MOF, SBP introduce risk-sharing mechanism to support lending to SMEs

The Ministry of Finance and State Bank of Pakistan have introduced risk-sharing mechanism to support bank lending to small and medium enterprises (SMEs) and small businesses to avail SBP’s refinance facility to support employment.

Taking cognisance of the SMEs finding difficulties in arranging adequate collateral and banks’ risk averseness in taking exposures for such lending under the SBPs Refinance Scheme to Support Employment and Prevent Layoff of Workers, the Ministry of Finance has stepped forward to shoulder risk sharing with banks, a press release issued by the Finance Ministry said on Wednesday. Accordingly, the federal government has allocated Rs30 billion under a credit risk-sharing facility for the banks spread over four years to share the burden of losses due to any bad loans in future. 

Under this risk sharing arrangement, the federal government will bear 40% first loss on principal portion of the disbursed loan portfolio of the banks. This facility will incentivise banks to extend loans to collateral deficient SMEs and small corporates with sales turnover of upto Rs2 billion to avail financing under SBP refinance scheme.

Under the SBP’s Refinance Scheme to Support Employment and Prevent Layoff of Workers due to the impact of COVID-19, businesses that commit to not lay off workers in the next three months can avail credit through banks for the three months of wages and salaries expenses at a concessional mark up rate.

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The risk-sharing mechanism being introduced is expected to increase the banks’ incentive to lend to SMEs and small corporations under this scheme. It was developed on the basis of feedback received from relevant stakeholders and in collaboration between MOF and SBP. The Ministry of Finance’s swift approval of the subsidy to provide risk coverage to banks has made it possible for the SBP to launch this credit risk sharing facility for which relevant circular has been issued today. The SBP will continue to monitor the implementation of the scheme.

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