Small & Medium Enterprises Development Authority (Smeda) has prepared a special package for financing of Federally Administered Tribal Areas (Fata) based business and removal of the reluctance of the commercial banks in extending lending facilities to businesses, sources told Business Recorder.
The draft-lending package is comprised of three packages with extension of lending facility to the businessmen of the tribal belt. The packages have been prepared for better implementation of Rs 120 billion Fata Sustainable Development Strategy to carry out with the grants of federal government and foreign donors.
According to the first proposal of the package, the authority had suggested finance against immovable properties for all businesses operating in Fata with owners having immovable property as security in settled areas as well as in Fata. It said that SME owners having property in urban areas can offer them as collateral against extend loans to SMEs in Fata region.
The recovery of loans from such SME owners who have their working units in Fata and residing in urban areas like Peshawar and Kohat and their properties be secured on lending authority's behalf because of proper recovery mechanism in urban centres. However, it suggests that property in Fata can also be taken as collateral. The banks, the draft lending package said that all commercial banks could do such types of advances in the Fata with the help of political agents. Justifying the proposal, it said that the Khushali Bank has already started its operations from micro finance in to agencies ie Kurram and Mohmand agencies and had a clientele of over 800 customers and so far no default has been reported. It said that the banks could replicate the same model for entering Fata with backing from political agent/assistant political agent in operations.
The second proposal of the package suggested that Fata Development Authority (FDA), a recently established organisation should itself act for disbursement of the special grant in selective clusters. It said that the authority can target the potential of FDA step by step starting with focus on one region at a time and in order to achieve the desired objective, it has further suggested the appointment of credit officers and credit managers by the authority itself for extension of financing facilities with the terms and conditions of the first proposal of the package.
The third proposal submitted in the package is considered the most suitable one and called for involvement of assistant political agents (APAs) and tribal Maliks in the disbursement and collection process of the loans.
The proposal said that any incumbent, who desire to avail any finance facility from the bank will require fulfilling the required criteria, which include guarantee of the Malik from his region, concerned business association and attestation by Tehsildar, APA of the agency concerned. The package can be current finance on term finance depending on the need of the SME concerned. The financing amount would not exceed Rs 0.5 million and will be backed by the mortgage of immovable property and personal guarantee of the client, Malik of the area and other modalities involved in the matter.
The commercial bank concerned would have to estimate the cost of admin for extending the said facility at Fata and will add a spread of 1.5 percent to the total cost of earnings. The grant will be extended to the concerned bank at very nominal mark up rate so that the very purpose of the grant is not defeated. Moreover, it said the loan facility will be with term finance or current finance as desired and required by the clients, as it will be catering the actual needs of the business.
The banks will appoint their credit officers at offices of political agents to process the case from and act as collection and monitoring points in Fata. The special line of credit given to the commercial bank will be backed by solemn guarantee.
The Federally Administered Tribal Areas (Fata) spread over 27,220 sq kms covering 2.6 percent of Pakistan total area and has been divided administratively into seven political units and four Frontier Regions. According to 2003 census the population of Fata was 3.341 million or 2.4 percent of Pakistan's total population. The Fata is amongst the most backward and impoverished part of Pakistan, but the commercial banks are not advancing any finance facility to businesses operating in tribal areas.