SBP launches Mudarabah-based refinance scheme for SMEs

KARACHI: The State Bank of Pakistan (SBP) on Wednesday launched a new Shariah-compliant refinance scheme to help support banks to lend small and medium enterprises.

The Islamic Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises (IWCF) will be based on Mudarabah contract, the SBP said in a communiqué. “SBP shall make Mudarabah investment in general pool of Participating Islamic Financial Institutions (PIFIs) under the scheme.”

The financing will be initially available to meet the working capital requirements of seven SMEs sectors such as information technology, furniture, surgical goods, dates processing, gems and jewelry, leather industry, fruits vegetables and food processing, and printing and packaging.

Medium enterprises (MEs) with annual sales turnover of upto Rs300 million will be eligible under the scheme. Maximum financing limit for MEs is Rs50 million.

Maximum financing tenor under the scheme is one year. The central bank said all Islamic Banking Institutions (IBIs) including full-fledged Islamic banks, Islamic banking subsidiaries and Islamic banking branches of conventional banks and all development finance institutions having “authorised Islamic financing operations under permission of the SBP may participate in the scheme”.

The Mudarabah investment made with the PIFIs will mature on the due date agreed with the central bank, and the SBP is authorised to deduct outstanding balance of its investment in the general pool as instructions on per profit and loss distribution and pool management for Islamic banking institutions.

The SBP’s investment in the general pool will be assigned profit sharing ratio and weightage keeping in view the bank’s expected rate of return as well as PIFI’s policy and practice for such type of depositors in the general pool.

Such weightages will be used to calculate profits on the SBP investments. The SBP said banks/DFIs may submit their requests for the status of Participating Islamic Financial Institution. “They may also apply for allocation and assignment of limit under the scheme. These requests may be submitted within 30 days from the date of issuance of this circular.”