SBP notifies markup subsidy payment method

KARACHI: The State Bank of Pakistan (SBP) announced on Monday a procedure for the payment of markup and credit loss subsidies to commercial banks, which were providing small loans to borrowers under Kamyab Pakistan Programme (KPP), a circular said.

The government launched KPP in October last year to provide subsidised micro loans to small businesses, agriculture sector and housing sector. The government picked some banks for the disbursement of Rs30 billion loans under the scheme.

Commercial banks and development finance institutions have been working as wholesale lenders (WLs), which provides liquidity to the executing agencies ie microfinance providers and housing finance companies (HFCs) for onward lending to borrowers. Microfinance providers include microfinance banks (MFBs), microfinance institutions (MFIs) and rural support programmes (RSPs).

The scheme has three components related to financing that were Kamyab Karobar, Kamyab Kissan and Naya Pakistan Low Cost Housing (NPLCH). The microfinance providers would extend financing under all three components of KPP, whereas the housing finance companies would only extend financing under NPLCH component.

The SBP said the executing agencies (EAs) would evaluate loan applications of borrowers as per parameters of KPP approved by the federal cabinet and circulated by SBP to all banks. “The loan facility for a borrower shall be sanctioned and disbursed by the EAs after completion of documentation formalities,” it said in a circular.

“These loans shall be entitled for mark-up subsidy and credit loss subsidy. Finance Division, government of Pakistan shall provide direct debit authority to SBP to the extent of budgetary allocation to ensure timely and seamless payment of mark-up subsidy and credit loss subsidy claims to WLs and EAs as per the modalities mentioned in Section 6 ‘key elements of KPP’ of ‘operational framework’,” it added.

The payment of mark-up subsidy to WLs would be made on a quarterly basis. The modalities with respect to mark-up subsidy claims and calculation methodology would apply for payment of mark-up subsidy.

“Government shall pay the difference of ‘customer rate’ and ‘bank rate’ as mark-up subsidy. Bank rate shall be determined through competitive bidding process by ensuring transparency and compliance of Public Procurement Regulatory Authority (PPRA) Framework in letter and spirit,” it said.

“The audited claims of EAs/WLs along with a certificate from an external auditor relating to accuracy of markup subsidy calculations shall be submitted through WLs to Programme Management Unit within 15 working days after the end of respective quarter for payment of mark-up subsidy claims,” the circular said.