KARACHI: The State Bank of Pakistan (SBP) has launched a subsidised financing programme worth Rs100 billion for startups and small and medium-sized enterprises (SMEs).
Citizens aged between 18 and 45 years may avail financing of up to Rs5 million each at a borrowing cost varying between 6% and 8% for a maximum period of eight years, the central bank said in a notification titled “Prime Minister’s Kamyab Jawan SME Lending Programme”.
While announcing the budget for fiscal year 2019-20, then minister of state for revenue Hammad Azhar announced the low-cost Kamyab Jawan programme worth Rs100 billion to help entrepreneurs set up and/or expand running business.
The objective of the programme is to create self-employment and opportunities for others in the country.
The central bank said 25% of loans would go to women borrowers. “The processing time will not exceed 15 days and will be stated clearly in the application form,” it said.
Initially, National Bank of Pakistan (NBP), The Bank of Punjab and the Bank of Khyber will execute the programme under the guidance and supervision of the central bank. Subsequently, the SBP will also advise other commercial banks for participation in the programme.
“NBP will continue to play the leading role. NBP’s share in total disbursed loans will be up to 50%,” the central bank said.
All men and women holding computerised national identity cards (CNICs) and aged between 21 and 45 years with entrepreneurial potential are eligible.
The lower age limit of applicants will be 18 years for businesses related to information technology (IT) and e-commerce. “For IT/e-commerce-related businesses, at least matriculation and/or experience of at least six months (is required for the loan),” it added.
Banks will offer loans in two different brackets. They will offer loans in the range of Rs100,000-500,000 at 6% borrowing cost under tier-I. In tier-II, they will lend money in the range of Rs500,000-5 million at 8% borrowing cost.
The government will pay the difference in the cost of subsidised borrowing. The actual cost of borrowing stands at Kibor plus 500 basis points for borrowers under tier-I and Kibor plus 400 basis points for borrowers under tier-II.
Loans can be acquired for up to eight years with maximum grace (additional) period of up to one year.
The borrowers under tier-I loan programme will be required to contribute equity share of 10% of the total cost of a project while the bank will finance the remaining 90% cost of the project in the form of loan. The equity share will be 20% for borrowers under tier-II loan programme.
“The borrower’s contribution of equity would be in the form of cash or immovable property and will be required after approval of the loan,” it said.
“Banks are advised to gear up their systems for successful implementation of this programme and to avoid any misuse of the programme.”
Following this initiative, the Prime Minister’s Youth Business Loan (PMYBL) scheme would cease to exist, the central bank said.
It emphasised that small enterprises stimulated economic growth by providing employment opportunities, fostering innovation and reducing income inequalities.
Lack of adequate financing facilities from formal sources is one of the key challenges faced by the small enterprises and youth entrepreneurs.
“The Government of Pakistan is cognizant of this situation and is fully committed to enabling youth to avail affordable financing from banks for establishing new business or strengthening their existing business,” it said.
Published in The Express Tribune, July 13th, 2019.