Banks disburse Rs27 billion to entrepreneurs in seven years

KARACHI: Banks disbursed around Rs27 billion to small businesses in seven years, but access of youth entrepreneurs to credit is low due to risk-averse loaning approach, the central bank said on Friday.

The State Bank of Pakistan (SBP) said small businesses have potential to revitalise economic activity by creating employment opportunities, reducing poverty and providing economic linkages and services to the corporate sector.

“The growth of small businesses and their access to formal finance is imperative for the development of economy,” the SBP said in a quarterly review of Prime Minister’s Youth Business Loans (PMYBL).

“However, despite their strong potential, the small businesses, particularly of young entrepreneurs, have traditionally remained credit constrained due to high risk perception of banks towards them,” it said.

The government had introduced PMYBL scheme in 2013 with the aim of providing youth the opportunities of financial independence through self-employment. Under the scheme, small businesses are provided loans up to Rs2 million at a service charge of 6 percent per annum for setting up new business or strengthening existing business.

Total number of applications received by the executing agencies under PMYBL scheme stood at 101,938 as of June 30, 2019. Of the total applications received so far under the scheme, 88 percent were from male applicants. Number of sanctioned applications stood at 33,145 as on June 30, 2019, while cumulative disbursements of Rs26.760 billion had been made to 26,679 beneficiaries till June 30, 2019.

Since the scheme launch, the highest amount of loans disbursed by National Bank of Pakistan (NBP) with Rs21.822 billion, followed by JS Bank (Rs3.771 billion), the SBP said.

In April-June, banks loaned only Rs129 million to 110 borrowers during Apr-Jun 2019 with major contribution from NBP and JS Bank.

During the quarter under review, 190 applications were received from male and 25 applications from female applicants under the scheme. By the end of June 2019 quarter, male applicants constituted 88 percent of the total applications received so far under PMYBL, while remaining 12 percent constituted the share of female applicants.

During the quarter under review, 190 applications were received from male and 25 applications from female applicants under the scheme. By the end of June 2019 quarter, male applicants constituted 88 percent of the total applications received so far under PMYBL, while remaining 12 percent constituted the share of female applicants.

The government launched Kamyab Jawan Program for youth this month. The Prime Minister Imran Khan said Rs100 billion have been allocated for youth loans under the program. Out of the total amount, Rs25 billion have been earmarked for women borrowers.

In July, the SBP said with the launch of Prime Minister’s Kamyab SME Lending Program, PMYBL scheme would cease to exist.

Under the PMYBL scheme, the rate of return for lending banks is one year Karachi interbank offer rate plus 500 basis points. The federal government absorbs difference of banks’ rate and borrowers’ rate in the form of subsidy. The government also shares five percent of credit losses of total outstanding loan portfolio of the banks under the scheme. Currently, 18 banks are participating in the scheme, of which three are public sector banks – NBP, First Women Bank and Sindh Bank Limited – while the remaining 15 are private sector banks.