Credit Guarantee Scheme: recoveries must be reimbursed in 10 days, banks told

State Bank of Pakistan (SBP) has directed the banks and Microfinance Banks that recoveries under Credit Guarantee Scheme (CGS) for Small and Rural Enterprises may be reimbursed to SBP Banking Services Corporation BSC within 10 days. Earlier, banks and Microfinance banks were required to remit proportionate share of the Guarantee Scheme to State Bank within two working days.
According to SBP IH&SMEFD Circular Letter No. 11 of 2015 on Credit Guarantee Scheme (CGS) for Small and Rural Enterprises issued to the Presidents/CEOs of all Banks and Microfinance Banks in order to facilitate Participating Financial Institutions (PFIs) and streamline procedure for the facility, some changes have been made in the scheme. In order to create Developmental Impact on Small and Rural Enterprises, PFIs would now adopt sector specific approach. For the purpose, out of the total allocated limits, PFIs would lend 30 percent to specific sectors, starting July 2015. This limit would increase to 50 percent in second year and to 100 percent from third year onwards. The limits of only those PFIs will be enhanced in future which will fully utilise their sector specific limits. Moreover, PFIs would be required to intimate to SBP, 2 to 3 sectors for the purpose, the circular said.
Guarantee claims may be lodged within 20 days after completion of quarter and PFIs would also attach the e-CIB reports of the individuals' cases for which claims would be lodged. Recoveries under the subject scheme may be reimbursed to SBP BSC within 10 days. In addition, reporting Form CG-1a has been merged with CG-1. Moreover, the reporting formats CG-1, CG-2 and CG-4 have also been revised.
The reporting frequency of CG-2 "Reporting of outstanding position of guaranteed loans" has been changed from monthly to quarterly and the reporting of "Reimbursement of recoveries on guaranteed loans" on CG-4 would now be made on a monthly basis. According to SBP, the growth of Small and Rural Businesses is imperative for any developing economy, however, access to formal finance for this sector is a major problem hindering the growth of small and micro enterprises, particularly in the rural areas.
Credit Guarantee Schemes are programmes that ensure partial repayment of a loan in order to motivate lenders to lend to borrowers which would not have access to credit under normal circumstances. The loans for short term working capital and medium-term for a period up to 3 (three) years, with maximum amount of Rs 15.0 (fifteen) million for Small Enterprises and Rs 2.0 (two) million for farmers with economic landholding, are to be guaranteed under the Scheme.
The seed money for the scheme is being provided by the UK's Department for International Development under the Financial Inclusion Program (FIP) and the federal government, with the option of later being bolstered up through further allocation of funds from other sources including international/bilateral agencies.