The State Bank of Pakistan (SBP) is likely to enhance the limit against loans from Rs500 million to Rs1 billion to finance three-month wages, said reliable banking industry sources. The central bank is also considering to waive off the condition of 'no lay-off' to use this scheme, they said, and added that it is not clear yet whether the payment of wages period has also been extended to six months or not.
It may be noted that the SBP had introduced a loan scheme for businesses to finance three months of wages i.e. from April to June 2020. The businesses have been placed in three categories on the basis of three months wage bill (i) up to Rs200 million; (ii) Rs200-500 million; and (iii) Above Rs500 million. In each category loan limits will be (i) 100% of the wage bill to a maximum of Rs200 million; (ii) 75% of wage bill to a maximum of Rs375 million; (iii) 50% of the wage bill to a maximum of Rs500 million.
However, the limit is now set to be enhanced to Rs 1 billion. According to the sources in the Large Scale Manufacturing (LSM) sector, in a meeting with Governor SBP, the SBP wage support scheme was discussed in detail. Both sides have agreed to enhance the loan limit to Rs 1 billion with a waiver of the condition of no lay-off to use this scheme.
Earlier, the borrowers availing this facility had to undertake not to lay off their workers/employees at least for the next three months from the date of the first disbursement except in case of any disciplinary action. Also, the banks were asked to give preference to businesses that are labour-intensive and affected by the Coronavirus problem.
Loans will be credited directly to the bank accounts/branchless banking accounts/mobile wallets of the workers and employees of the borrowers. Businesses can also make payments in cash provided they make available details of such workers and employees to their banks.
The end rate that will be charged from the borrowers will be up to five percent p.a. Borrowers that are on active taxpayers list under the Income Tax Ordinance, 2001 would be eligible for one percent subsidy and will be charged an interest rate of four percent.
Repayment of the loan will start from January 2021 after a grace period of 6 months. During the grace period, borrowers will pay interest on a quarterly basis. The repayment of the loan can be made in equal 24-month or 8-quarter installments.
Refinancing will be available to finance wages and salaries of all types of workers and employees like the permanent, contractual, daily wagers as well as outsourced workers. The scheme will be available to exist as well as new borrowers of banks and DFIs.
On 6 May 2020, the federal government has allocated Rs30 billion under a credit risk-sharing facility for the banks spread over four years to share the burdZen of losses due to any bad loans in the future. Under this risk-sharing arrangement, the federal government will bear 40 percent first loss on the principal portion of the disbursed loan portfolio of the banks.
This facility will incentivize banks to extend loans to collateral deficient SMEs and small corporates with a sales turnover of up to Rs2 billion to avail financing under SBP refinance scheme. No one from the SBP spokesman's office was available to comment despite repeated calls on the landline number.