Observer Report
Karachi
To counter the negative impact of Covid-19 on the economy, State Bank of Pakistan (SBP) introduced a Refinance Scheme to Support Employment and Prevent Layoff of Workers, commonly known as SBP Rozgar Scheme, in April 2020. The scheme provides concessional financing to businesses for wages and salary expenses, provided they commit to not lay off their employees for the period of the loan.
The Scheme was later complemented by a Risk Sharing Facility (RSF) of the Government of Pakistan (GoP) for SMEs and Small Corporates with turnover of up to Rs2 billion. Under this facility, GoP bears up to 60% first loss on the principal amount portion of disbursed portfolio for SME borrowers whereas 40% risk coverage is available for Small Corporates.
The objective of this facility is to incentivize banks to extend loans to SMEs and Small Corporates, to whom they may not cater to for risk considerations. The Scheme was available till end June 2020 earlier, however, SBP decided to extend the validity of this scheme by another 3 months to end September, 2020. Under the Scheme, on overall basis, up till 10th July 2020, financing of Rs125.9 billion has been approved by banks for 2068 businesses covering wages and salaries of over 1.2 million employees. Soon after the introduction of the Scheme, a large number of applications to avail financing were received by banks but their approvals remained slow.
