State Bank offers concessionary loans for businesses to pay salaries, wages

KARACHI: The central bank on Friday launched a new refinance scheme for payment of wages and salaries to the workers and employees of business concerns to avoid layoffs.

The State Bank of Pakistan (SBP) said it introduced a temporary refinance scheme for businesses to support the employment of workers in the face of economic challenges posed by the spread of the novel coronavirus (COVID-19).

“The core objective of this facility is to incentivise businesses to not lay off their workers during COVID-19 pandemic,” the SBP said in a statement. “The scheme will be available to all businesses in Pakistan through banks and will cover all types of employees including permanent, contractual, daily wages as well as outsourced workers.”

The scheme would provide financing for wages and salaries expenses for three months from April to June 2020 for businesses which do not layoff their employees for the three months. The mark-up on the loans under the scheme would be up to five percent. Borrowers who are on the active taxpayers list would be able to get loans at a further reduced mark-up rate of four percent.

The SBP designed the scheme to give preference to smaller businesses. “Businesses with a 3 month wage and salary expense of up to Rs200 million will be able to avail the full amount of their expense in financing while those with a 3 month wage and salary expense of greater than Rs500 million will be able to avail up to 50 percent of their expense,” it said. “Businesses in the middle category will be able to avail up to 75 percent of their 3 months’ salary and wage expense.”

SBP asked banks not to charge any loan processing, credit limit fee or prepayment penalties for loans under the new scheme. Under the scheme, a grace period of six months would be allowed to the borrowers while the repayment of the principal amount would be made in two years.

State Bank asked banks to provide weekly reporting on the take-up of the scheme and in particular the reasons for any denials of financing requests under the scheme.

“SBP expects that 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 normalises,” 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.”

SBP took a number of other measures in recent weeks to mitigate the impact of COVID-19 on the economy, including an extension in repayment of loan principal amounts by one year, concessional financing for hospitals to procure equipment to combat COVID-19 as well as other measures. “SBP has been closely monitoring the credit conditions faced by the businesses and households and will take every possible measure to perform its due role throughout this disruption phase.”