SBP’s new SME finance scheme termed flawed, skewed

KARACHI: Businessmen on Saturday deplored the exorbitant interest rate of up to 9 percent the commercial banks have been allowed to charge under central bank’s SME Asaan Finance Scheme (SAAF).

“The central bank will provide refinancing to the commercial banks at 1 percent and they will be allowed to charge up to 8 percent on top of that, i.e. up to 9 percent in total,” said Mian Nasser Hyatt Maggo, President Federation of Pakistan Chambers of Commerce & Industry (FPCCI) in a statement.

FPCCI chief demanded that the SAAF scheme should not have a total interest rate over 3.0 percent to make it at par with TERF (Temporary Economic Refinance Facility) to make it affordable for SMEs.

“State Bank of Pakistan’s (SBP) total refinance limit for the programme appears to be a small and insignificant amount of Rs1.19 billion as per budget documents for the year 2021-22; under the head of Refinance and Credit Guarantee Scheme for Collateral Free Lending to SMEs.”

Maggo termed the miniscule amount for the SAAF scheme for the year 2021-22 a joke with SMEs.

He said it was shocking to note that the TERF scheme had a total overlay of Rs560 billion and had mainly gone to large and established businesses and, on the other hand, SMEs were continuously being neglected by the SBP.

“Pakistan needs an effective, inclusive, wide-ranging and collateral-free SMEs finance scheme backed by the SBP and, in principle, it should be as big as TERF and should run into billions of rupees.”

Maggo said another glaring flaw in the scheme was that commercial banks would have total discretion in approval of the financing under SAAF, which, in turn, would cause delays and disapprovals.

The SBP should devise a transparent and definitive mechanism for the effective implementation and enforcement of the SAAF scheme, Maggo demanded.

“FPCCI is eagerly looking forward to having a detailed and tangible consultative process with SBP officials to work out a progressive and growth-oriented finance package for SMEs of Pakistan – the real engine of economic growth and employment generation in Pakistan,” the FPCCI chief said.