State Bank extends financing limits under Rozgar scheme

KARACHI: The central bank on Monday decided to finance up to Rs500 million for three-month wage bills of an employer, more than doubling the concessional loan limit to support employment and avoid layoffs in the private sector.

“State Bank will now finance up to 100 percent of wages and salaries of businesses with average 3-month wage bill of up to Rs500 million,” the State Bank of Pakistan (SBP) said in a statement. “This can be used for the onward payment of wages and salaries for the months of April, May and June, 2020.”

Previously, 100 percent financing was available up to a wage bill of Rs200 million only.

In April, the SBP introduced a temporary refinance scheme with at least three percent mark-up for businesses to support the employment of workers in the face of economic challenges posed by the spread of the novel coronavirus (COVID-19). Its core objective is to incentivise businesses to not lay off their workers during COVID-19.

Till May 8, 2020, banks have received requests of more than 1,440 businesses for the financing of over Rs103 billion for providing wages and salaries to around one million employees whose jobs have been supported because of the scheme. Of the amount, banks have already approved financing of Rs47 billion for 500 companies covering over 450,000 employees.

Further, State Bank will finance up to 75 percent with maximum financing of Rs1 billion for businesses with 3-month wage bill exceeding Rs500 million. Earlier, 75 percent financing was available up to a maximum of Rs375 million and 50 percent up to a maximum of Rs500 million.

“Businesses that had earlier availed lower financing due to applicable limits can now avail additional financing on the basis of revised criteria,” the SBP said.

Since its launch of refinance scheme, State Bank has been constantly receiving feedback from various stakeholders, making the scheme more facilitative for businesses and creating incentives to prevent layoff of employees under the current Covid scenario.

“Many of the changes in the scheme were carried out to ensure that the benefits of the scheme particularly reach to the SMEs (small and medium enterprises) that offer employment to a large number of people. In this regard, recently announced government’s risk sharing facility and allowing corporate guarantees as collateral are expected to incentivise banks in extending loans to collateral deficient SMEs,” the SBP said.

“This increase in financing limits along with government’s risk sharing facility for collateral deficient SMEs and small corporates will enable the full array of businesses to benefit from SBP’s Rozgar scheme and hence prevent large scale layoffs.”

State Bank has also extended the availability of its refinance scheme to non-deposit taking financial institutions as well. They can now avail financing under the scheme for payment of wages and salaries of their employees. The scheme is available to all businesses in Pakistan through banks and covers all types of employees, including permanent, contractual, daily wages as well as outsourced workers.

Since the lockdown imposed by the government in March, the SBP took a number of measures to mitigate the impact of COVID-19 on the economy, including an extension in repayment of loan principal amounts by one year, concessional financing for businesses to procure equipment.

It’s earmarked at least Rs100 billion for emergency measures.