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Eight banks selected for SME financing



State Bank of Pakistan (SBP) Governor Dr Reza Baqir has cherished the encouraging response of banks to an innovative financing scheme introduced by the central bank for collateral-free lending to small and medium enterprises (SMEs).

“This is the first time that a comprehensive collateral-free SME lending scheme has been introduced by the SBP,” he said in a statement on Wednesday.

“Out of 20 banks that competed to participate in this initiative, eight have been selected under four categories on the basis of highest amount of finance and highest number of SME clients to be served.”

These classifications include large banks, mid-sized banks, small banks and banks in collaboration with fintechs. The institutions were selected through a transparent bidding process based on prescribed criteria, the statement said.

While appreciating the banks’ enthusiastic response, Baqir emphasised the need for early rollout of the scheme by banks.

He also underscored the importance of extensive awareness and marketing of the scheme to enable the SMEs to fully utilise its benefits.

“Access to finance for SMEs remains low in Pakistan due to a number of factors including lack of collateral and perceived high risk due to non-availability of track record,” said the statement.

To address these issues, the SBP adopted an innovative approach by designing SME Asaan Finance (SAAF). The initiative was developed after thorough consultation with stakeholders.

To implement this scheme, the SBP decided that rather than advising all banks to offer the product, only willing banks would be encouraged to be part of this initiative and develop their expertise through a transparent process.

SAAF was launched in August 2021 and bids were solicited from interested banks, the statement said.

Under the scheme, the SBP will provide refinance to the banks at 1% per annum for onward lending to SMEs at a maximum end-user rate of up to 9% per annum.

The end-user rate under SAAF would be attractive for SMEs when compared with the usual cost of financing for them from informal sources, which can be 25-50% per annum.

Published in The Express Tribune, November 4th, 2021.

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