New youth loan scheme announced

Revised scheme introduces new components; micro and agriculture loans

KARACHI:

The government on Monday announced relaunching the prime minister’s interest-free and subsidised loan schemes for youth entrepreneurship. The scheme remained temporarily suspended for the past five-months and was revised to make it more purposeful and beneficial for small businesses and agriculture.

“The revised scheme has introduced two new components of financing, namely micro-loans and agriculture loans,” State Bank of Pakistan (SBP) said in a notification on Monday.

The scheme offers financing of up to Rs7.5 million each in three slabs, at a subsidised interest rate ranging from zero to 7%, for a maximum period of up to nine years. The processing time will not exceed 45 days and will be stated clearly in the application form.

“25% of the loans will go to women borrowers,” read the SBP notification.

The Pakistan Muslim League-Nawaz (PML-N) coalition government has renamed the scheme as the Prime Minister’s Youth Business and Agriculture Loan Scheme (PMYB&ALS), originally called the Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES), by the Pakistan Tehreek-i-Insaaf (PTI) government, under former prime minister Imran Khan. Earlier, the coalition government, after coming into power in April 2022, had suspended the scheme with effect from July 1, 2022.

“The government of Pakistan has approved revisions in the key features of PMKJ-YES,” the central bank notification stated on Monday. “Eligible borrowers may apply for loans on the PM Youth Portal immediately after the formal launch of the scheme by the Prime Minister’s Office,” it added.

The finance division shall allocate funds in each fiscal year’s budget as per the estimates provided by SBP. Payments will be made upon the submission of consolidated claims from all the banks by the SBP on a quarterly basis. Banks, development finance institutions (DFIs) and microfinance banks (MFBs) have been advised to gear up their systems for the successful implementation of this scheme and “to avoid any misuse of the scheme”.

“The Prime Minister (Youth Affairs) Office may hire a firm to audit, evaluate and monitor the scheme,” stated the notification.

The financial institutions had disbursed a total of Rs51.70 billion to 29,977 youth enterprises until June, 2022. The outstanding (net) financing stood at Rs45.37 billion in the month.

According to the central bank, a total of 42,652 applications – for the subsidised loans – amounting to a total of Rs70.66 billion in three-slabs had been approved in June 2022. The latest notification says, “All individual citizens of Pakistan holding a Computerised National Identity Card (CNIC), aged between 21 and 45 years with entrepreneurial potential are eligible to apply”.

For IT/e-commerce related businesses, the lower age limit will be 18 years and at least matriculation or an equivalent education qualification will be required.

In case of businesses, including partnerships and companies, only one of the owners, partners or directors must be in the age bracket prescribed. Small and Medium sized Enterprises (SMEs) (startups and existing businesses) owned by the youth are also eligible.

In case of agriculture, the farmers’ classification as per SBP’s “Indicative Credit Limits and Eligible Items for Agriculture Financing 2020” will be applicable.

The size of the loan has been segregated into three tiers. Under Tier 1 (T1), eligible borrowers may acquire up to Rs500,000 each at zero interest rate. Under tier 2 (T2), borrowers may acquire above half a million rupees and up to Rs1.5 million at a subsidised interest rate of 5%.

They may borrow over Rs1.5 million and a maximum of Rs7.5 million at a subsidised interest rate of 7% under tier 3 (T3).

Under T1 and T2, borrowers are required to contribute 10% in cash (or equivalent value in immoveable property) of the total cost of the project. The ratio of equity to debt would be 20% to 80% respectively, for borrowers under T3. The approved loans will be financed for a maximum of three years and repayment will be in equal monthly instalments. In case of crop loan, the tenure will be up to one year and repayment will be a lump sum on or before maturity, tied-up with the crop cycle.

The period of financing for T2 and T3 will be up to eight years for long term/development loans with a maximum grace period of up to one year. According to the notification, for working capital and production loans and murabaha under T2 and T3, the tenure will be up to five years.

Banks will have the option to lend working capital and production loans wherein only markup will be payable during the first two years. Thereafter, both the principal along with the markup will be paid within the next three years – taking the total repayment period up to five years.

All sectors and products are eligible for the loan acquisition. In the case of agriculture, all crop and non-crop sectors (including crop production, livestock, poultry, fishery, dairy) are also eligible.

Published in The Express Tribune, December 13^th, 2022.

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