Business

Concessional financing scheme launched

Financing to be provided at concessional mark-up rates through banks and DFIs, Rs10 billion allocated.

Ghazanfar Ali November 02, 2010

KARACHI: The State Bank has launched a concessional financing scheme for agriculture production and meeting working capital needs of farmers and small and medium enterprises (SMEs) of flood-affected areas.

Under the scheme, financing will be provided at concessional mark-up rates through banks and development finance institutions (DFIs) and for that Rs10 billion has been allocated. The scheme will remain in place up to October 31, 2011.

The central bank said all categories of farmers - owners, owner-cum-tenants and tenants - of the specified areas will be eligible for loans. Banks are being encouraged to arrange for insurance of the loans and offer mandatory loan insurance for five major crops — wheat, rice, cotton, sugarcane and maize - to avoid the risk of losses due to natural calamities, it said.

Tenure of loans and repayment of principal amount will be based on the cropping cycle up to a maximum of one year. Borrowing limit will be fixed by the bank keeping in view credit requirements, cash flows, repayment capacity and risk profile of the borrower.

Banks can also provide short-term loans for working capital requirements of SMEs for a maximum period of one year.

Refinance under the scheme will be provided to banks at 5 per cent per annum and banks can charge a maximum spread of 3 per cent per annum.

Therefore, credit to the SMEs and farmers will be available at 8 per cent.

In case the borrower fails to repay the loan as per agreed dates, the bank will be entitled to charge normal rate of mark-up on such overdue principal amount besides taking other actions to recover the same as are incidental to such defaults, the State Bank said.

Financing facilities already extended and outstanding will not be eligible for refinance and debt swap.

In another circular, the State Bank announced that microfinance banks (MFBs) are being encouraged to reschedule and restructure loans of borrowers in the flood-affected areas.

“For all such rescheduled and restructured loans and advances, MFBs may defer loan provisioning up to December 31, 2011. This relaxation is available for loans and advances which have become non-performing since July 1, 2010 in the affected areas.”

In yet another circular, the central bank said banks and DFIs are being encouraged to reschedule and restructure agriculture and SME loans of borrowers of the flood-stricken areas.

“For all such rescheduled and restructured loans and advances, banks/DFIs may defer loan provisioning up to December 31, 2011. This relaxation is available for loans and advances which have become non-performing since July 1, 2010 in the affected areas,” it said.

Published in The Express Tribune, November 3^rd, 2010.

COMMENTS (1)

HAMID SULTAN DAWOODI | 13 years ago | Reply It is surprising in the past 63 years State Bank formulated credit policies for Small, Medium, Large, business entrepreneurs but till now there is either no credit policy for micro industry known to be as (cottage industries). There are company, corporate, rules laws, regulations, protections for corporate sector but no legal rules for micro industrial sector promulgated thereupon exist in the country. The prudential rules of State Bank also meant for Small, Medium, Large sector. In the previous ten years nothing has been done for the development, growth, protection of micro industrial sector. Industrialization plays a crucial role in directing the development process of the country for growth and progress. For developing economies, especially Pakistan, which is a labor abundant country, micro -scale sector is consider as the major source of employment generation and foreign exchange earning this sector require small investment, so the entrepreneurs can afford to take risk. The small-scale sector has contributed significantly towards building a stable and sound national economy. This sector has contributed around 39% to the country's manufacturing output, 34 % to its exports and provided employment to millions people. Country need a separate credit policy for the small-scale sector, with the objective of promoting this sector. Micro-Scale Industry today constitutes a very important segment of the economy. The development of this sector came about primarily due to the vision of Quaide Azam Muhammad Ali Jinnah (RA) who sought to develop core industry and to have a supporting sector in the form of small sector enterprises. Small-scale sector has emerged as a dynamic and vibrant sector of the economy. Thus the role played by the micro sector in the country's development is too vital to escape notice. Among the developed, medium developed and having small income countries, in terms of employment the importance of micro is equivalent a, in Soth Africa 39 % MSE contributes 24 % of GDP. In Bangladesh, around 90 % of the units are of this sector. In Japan MSE provides a contribution of a staggering 70 % of employment. In Thailand, of the total GDP 38.1 % and of the total employment, 60.7 % are provided by this sector. In china of the total exports, 68 % are from MSE sector. In china those units which provide employment to around 2000 workers are known as MSE. Less than 300 employed people is known as MICRO institutions In the exports done by the micro industries, more than 95 % contribution comes from non conventional products. Ready make garments, leather products, jewels, and ornaments etc, cutlery, bed linen textiles, have contributed significant increase in exports, and this sector require exclusive policies by State Bank.

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