Kamyab Pakistan Programme: IMF flashlight likely to cast a bright beam

Islamabad: The Kamyab Pakistan Programme (KPP), a flagship programme of the present government, would be part of the discussions, among other things, with the Pakistani authorities during the upcoming review on $6 billion Extended Fund Facility (EFF) programme with the International Monetary Fund (IMF).

This was stated by Teresa Dabán Sanchez, Resident Representative of IMF in response to a Business Recorder question.

She said: “IMF team remains engaged with our Pakistani counterparts on conducting technical and data discussions. We stand ready and looking forward to our continued discussions with the Pakistani authorities on the set of policies and reforms that could form the basis for the completion of the 6th review under the EFF. These discussions include discussions on KPP, among many other things. As you know, we would only issue a statement if any at the end of the discussions but not 'during' the discussions”.

An official of the finance ministry also stated that discussion with the IMF on KPP would be held during the 6th review talks.

As you know, we would only issue a statement if any at the end of the discussions but not 'during' the discussions: Teresa Dabán Sanchez, Resident Representative of IMF

Finance Minister Shaukat Tarin acknowledged during a media briefing the Fund's concerns on Kamyab Pakistan Programme and stated that he would address them.

The minister further stated that the Fund had asked some questions pertaining to the capacity of partner financial institutions and whether or not the government’s guarantee would be 100 percent, but these were no big issues. He reckoned they would be answered during the face-to-face meeting with the IMF.

Background interviews with officials of the finance ministry revealed that KPP's scope may be reduced considerably during the sixth review talks with the Fund.

According to documents, the programme envisages wholesale lending by the commercial banks to microfinance providers (MFPs), DFIs and PMRC whose eligibility criteria would be decided by the banks. The loan(s) would be provided 100 percent government of Pakistan guarantee at 90 days past due date. Subsidy claims by MF1s, RSPs and HFCs would be audited by SBP’s QCR-rated audit firms through banks on random sample basis.

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Banks would engage/appoint the audit firm responsible for claim certification at their own cost to ensure impartiality of the auditors. However, for MFBs, subsidy claims would be certified by head of internal audit of the respective MFBs.

A summary of KPP, approved by the ECC, noted that the programme has been developed for promotion of SME, Agri, and Low Cost Housing Finance in consultation with Naya Pakistan Housing & Development Authority (NAPHDA), State Bank of Pakistan (SBP), Securities & Exchange Commission of Pakistan (SECP), Pakistan Banks Association (PBA), Micro Finance Providers (MFPs), and other related stakeholders in the consultative meetings of a Working Group and a Steering Committee notified for this purpose.

In order to scale up the existing Prime Minister’s Kamyab Jawan Programme and Government’s Mark-up Subsidy Scheme for Low-Cost Housing, it has been proposed to engage Micro Finance Institutions (MF1s), Rural Support Programmes (RSPs), and Micro Finance Banks (MFBs, collectively referred to as Micro Finance Providers (MFPs) and Housing Finance Companies (HFCs).

Building on the work done so far and to address the challenges being faced by the country’s banking for increasing outreach, the Kamyab Pakistan Programme proposes provision of cheaper liquidity for large scale distribution of subsidized small business and agri loans to small enterprises, start-ups, and farmers, and to individuals for housing needs.

Under this Programme, Commercial Banks, DFIs and PMRC shall extend Wholesale Loans to MFPs for onward extension of small loans under the existing Kamyab Jawan Programme and Naya Pakistan Low-Cost Housing Programme (NPLCHP) through NAPHDA.

The Kamyab Pakistan Programme envisages micro loans by MFPs, to be branded as Kamyab Karobar and Kamyab Kissan, for entrepreneur loans and agri loans, respectively. Such loans will be priced at 0 percent p.a. with a loan size of up to Rs. 0.5 million & s 0.150 million (for agri loans) and/or Rs. 0.2 million (Farm machinery & equipment), respectively.

Besides, the Programme shall also envisage Low-Cost Housing Programme (NPLCHP) through NAPHDA which shall be amended to include micro housing loans by MFPs.

It is also aimed at integrating with government’s ongoing Skill Development Programme for educational and vocational training. Accordingly, it is envisioned that these trained citizens shall also have access to finance under the programme. This collaboration shall be re-branded as Kamyab Hunarmand.

It is estimated that more than 3 million households shall benefit from this programme with cumulative disbursement of approximately Rs.1630 billion over the next 3 years, thereby creating new jobs in the country.

The programme will initially be for 7 years which could be extended further; however, it may not be rolled back before its maturity period. MFPs are also expected to arrange for Group Life insurance / Takaful to cover the default risk in the event of death, cost of such insurance Takaful to be borne by the end-user.

Loans under the KPP shall be extended to households registered with the National Socio Economic Registry (NSER) of BISP/Ehsaas. The criteria for selection of borrower/ beneficiary under the programme shall be as follows:

Launch of Kamyab Jawan Pakistan deferred

Borrower/ beneficiary of KPP facility shall have cumulative average monthly family income of less than Rs 50,000 with priority to be given to 4.5 million beneficiaries of Ehsaas. However, this shall not be mandatory for applicants of Tier I housing loans verified by NAPHDA through NADRA. Moreover, one loan under each Kamyab Pakistan loan category, i.e., Kamyab Karobar, Kamyab Kissan, and Housing, shall be permissible concurrently with the maximum exposure capped at Rs2.85 million [put together] per family as defined by Ehssas NSER.

As per Pakistan Banks’ Association (PBA) feedback, banks have inevitably demanded to extend Direct Debit Authority to State Bank of Pakistan for timely and seamless payment of Mark-up Subsidy and Loss Claims to banks and MFPs.

Accordingly, Secretary Finance shall facilitate this arrangement. A precedent already exists in respect of subsidy payment under Government Mark-up Subsidy Scheme (GMSS) for Low-Cost Housing through direct debit authority.

The provision of direct debit authority is provided in rule 3(1)(c), 3(2) and 3(3) of Cash Management and Treasury Single Account Rules 2020 which states that direct payment from Federal Consolidated Fund should only be made where inevitable circumstances exist necessitating such payment.

Accordingly, the estimated budget requirement for providing a) Mark-up Subsidy to banks, b) Additional Subsidy for meeting operational cost of the MFPs at the rate of 8 percent and c) expected Loan Loss claims by MFPs for year 1, year 2 and year 3 will be Rs 21,067 million, Rs 74,021 million and Rs 157,763 million respectively.

The ECC was requested that in view of the above, it is proposed that KPP with the features may be approved and launched. It is further proposed that exemption of rule 3(2) of Cash Management and Treasury Single Account Rules 2020 for allowing direct debit authority to SBP beyond inevitable circumstances may be granted.

Copyright Business Recorder, 2021