State Bank of Pakistan (SBP) has introduced a temporary refinance scheme for payment of wages and salaries to the workers and employees of the business concerns. SBP has extended the Rozgar Scheme for supporting employment for another three months and widens its scope in collaboration with Government of Pakistan.
Rozgar Scheme
This scheme provides concessional loans to businesses for wages and salaries expenses provided they commit not lay off their employees for the period of the loan. SBP has decided to extend the validity of this scheme by another three months to end September, 2020. Businesses will now be able to obtain financing to pay wages and salaries for a maximum period of 6 months starting April 2020 till September 2020. Effectively, this suggests that not only businesses can obtain loans to fund their wages and salaries bill up to a period of three months from July till September 2020, but can also get reimbursement for the wages and salaries paid during April-June 2020. For those who have already availed financing under the scheme, financing limits for the months of July to September 2020 will be calculated on the same basis on which limits were calculated for the months of April to June 2020. Under the scheme, up till 19th June 2020, financing of Rs 112.8 billion have been approved by banks for 1,653 businesses covering wages and salaries of over 1.1 million employees.
Risk sharing facility under SBP Rozgar Scheme
With a view to incentivize banks/DFIs for financing to SMEs and non SME corporates, Government of Pakistan (GoP) introduced a Risk Sharing Facility (RSF) for SBP Rozgar Scheme. Under this facility, GoP bears 40% first loss on disbursed portfolio (principal portion only) for eligible borrowers. Government of Pakistan has now decided not only to extend validity of its risk sharing facility (RSF) for another three months for SMEs and small corporates with turnover of up to Rs 2 billion but also enhanced risk coverage for SMEs from 40% to 60%
First loss of portfolio basis: This higher risk coverage will help banks to provide financing under Rozgar scheme to collateral deficient SMEs which are otherwise struggling hard. SBP now expects that more SMEs will benefit from the scheme mainly due to higher risk coverage, more awareness of the scheme among the stakeholders and robust support mechanism to address queries and complaints with well organized set up comprising regional focal persons of SBP Offices and banks all across the country. Under the RSF, up till 19th June 2020, financing of Rs 25.4 billion have been approved by banks for around 1,100 businesses covering wages and salaries of over 220,000 employees.
[ads1]
SBP took a step further to facilitate middle and large businesses, which employ large numbers of people, to ensure payment of wages and salaries under this scheme. SBP enhanced its refinance limits to finance up to 100% of wages and salaries of businesses with average 3- month wage bill of up to Rs500 million. This can be used for the onward payment of wages and salaries April, May and June, 2020. Earlier, 100% financing was available up to a wage bill of Rs200 million only. Similarly, for businesses with 3-month wage bill exceeding Rs500 million, State Bank will now finance of up to 75% with maximum financing of Rs1 billion. Earlier, 75% financing was available up to a maximum of Rs375 million and 50% up to a maximum of Rs500 million. These changes are applicable with immediate effect. However, businesses that had earlier availed lower financing due to applicable limits can now avail additional financing on the basis of revised criteria.
A comparison of previous and new financing limits is given in the following table:
| Category | Wages and Salaries Bill for 3 months | Previous Loan Limit | New Loan Limits |
|---|---|---|---|
| (1) | (2) | (3) | (4) |
| A | Less than or equal to Rs. 200 million | 100% of 3 months wage bill | 100% of 3 months wage bill |
| B | More than Rs. 200 million and less than or equal to Rs.500 million | 100% of 3 Rs. 200 million or 75% of 3 months wage bill, whichever is higher subject to a maximum cap of Rs 375 million wage bill | 100% of 3 months wage bill |
| C | More than Rs.500 million | Rs. 375 million or 50% of 3 months wage bill, whichever is higher subject to maximum cap of Rs. 500 million | Rs.500 million or 75% of 3 months wage bill, whichever is higher subject to maximum cap of Rs. 1 billion |
Further, SBP has also extended the availability of its refinance scheme to non-deposit taking financial institutions as well. They can now avail financing under the scheme for payment of wages and salaries of their employees.
Since the launch of the scheme till May 08, 2020, banks have received requests of more than 1,440 businesses for the financing of over Rs. 103 billion for providing wages and salaries to around one million employees whose jobs have been supported because of this scheme. Of this amount, banks have already approved financing of Rs 47 billion for 500 companies covering over 450,000 employees.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]