Banks give Rs26.8b worth of loans to young entrepreneurs

Lending aimed at helping set up businesses or expand existing enterprises

KARACHI: Banks have provided subsidised loans worth Rs26.76 billion to 26,679 young entrepreneurs in the past six years to set up new businesses or expand the existing small enterprises to create employment opportunities, the central bank reported on Friday.

"Small businesses have potential to revitalise economic activity by creating employment opportunities, reducing poverty and providing economic linkages and services to the corporate sector," the State Bank of Pakistan (SBP) said in a report on Prime Minister's Youth Business Loans (PMYBL) Scheme for the quarter ended June 30, 2019.

The growth of small businesses and their access to formal finance is imperative for the development of economy. However, despite strong potential, the small businesses, particularly belonging to young entrepreneurs, have traditionally remained credit constrained due to high perception of risk towards them from banks, it said.

Under the scheme, unemployed youth is extended loans of up to Rs2 million per person at a subsidised service charge of 6% per annum for establishing new business or strengthening existing ones.

"The rate of return for lending is one year KIBOR+500 basis points. Difference of banks' rate and borrowers' rate is being absorbed by the federal government in the form of subsidy," SBP said.

To avail the loan, applicant should have some experience of relevant field or hold a business related diploma or certificate pertaining to trade of proposed business setup in the sectors, including but not limited to small wholesalers, retailers, traders, manufacturers of the small and medium enterprises (SME) segment with primary focus on young entrepreneurs, according to a private bank.

The SBP report added that the government of Pakistan also shared 5% of credit losses of total outstanding loan portfolio of the banks under the scheme as a further incentive to the banks. Currently, 18 banks are participating in the scheme, of which three are public sector banks while the remaining 15 are private sector banks.

Total number of applications received by the executing agencies under PMYBL Scheme as of June 30, 2019 stood at 101,938. Of the total applications received so far under the scheme, 88% were from male applicants.

Since launch of the scheme in 2013, the number of sanctioned applications stood at 33,145 amounting to Rs31.59 billion as of June 30, 2019.

In the April-June 2019 quarter alone, banks lent a total Rs129 million to 110 borrowers.

Published in The Express Tribune, October 26^th, 2019.

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