KARACHI: The government has appointed the National Bank of Pakistan (NBP) and the First Women Bank Limited (FWBL) to act as its agents for the disbursement of loan worth Rs2 million for small businesses under the Prime Minister’s Youth Business Loan Scheme, the State Bank of Pakistan (SBP) reported on Tuesday.
The National Bank and the First Women Bank will lend to the potential borrowers under the guidance and supervision of the SBP. Moreover, the central bank will ensure the participation of private banks in the scheme on the basis of soundness of business proposals.
The SBP will encourage private banks to build this portfolio commensurate with their size, arranging appropriate training for private banks to implement the scheme; however, the NBP will continue to play the lead role.
Bankers have welcomed the scheme but expressed fears about the poor track record of such sort of schemes in the past. They are more critical about the Yellow Cab and other schemes introduced by the PML-N government in its previous tenures, which caused banks to suffer millions of rupees losses (non-performing loans).
“Private banks are unlikely to enter this programme, owing to the higher credit risk for the banks,” a leading banker at a local commercial bank, said.
“The previous loan schemes were proved a “loot sale” for the beneficiaries. Many people borrowed loans from the banks, terming it “political favour” for them,” the banker said. “In order to make such lending useful for the creditors and borrowers, the disbursements of the loans should be made on a transparent manner.
The lending banks must evaluate the creditworthiness of the beneficiaries, ensuring that the business feasibility plan must be incorporated in the application forms of the borrowers,” the banker added.
According to the circular issued by the central bank, the prime minister has approved salient features of the scheme. The scheme was announced by the government, allocating Rs5 billion in the budget 2013-14.
The aim of the scheme is to uplift youth and providing them opportunities of financial independence through self-employment. The scheme provides a markup subsidy and partial guarantee facility for the extension of small business loans up to Rs2,000,000.
According to key features, all men / women holding computerised national identity card (CNIC) numbers, aged between 21 and 45 years with entrepreneurial potential can apply from designated branches mapped with an area of residence or business. A 50 percent of the loan will go to women borrowers. The debt-equity ratio will be 90:10 and the borrower’s contribution of the equity will be in the form of cash or immovable property and will be required after approval of the loan.
The tenors of loan will be up to seven years with six months grace period. In terms of pricing, eight percent is fixed for borrowers and the government will pay the difference of the cost at the Karachi Interbank Offered Rate plus 500 basis points.
The government will bear up to five percent losses on the portfolio of the bank under this scheme. The number of loans will be 100,000. All sectors, standardised scheme, projects and undertakings will be designed by the Small and Medium Enterprises Development Authority (SMEDA). The projects designed by the private sector service providers or by individuals themselves will also be admissible.
The SBP will monitor implementation of the scheme through weekly, monthly and quarterly reports. The banks are advised to gear up their systems for the successful operation of the scheme and to avoid any misuse of it.