State Bank’s Refinance Scheme for small businesses fails to take off

ISLAMABAD: The State Bank of Pakistan’s Refinance Scheme for Small Businesses has so far failed to take off due to multiple reasons as the commercial banks are not designed and fully equipped to provide credit line to Small and Medium Enterprises (SMEs).

“The SBP’s RefinanceScheme for Small Businesses is failing to take off because our banks and their staff have never focused on credit support for SMEs,” top officials dealing with these issues confirmed to The News here on Friday.

This hue and cry from the SMEs has been increasing despite claims made by the central bank that so far 700 to 1,000 companies approached the commercial banks for seeking loan facility ranging from Rs65 billion to 90 billion.

Out of these loan applications, the banks have sanctioned Rs23 to 30 billion loans but the disbursement stands at a few billion rupees.

The banks are still reluctant to go ahead at the desired pace despite the fact that the Ministry of Finance placed cost sharing mechanism with the SBP for providing Rs30 billion subsidy to banks for absorbing the first 40 percent default cases out of this scheme to protect jobs after the COVID-19 pandemic.

Those who belonged to the SME sector were of the view that they were running from pillar to post to convince the commercial banks to lend them money but so far they were paying no heed towards their difficulties. There is a major reason attached to it as these banks and their staff have been trained to serve only big companies having dedicated departments to fulfill all lengthy and procedural requirements to get loan facility.

It was the crux of their discussions that most bank branches are yet to receive any guidelines from their headquarters on the refinance scheme and how to deal with the customers. "These banks branches are simply clueless how to deal with these loan applications,” said one owner of SME living in the federal capital who is applying for the loan facility. The SBP's April 22 circular has encouraged banks to provide clean lending up to Rs5 million, but banks are reluctant by using different excuses.

There are some practical issues for businesses, which are ready to submit collateral as most of the government departments are closed for public dealing. “Property documents’ verification is challenging in these times,” said one loan seeker.

Those banks that practice Islamic finance say that they do not have any product or model for clean lending, he added. Another person affiliated with the SME sector said that the whole purpose of this facility was to protect jobs and direct payment to employees accounts, then in such a case the SBP must encourage banks more that they should not adhere to strict guidelines but should take a lenient view keeping in view the extraordinary situation. There is a need to focus upon how many small companies have been able to provide monthly salaries with the loan facility provided by banks and the performance of the banks needs to be analyzed not on the basis of processing of loans applications but the actual disbursement of amounts into the accounts of employees of these firms.

If the banks fail to disburse the approved amounts within the next 7 to 10 days, then the companies will not be able to provide salaries to their employees on the eve of coming Eid Ul Fitr.