The State Bank of Pakistan (SBP) on Tuesday issued modalities for “Prime Minister’s Youth Business Loans Scheme”- a mark-up subsidy and partial guarantee facility for extension of small business loans up to Rs 2 million for 7 years. Initially, the federal government has allocated Rs 5 billion and some 100,000 loans will be disbursed under this scheme.
All men/women holding CNIC, aged between 21 and 45 years with entrepreneurial potential to apply from designated branches mapped with area of residence/business. According to a circular issued by the SBP, small business loans will focus on (but will not be restricted to) unemployed youth, especially educated youth looking for establishing or extending business enterprises.
Tenor of loan will be up to 7 years with six (6) months grace period and it will be disbursed at fixed rate of 8 percent for borrower. While, the government will pay the difference of the cost at KIBOR+500bps. Under this loan scheme major focus on women has been stressed and some 50 percent of loans will go to women borrowers.
According to the SBP small Businesses have potential to revitalise economic activity by creating employment opportunities, reducing poverty and providing economic linkages/services to the corporate sector. The growth of Small Businesses and their access to formal finance is imperative for development of economy. However, despite their strong potential, the small businesses particularly young entrepreneurs have traditionally remained credit constrained due to risk perception of banks towards these economic segments. On the other hand, the educated youth generally lacks entrepreneurial skills.
The government is cognisant of this scenario and is committed towards uplifting the youth and providing them opportunities of financial independence through self employment. With this objective, the government has introduced Prime Minister’s Youth Business Loans scheme.
As per salient features of the scheme, approved by the Prime Minister, on security requirements side one guarantor will be required for the loan. While, debt-equity ratio will be 90:10 and 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.
On the risk mitigation side government will bear up to 5 percent losses on the portfolio of the bank under this scheme In the first instance, National Bank of Pakistan (NBP) and First Women Bank Limited (FWBL) will serve as executing agency under the guidance and supervision of State Bank of Pakistan. However, the SBP is to ensure participation of private banks and private banks will be required to participate in this scheme on the basis of soundness of business proposals.
The SBP will encourage private banks to build this portfolio commensurate with their size and the central bank will arrange appropriate training for private banks to implement this scheme. However, NBP will continue to play the lead role. All sectors standardised schemes/ projects/ undertakings will be designed by SMEDA, projects designed by private sector service providers or by individuals themselves will also be admissible.
The 50 feasibilities prepared and uploaded by SMEDA will be extensively publicised and their access to public made easier through multiple linkages with other relevant websites. Secondly, SMEDA will work closely with Punjab Information Technology Board (PITB) to ensure that the schemes are accessible to those who participated in the PITB survey. Application Form would be both in English and Urdu; and require minimum essential information with simple format.
The processing time will not exceed 15 days and will be so stated clearly in the application form; and the forms would be readily available both in branches and through nominated websites of the banks. A Non-refundable form processing fee will be Rs 100 (One Hundred).
The SBP will publish consolidated information about the loans extended under this scheme for the public on quarterly basis on its website and an effective Complaint Center to process and resolve complaints will be set up; E-government directorate of Ministry of IT will provide support.
In case of Balochistan, at least one branch of NBP will be designated per Division. All non-designated NBP branches will also provide and receive filled application forms and dispatch them to the nearest branches. State Bank will monitor implementation of the scheme through weekly, monthly and quarterly reports. The banks are advised to gear up their systems for successful operation of this scheme and to avoid any misuse of the scheme. Application forms for the loans under this scheme will be available on NBP and FWBL’s websites and eligible borrowers can apply for the loans immediately after formal launch of the Scheme by the Prime Minister.