SBP opens refinance scheme to non-farm sectors

Borrowers in flood-hit areas to benefit from the facility.

KARACHI:

The State Bank of Pakistan (SBP) has included the non-farm sector and extended the validity of the refinance scheme to support small and medium size enterprises (SMEs) and agricultural activities in flood affected areas of the country.

Under this scheme, the banks will now also provide financing to the non-farm sector, according to a circular issued by SBP on Wednesday. Earlier, financing under the scheme was allowed to the farm sector only.

The scheme, for which Rs10 billion had been allocated, was aimed at providing loans to flood affected areas with concessionary interest rates of up to four to five per cent from market rates.

JS Global Capital Limited analyst Mustafa Bilwani said the SBP had noted that banks had shown bleak performance in disbursing loans – and it seemed that banks had informed SBP about the declining number of loan qualifiers and demand patterns in the past.

He said that the inclusion of non-farm sectors in this scheme showed that there was a high demand for loans from this sector, adding that funds disbursement was also not satisfactory for the SBP.

The non-farm sector encompasses fishing and poultry, while the farm sector usually takes loans for tractors, fertilisers and seeds. He said it was too early to comment on this scheme and only time would tell if the farm and non-farm sector will benefit from such a scheme, he said.

He said that SBP believed that the scheme was important for farmers and non-farmers of flood affected areas to resume their businesses which were affected in the deadly floods last year.

Similarly, SBP had also allowed banks and development financial institutions (DFIs) to repay the principal amount of refinance within 15 days of the due date, instead of seven days, as stated earlier under the scheme, the circular read. Additionally, the validity of the scheme has been extended upto November 30, 2010, whereas earlier it was valid until October 31, 2011.

Since the primary objective of the scheme was to revive agricultural activity in flood-affected areas, therefore banks cannot provide more than 25 per cent loans to non-farm sector, out of limit sanctioned for agricultural financing under the scheme, according to the circular.

Refinance limits already sanctioned in favour of selected banks for agriculture and SMEs under the Scheme, for fiscal year 2010-11 will continue to be available up-to expiry date of the scheme. They can also apply for enhancement of limits after utilization of their existing limits.

Published in The Express Tribune, May 26^th, 2011.