SBP relaxes its loan scheme to facilitate small businesses

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

These additional incentives include new relaxations for SMEs and a reduction in end-user rate, among others, according to Circular Letter No. 07, released by the SBP’s Infrastructure, Housing and SME Housing department to presidents of all banks and Islamic finance institutions. The new additions are effective from today.

The additions will affect the SBP scheme issued on April 10, called the ‘Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns’. That scheme provided 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.

First, in an effort to incentivise tax paying businesses, the SBP has reduced the mark up rate for them to 3pc, which was set at 4pc earlier. The SBP will also provide refinance to banks at 0pc. This also increases the gap between the rates charged to active taxpayer and the non-tax payers businesses, as the latter can be charged an end user markup rate of up to 5pc.

Second, the SBP has now allowed banks to provide financing against corporate guarantees of companies in value, or based on the supply chain relationship with borrowers. This relaxation was included after SMEs, including vendors and distributors, were having trouble providing collateral.

SMEs can apply for the financing on a simplified loan application form prescribed by SBP for this scheme. Banks have also been encouraged to take clean exposure (or facilities secured solely against borrowers’ personal guarantees) on an SME borrower for up to Rs5 million.

Businesses can now avail the loan from any bank, and they will not be limited to availing loans from the bank that manages their payroll.

Banks have also been allowed to open accounts to disburse wages on information provided by the employers along with an undertaking stating that these persons are bonafide employees. Banks will have to ensure verification of the employees using NADRA before activating accounts. These accounts can only be used for salary disbursement and withdrawals.

Businesses can now also get reimbursement of salaries for the month of April 2020 that have already been disbursed through their own sources, provided they applied for financing under the scheme before disbursement, and the same is subsequently approved by the banks.

The banks’ exposure under the scheme has been exempted from the per-party or the per-group exposure limits, which will allow them to lend to borrowers that have exhausted their exposure limits.