State Bank eases bank credit for small firms and farmers

The State Bank of Pakistan has issued a financing framework that allows banks to extend credit to small enterprises and small farmers through wholesale and agency arrangements, with microfinance institutions and non-bank financial companies acting on their behalf. ProPakistani reported that the loans will be counted in banks' portfolios for small enterprises and small farmers and will be covered by the federal government's Risk Coverage Schemes for SMEs and small farmers.

Under the framework, banks may partner with eligible microfinance banks, non-bank microfinance companies and non-bank financial companies, subject to eligibility criteria, lending limits and risk management requirements. The agents will handle loan origination, appraisal, approval, monitoring, recovery and reporting. Loans can be recorded on the participating bank's own books or booked through the agency arrangement, but in either case they must be identifiable and traceable, with reporting to the bank through API-based integration.

Per-borrower ceilings for small enterprises are Rs1 million for non-bank microfinance companies and Rs5 million for non-bank financial companies and microfinance banks. For agricultural borrowers the limits are Rs500,000 for non-bank microfinance companies and Rs2 million for non-bank financial companies and microfinance banks. The caps apply to individual borrowers and remain subject to the authorised institution's financing capacity and its underwriting and monitoring ability.

Institutions must meet several conditions to qualify, according to the report: 100 percent operational self-sufficiency, a non-performing loan ratio of no more than 5 percent in SME and agricultural financing, unqualified audit opinions for the past two years and at least three years of experience in enterprise lending or agricultural financing. Where loans sit on their own books they must also meet regulatory capital adequacy requirements, and they must maintain sound governance, including a functional board and independent internal audit and compliance functions. Compliance with anti-money laundering and counter-terrorism financing rules under SBP or Securities and Exchange Commission of Pakistan regulations is mandatory.

Separately, Minute Mirror reported from Islamabad that the government is preparing a plan to reorganise the Small and Medium Enterprises Development Authority, aiming to widen access to finance and extend services to rural and underserved areas. Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan said SMEs make up around 99 percent of the country's business enterprises and provide roughly 78 percent of employment, and that a committee formed by Prime Minister Shehbaz Sharif would submit its recommendations on the reorganisation within four weeks.

Khan said SMEDA had remained largely inactive for years and had been revived under the prime minister's vision, and described the appointment of Rana Attique as chief coordinator for small and medium enterprises as a further step. The meeting was attended by Minister of State for Finance and Railways Bilal Azhar Kiyani, the prime minister's coordinator for commerce and industries Rana Ihsan Afzal, Industries and Production Secretary Ihsan Ali Mangi, Commerce Secretary Jawad Paul and SMEDA chief executive Nadia J Seth, the outlet reported.