State Bank to Initiate Collateral Free Loan Program

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In a bid to promote small and medium-sized enterprises and home-based businesses, the State Bank of Pakistan initiated a loan program that exempted any collateral fees or fines for SMEs and other small business ventures. According to Governor of State Bank of Pakistan Dr. Reza Baqir, the government can incentivize banks to hand out collateral-free loans to SMEs and cottage industry businesses by providing them a guarantee against losses. This can invite expression from banks and make the scheme inclusive for all stakeholders.

Normally, the end-user rate for small businesses is 24%, which under the scheme would be less than 9%. This incentive was needed to facilitate growth in the IT sector. In Pakistan, the IT sector is dominated by international tech giants and the creation of a monopoly does not boost SMEs. The IT sector is a thriving sector globally and it is connected with the growth of other sectors like E-commerce and telecommunication. Hence, in order to facilitate SMEs in the IT sector, foreign exchange laws have been relaxed and made more business-friendly.

The State Bank of Pakistan has initiated different measures to support businesses during the pandemic. These include principal loan restructuring, the Temporary Economic Refinance Facility (TERF), and the refinance scheme for payment of salaries. Under the loan restructuring program more than Rs. 600 billion worth of loans have been restructured.

The State Bank has provided relief of more than Rs.2 trillion to the national business community through various schemes to facilitate a post-pandemic economic recovery. Moreover, under the TERF almost Rs. 436 billion have been refinanced and a major portion of the funds have been disbursed.

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IMARAT Institute of Policy Studies

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