Governor State Bank of Pakistan, Syed Salim Raza has said that the proposed Financial Inclusion Programme (FIP) for small and rural borrowers has been finalised and it will be launched soon. He said this at a meeting of Karachi Chamber of Commerce and Industry (KCCI) held here on Wednesday.
During the meeting he said that SBP, under its financial Inclusion programme with the UK Department for International Development (DFID), initiated a project for launching Credit Guarantee Scheme in Pakistan to share risks with the lending institutions and meet funding needs of small and rural enterprises. He, further, said that the SBP has also geared up its efforts towards facilitating stakeholders in the Small and Medium Enterprises (SMEs) sector especially the banks/DFIs.
He said that Separate Prudential Regulations for Small and Medium Enterprises are introduced to promote and develop small enterprises. Syed Salim Raza said that SMEs form an important link in the value-added sectors and urged the associations representing interests of large businesses to play their role in facilitating and guiding SMEs so that they could effectively contribute to the desired growth of the economy.
Recognising the vital role of SMEs, he said that SBP has recently introduced a Scheme for Modernisation of Ginning Sector which will improve the quality of lint cotton, leading to better quality yarn, which will result in better cloth and so improve the whole product chain. Similarly, the central bank has also introduced a Refinance Scheme for Rice Husking Mills, which will help in producing quality rice both for domestic consumption and exports. "That is the philosophy which must be followed to achieve the overall objective of growth," he added.
Syed Salim Razas further said that the central bank would ensure that ample liquidity is available in the market for financing export-oriented sector. Raza said that SBP has taken a number of measures to provide liquidity to corporate entities at low interest rates.
Talking about specific incentives for the export-oriented sector, SBP Governor said that since January this year the central bank has given additional concessions under its Refinance schemes. He pointed out that some of the significant incentives, include one-year grace period on principal repayments, debt-swap for the non-textile sector, refinance for second-hand plants and machinery as well as for generators and captive power plants under Long Term Financing Facility (LTFF).
Similarly, under Export Finance Scheme (EFS) incentives and relaxation's pertaining to performance-based mark-up rates, extension in repayment period under Part-I of EFS and relaxation for export over-dues were introduced. Raza said that the refinance limits at Rs 221 billion assigned to the various banks for current 2009-10 fiscal year (FY10) are 58 percent higher than limits on June 30, 2008. "We are continuously monitoring the availability of credit under this key source of financing to the export sector to ensure that exporters do not suffer on account of lack of funds," he added.
Referring to a point raised by KCCI president regarding remedial measures to reduce adverse impact of economic slowdown on financial sector, Raza said that the SBP has taken various measures to effectively handle the impact of economic slowdown on financial sector such as minimum capital requirements for banks/DFIs have been lowered, provisioning requirements have been rationalised to withstand the impact of economic recession and facilitating bank lending to businesses, introduced interim guidelines for encouraging the banks to reschedule/restructure the facilities of promising borrowers, reduction in Cash Reserve Ratio, liquidity support, incentive for mobilisation of long term funds, and effective communication policy that was well amplified by SBP's strong track record of ensuring a sound and stable banking system.
Referring to a demand to include representation of KCCI in its board of directors and in monetary policy committee, he regretted the demand and said that government appoints the members for its board. However, he offered KCCI to sit with SBP monetary policy experts and discuss policy in detail. Including member of KCCI in monetary policy committee is not possible.
He said that due to policies of the SBP inflation, which was at 25 percent, declined to less than 9 percent in the last 12 months and foreign reserves have increased to 14 billion dollars, including 3 billion dollars with banks.
Regarding higher mark-up rates, the governor justified SBP policy of increasing mark-up rates and said that there is a need to curtail purchasing power as imports are increasing at 30 to 40 percent whereas exports are increasing only 10 percent. Foreign reserves are depleted considerably and they are just enough to meet three- week requirement. He agreed with a question that industrial borrowing is reducing whereas the government's borrowing is on increase.
In response to another point raised by KCCI, SBP Governor said that as per existing regulations a general permission has been given to authorised dealers to determine their own rates of exchange, both for ready and forward transactions for the public, subject to the condition that the margin between the buying and selling rates should not exceed twenty paisa per US dollar or its equivalent to other currencies.
However, the Authorised Dealers may deal at premium/competitive rates keeping in view the banker-customer relation. Further, it is permissible for exporters/ importers to shop around for better rates, from the Authorised Dealers.
In this regard, exporters have been given three working days to retain export proceeds to shop around for better rates, he added. The SBP governor pointed out that the problems of industry are not just the result of power failure or international recession, but they have link with the borrowing behaviour of industry during the first half of 2000s.
He said that with low interest rates and excess liquidity in the banking system, the private sector undertook borrowing from the banks at floating rates. Banks lent freely to fixed investments, consumer financing, and SMEs. SBP Governor said as interest rates steadily started rising, the private sector felt the pinch and started demanding concessions, as the borrowers did not hedge about their Interest rate risks.
"Even banks did not foresee how their customers would be able to service their loans extended liberally in low interest rate environment," he asserted. SBP Governor said that the State Bank and the business community are working towards a common goal, ie, economic growth of the country.
"This ultimate goal can be better achieved when there is co-operation amongst all the players and when each is fulfilling its responsibility to the best," he maintained. President KCCI Abdul Majid Haji Muhammad said that it is the need of the day to bring revolution in micro-financing and SMEs while providing an equal level playing field. There is a trend that commercial banks give priority to large scale manufacturing industrial units, he added.
Moreover, he said that it is high time that SBP should play its due role to promote micro-financing. He said that excessive service charges are shared by the commercial banks of Pakistan from their customers especially under the head of opening of LC, account opening, intercity transactions etc.
Small traders and general public are truly suffering from these injustice charges, he added. He said that SBP should draw a comprehensive strategy while consulting the stakeholders and assure that enhancement of private investment by lowering the cost of borrowing of capital. He also urged the SBP to direct the commercial bank authorities to reduce transition cost, service charges and other hidden and non-hidden costs for private sector.
Comments
Comments are closed.