SMEs likely to get Rs 60 billion collateral-free lending from eight banks

SMEs banks

State Bank of Pakistan has selected eight banks to get financing at 1 percent for onward lending to SMEs at a maximum end-user rate of up to 9 percent per annum.  

According to SBP, “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 run 25pc to 50pc per annum.”

State Bank of Pakistan has adopted an approach by designing SME Assan Finance, known as ‘SAAF’. Small and Medium Enterprises face problems to avail the facility of bank financing due to many reasons including lack of collateral and perceived high risk due to non-availability of track-record.  

Central Bank of the country comes with the view, “SAAF has been developed after thorough consultation with stakeholders.” Meanwhile, Reza Baqir, the governor of the bank says that this is the first time a comprehensive collateral-free SME lending scheme has been introduced by the SBP. Now the loans may be secured against personal guarantees of borrowers and the Sharia-compliant version of SAAF is also available here.  

The banks would be in a position to take the benefits of the margin to make an upfront investment in human resources, technology, and processes to cater to promote SME finance. The incentive to banks is for the first three years of the scheme which is likely to become self-sustaining.

SAAF was introduced in 2021 and bids were invited from the banks. Governor Reza Baqir said that out of 20 large, medium, small banks and banks in collaboration with fintech, eight banks have been selected on the basis of the highest amount of finance and highest number of SMEs to be served. 

The names of the banks are Habib Bank Ltd, United Bank Ltd, Allied Bank Ltd, Meezan Bank Ltd, Bank Alfalah Ltd, The bank of Punjab, JS Bank Ltd, and The Bank of Khyber.  

Governor of Central Bank says, “These banks have been selected through a transparent bidding process based on prescribed criteria.” The governor emphasized the importance of extensive awareness and marketing of the scheme for Small and Medium Enterprises for taking the benefits of the scheme. 

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