SBPs Policies Schemes for Promotion of SME Financing

SBP’s Policies & Schemes for Promotion of SME Financing in Pakistan Development Finance Support Department SBP-Banking Services Corporation

SMEs: Significance and Contribution • SMEs contribute 30% in GDP, 25% in exports and 78% in the industrial employment. • Of the total 3. 2 million economic establishments, SMEs constitute more than 90%, with a pre-dominant portion as sole proprietors. • Around 6% of SMEs currently avail loans despite about 40% have banking relationship. • Banks and Governments have started realizing the particular needs and preferences of SMEs.

Overview of SME Finance in Pakistan 600 80% Outstanding SME Financing 513 500 450 408 400 401 349 324 311 334 100 60% 50% 304 300 200 70% 273 284 288 305 40% 30% 17. 0% 15. 0% 12. 2% 12. 1% 12. 2% 10. 8% 20% 8. 7% 8. 5% 8. 0% 7. 9% 9. 2% 8. 9% 8. 5% 0 10% 0% Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec- 12 Dec- 13 Dec- 14 Dec- 15 Dec- 16 Dec-17 Dec-18

Demand side • Low financial literacy • Lack of collateral and documentation • Lack of awareness on SME financing products • Complicated loan procedure • Reluctance to tax filing • Quick and easy access to informal finance Supply side Issues & Challenges • High risk perception • Asymmetric information • High administrative cost • Lack of collateral • Corporate mindset (compromised marketing) • Limited expertise w. r. t SME finance (products, cash flows, credit scoring, credit rating) • Heavy investments in govt. papers • Unavailability of assessment of demand of SME financing 4

Policy for Promotion of SME Finance Pillar# 9 Simplification of taxation regime Pillar#8 Leveraging Technology to Promote SME Financing Pillar#7 Handholding of SMEs-NFAS Pillar#1 Improving Regulatory Framework Pillar#2 Upscaling of MFBs SME share to 17% Borrowers to 700, 000 Pillar#6 Capacity Building and Awareness Creation Pillar#3 Risk Mitigation Strategy Pillar#4 Simplified Procedures for SME Financing Pillar#5 Program based Lending & Value Chain Financing

Key Initiatives by SBP & SMEDA Collaboration SBP Schemes for SMEs (CGS, Rice Husking, BMR, PMYBL, EFS) Market Analysis & Research (NPLs, SME Lending Market Survey etc. ) Revision in PRs for SME Financing Key Initiatives by SBP Capacity Building/Awaren ess Programs for FIs Establishing a Secured Lending Framework Formation of SME Finance Technical Committee under NFIS Allocation of SME Financing Targets

Refinance & Credit Guarantee Scheme for Women Entrepreneurs Courtesy; TDAP

Refinance & Credit Guarantee Scheme for Women Entrepreneurs- Scope, Eligibility Purpose: Financing shall be available to women entrepreneurs for a period of up to 5 years, including maximum grace period of up to six months Financing Amount: Maximum financing limit under the scheme will be Rupees one and a half million (Rs. 1. 5 M) Target Segment: Financing under the scheme should be provided for setting up of new business enterprises or for expansion of existing ones. Collateral: Financing under the scheme should be provided to women borrowers preferably under the personal guarantee of the borrower Risk Sharing: Such loans will also be eligible for 60% risk coverage under SBP’s Credit Guarantee Scheme for Small and Rural Enterprises. Mark up Rate: Rate of mark-up rate for end user under the facility will be up to 5% per annum (p. a. ). SBP will provide refinance to PFIs at 0%.

Kamyaab Jawan Program (Revised PMYBL) S. No Particulars Key Features 1 Eligibility Criteria I. All men/women holding CNIC, aged between 21 and 45 years with entrepreneurial potential are eligible. For IT/ E-Commerce related businesses, the lower age limit will be 18 years. II. Small enterprises(startups and existing businesses)as per definition of SBP and owned by youth as per abovementioned age brackets are also eligible. III. For IT/E-Commerce related businesses, at least matriculation and/or experience of at least six months. 2 Loan size Size of the loan is segregated into two tiers, as under: Tier 1 (T 1) loans-Rs 100, 000 to Rs. 0. 5 million Tier 2 (T 2) loans-Above Rs 0. 5 million and up to Rs 5 million 3 Loan type Working capital loans and term loans 4 Loan Tenor Upto 8 years with maximum grace period of upto one year. 5 Debt to Equity ratio 6 Focus on Women T 1 loans- 90: 10 T 2 loans- 80: 20 The borrower's contribution of equity would be in the form of cash or immovable property and will be required after approval of the loan. 25% of the loans will go to women borrowers.

S. No Particulars 7 Security Requirements 8 Risk Mitigation Key Features T 1 loans: Clean, however, only personal guarantee of the borrower T 2 loans: As per bank's own credit policy Government will bear credit losses (principal portion only) on the disbursed portfolio of the banks as under: T 1 loans: Upto 50% T 2 loans: Upto 10% Pricing for Working Capital & Term Loans: 9 Pricing T 1 loans: 6% p. a. fixed for borrower. Government will pay the difference of the cost at KIBOR+500 bps T 2 loans: 8% p. a. fixed for borrower. Government will pay the difference of the cost at KIBOR+400 bps 10 Executing Agency 11 Sectors and Products In the first instance, National Bank of Pakistan (NBP), Bank of Punjab and Bank of Khyber will execute the program under the guidance and supervision of State Bank of Pakistan. Subsequently, SBP will also advise other commercial banks for participation in the program. All sectors. Standardized schemes/ projects/ undertakings designed by SMEDA, or projects designed by private sector service providers or by individuals, themselves will also be admissible.