SBP to businesses: stop firing people, get a cheap loan instead

KARACHI: The State Bank of Pakistan (SBP) has introduced a temporary scheme for businesses to get loans from banks, to incentivise them to not layoff their workers during the COVID-19 pandemic, according to a statement issued by the central bank on Friday.

The details of the new scheme, called ‘Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns’ was spelled out in two circulars issued by the SBP’s Infrastructure, Housing and SME Housing department to presidents of all banks and Islamic finance institutions.

https://www.youtube.com/watch?v=tQh9O1aa3vs&feature=youtu.be

The scheme is available to all businesses in Pakistan through banks, and covers all employees, including permanent, contractual, daily wages, and outsourced workers.

The scheme will provide financing for wages and salaries expenses for three months from April to June 2020, for those businesses which do not layoff their employees for those three months.

The mark-up on the loans under this scheme will be up to 5pc. Borrowers that are on the active taxpayers list will be able to get loans at a further reduced mark-up rate of 4pc.

Businesses with a three-month wage and salary expense of up to Rs200 million can avail the full amount in financing; those with a three-month wage and salary expense greater than Rs200 million and less than Rs500 million can avail up to 75pc; while those with a three-month wage and salary expense greater than Rs500 million can avail up to 50pc.

The SBP said the scheme was designed to give a preference to smaller businesses.

Banks will not charge any loan processing fee, credit limit fee or prepayment penalties for loans under this scheme. Additionally, borrowers will have a grace period of six months, and the repayment of the principal payment can be made in two years.

Banks will have to report weekly to the SBP on the scheme, including the reasoning behind any denial of financing requests.

“One of the main benefits of the scheme is that employers that retain workers on their payroll will be able to restore or increase production quickly once the situation normalizes,” the central bank said. “The scheme will ease the liquidity constraints of the businesses and they can use their available financial resources to meet other working capital requirements.”

This is not the only measure the SBP has taken to combat the economic impact of the COVID-19 pandemic in Pakistan, with the central bank announcing a spate of new relaxations in the space of just three weeks.

On March 17, it announced the Temporary Economic Refinance Facility (TERF) for supporting new investment in the country.  On March 24, the central bank announced relaxation in credit financing for exporters and importers, and then two days later, announced a relief package for borrowers.

In April, the SBP also allowed hospitals to make advance payments for medical equipment and medicines related to COVID-19.