Youth business loan programme: Govt enhances borrowing limit to Rs50m

Also relaxes criteria of sovereign guarantees

Shahbaz Rana March 30, 2022


The government has decided to considerably enhance the borrowing limit set for the youth business loan programme to a maximum Rs50 million per person, in addition to relaxing the criteria of sovereign guarantees amid political turmoil in the country.

The decision has been taken this week on the insistence of Special Assistant to Prime Minister on Youth Affairs Usman Dar. The finance ministry was against further increasing the borrowing limits and relaxing the criteria of sovereign guarantees due to an understanding reached with the International Monetary Fund in the past.

The government sources said that it has been decided that the borrowing limits under all the three tiers of Kamyab Jawan Programme will be significantly increased. A summary will now be moved for seeking the endorsement of the Economic Coordination Committee of the Cabinet, which is chaired by Finance Minister Shaukat Tarin.

The government is disbursing loans among the youth under three tiers. Under tier-I, the loan size is Rs100,000 to Rs1 million with 50% cover against losses to the banks. The tier-II has the lending limit in the range of over Rs1 million to Rs10 million. The third tier had the loan limit of over Rs10 million to maximum Rs25 million with relatively low cover available to the banks against the losses.

As against treating the sovereign guarantees’ amount against the disbursed loan, it has now been decided that the guarantees' amount will be calculated only against the outstanding loan amount, according to the sources. This has automatically provided room to the government to give more loans without relaxing the upper sovereign guarantees limit.

Pakistan had given a commitment to the IMF that the sovereign guarantees against the youth loan programme would not exceed Rs16 billion in the current fiscal year.

The government has so far disbursed nearly Rs36 billion among 22,540 beneficiaries under various categories of the youth business loan programme, according to details available on the programme’s official webpage.

As much as 87% of the total lending or over Rs31 billion has been given in Punjab alone.

The government has so far received 1.3 million applications under the business loan programme out of which the banks have rejected about 816,000 applications. Over 461,000 applications are currently in the processing stage.

Read PM launches Rs407b interest-free loan programme

The government wanted to disburse another Rs30 billion before June 30 amid its desire to give a major push to the ongoing pro-people initiatives. This will bring the total disbursements to over Rs66 billion –far higher than the projections made by the finance ministry on the basis of the existing maximum guarantee limit to Rs16 billion that is agreed with the IMF.

During yet another failed round of Pak-IMF talks held this month under the 7th review of the bailout programme, the IMF had raised serious concerns about the financial viability of the programmes launched by the government.

The IMF’s concerns were that the government was compromising the fiscal sustainability of the country due to its political considerations, the finance ministry sources said. This was one of the reasons behind disagreement between Pakistan and the IMF.

After the opposition moved a no-confidence motion against the prime minister, the government took many populist decisions that could expedite the economic deterioration. The decision to increase the borrowing limits is also seen in this context, according to the finance ministry sources.

The sources said that the maximum borrowing limit under the tier-one will be increased from Rs1 million to Rs2 million. The current interest rate for this threshold is only 2%.

It has also been decided to increase the borrowing limit under tier two from Rs10 million to Rs25 million, broadening the scope to more business traits.

The maximum limit under the third tier is also being increased from Rs25 million to Rs50 million, according to the sources.

The revised maximum borrowing limit of Rs50 million is quite high and the banks may need to exercise more caution before approving new loans

Usman Dar was not available for the comments.


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