower’s name. The government-run bank transferred about Rs8 billion in thousands of accounts opened a couple of months ago under the loan scheme, but lien marked these accounts.

Lien marking bars borrowers from drawing money from their accounts.

Mudassir admitted that the NBP had marked 5,700 accounts with lien after transferring money into them but insisted that this was “one-off case”. He said that that the lien marking was removed in 2,900 cases and the embargo on withdrawing money on the other 2,700 accounts would be lifted by the end of this month.

Published in The Express Tribune, March 10^th, 2017.