SBP issues eligibility criteria for PM’s SME lending program

KARACHI: The central bank on Thursday issued details of eligibility criteria, loan size, and debt to equity ratio of the Kamyab Jawan SME Lending Program launched by the government of Prime Minister Imran Khan.

In order to provide self-employment opportunities to unemployed youth, the government would provide mark-up and credit loss subsidy on small business loans in the range of Rs100,000 to Rs5,000,000 disbursed by banks under the programme, the State Bank of Pakistan (SBP) said in a circular “The banks are also advised that with the launch of Prime Minister's Kamyab SME Lending Program, Prime Minister’s Youth Business Loan (PMYBL) scheme would cease to exist.”

The eligibility criteria, as approved by the prime minister, include all men and women, aged between 21-45 years of age, holding a computerised national identity card. However, it said the lower age limit would be 18 years for IT and e-commerce related businesses. “Small enterprises (startups and existing businesses) as per definition of SBP and owned by youth as per above mentioned age brackets are also eligible.”

At least 25 percent of the loans would go to women borrowers.

It also stated that the minimum educational requirement for IT/e-commerce related businesses was matriculation and/or experience of at least six months.

Small enterprises stimulate economic growth by providing employment opportunities, fostering innovation and reducing income inequalities. Lack of adequate financing facilities from formal sources was one of the key challenges faced by small enterprises and youth entrepreneurs, the SBP said. Therefore, it said that the loan size has been segregated into two tiers. Tier1 would include loans from Rs100,000 to Rs0.5 million, whereas Tier2 loans would be above Rs0.5 million and up to Rs5 million, it notified.

Types would be working capital loans and term loans, with tenors up to eight years with maximum grace period of up to one year.

According to the SBP circular, under the programme, the borrower's contribution of equity would be in the form of cash or immovable property, and would be required after approval of the loan. It would be 90:10 for Tier1 loans, and 80:20 for Tier2 loans.

Security requirements for Tier1 loans would be clean, with only a personal guarantee of the borrower, whereas for Tier2 loans it would be as per the banks own credit policy, the SBP circular said.

For risk mitigation, the PM approved that the government would bear the credit losses for the principal portion only on the disbursed portfolio of the banks with up to 50 percent for Tier1 loans and up to 10 percent for Tier2 loans.

Finance Division should allocate funds in each fiscal year’s budget as per estimates provided by the SBP, and payment would be made on submission of consolidated claims of all the banks by the SBP.

As per the pricing for working capital and term loans, the SBP notified six percent per annum rate for borrowers of Tier1 loans, while the government would pay the difference of the cost at Karachi Interbank Offered Rates (KIBOR) plus 500 basis points (BPs).

For Tier2 it would be fixed at 8 percent per annum for the borrower, while the government would pay the difference of the cost at KIBOR plus 400 basis points (BPs).

“In the first instance, National Bank of Pakistan (NBP), Bank of Punjab (BoP) and Bank of Khyber will execute the programme under the guidance and supervision of State Bank of Pakistan. Subsequently, SBP will also advise other commercial banks for participation in the program.” NBP would continue to play the lead role, with up to 50 percent share in total disbursed loans, the SBP said about the executing agency.

The SBP said all standardised schemes/ projects/ undertakings designed by SMEDA, or projects designed by private sector service providers or by individuals themselves would also be admissible.

“The Form would be both in English and Urdu and require minimum essential information with simple format. The processing time will not exceed 15 days and will be stated clearly in the application form. The forms would be readily available both in branches and through dedicated websites of the banks. Non-refundable form processing fee will be Rs100,” the circular said.

SBP will publish consolidated information about the loans extended under this programme for information of the public on quarterly basis on its website.

The scheme would be available throughout Pakistan. In case of Balochistan, at least one branch of NBP would be designated per division. All non-designated NBP branches would also provide and receive filled application forms and dispatch them to the nearest branches.

Executing Agencies (EAs) under this programme should ensure additional measures such as development and implantation of the criteria for assessing entrepreneurial potential.

“In case of loans for existing businesses, a robust independent verification mechanism may be introduced to ensure proper utilisation of the loans. Further, for new businesses, a robust mechanism for ongoing monitoring of the loans’ utilisation should be developed and implemented.”

A mechanism should be introduced to ensure that the prescribed debt equity ratio has been maintained. Before disbursement of the loans, it should be ensured that the equity was deposited in the bank from the borrower’s own sources where the equity mechanism was in the form of cash, the SBP said.

The SBP advised banks to gear up their systems for successfully implementing the programme and to avoid any misuse. Loan application forms would be available both in branches and through dedicated websites of NBP, BoP and Bank of Khyber.