4 Broadening Access to Financial Services · 2020. 10. 28. · State Bank of Pakistan Annual Report FY20 . 66 . Box 4.1: Initiatives under NFIS Strategy Development of Asaan Mobile - [PDF Document] (2024)

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4 Broadening Access to Financial Services

4.1 National Financial Inclusion Strategy (NFIS)

SBP, being the apex policy and

regulatory body for financial sector,

is fully committed towards

broadening access to financial

services and implementing

development finance reforms and

policies. The stated vision for

financial inclusion in Pakistan is to

improve the access and usage of

quality financial services among

individuals and firms, with dignity

and fairness.

In order to promote financial inclusion and improve access to finance for priority sectors,

Government of Pakistan (GoP) and SBP adopted National Financial Inclusion Strategy (NFIS). The

key objective of the Strategy is to achieve inclusive economic growth through enhanced access to

finance & deposit base, promotion of small & medium enterprises, easy and affordable access to

finance to farmers, facilitation in low cost housing finance and provision of Shariah compliant

banking solutions. NFIS has made significant

headway in terms of creating an

enabling legal and regulatory

environment; establishing

financial market infrastructure,

developing innovative products

& services and new alternate

delivery channels; and

enhancing the capacity building

& awareness initiatives. As a

result of these initiatives, the

unique account ownership in

Pakistan reached up to 66 million accounts with 60 percent active accounts. Regarding progress in

priority sector lending, all the sectors have shown positive growth in terms of credit disbursem*nt and

outreach (Table 4.2). Further, the progress on major initiatives taken by SBP under NFIS are

mentioned in Box 4.1.

Table 4.1: Financial Inclusion Indicators

Indicators Jun 15 Jun 20 Growth

(Percentage)

In terms of outreach

No. of Deposit Accounts (million) 41.7 59.9 43.6

No. of Branchless Banking Accounts (million)

10.8 52.5 386.1

Scheduled Bank Deposits (Rs. in billions) 9,153 16,205 77.0

In terms of payment Infrastructure

No. of ATMs 9,597 15,612 62.7

No. of Bank Branches 11,937 16,067 34.6

No. of POS Machines 41,183 49,067 19.1

Source:

Statistics on Scheduled Banks in Pakistan

Agricultural Credit & Microfinance Department, SBP

Payment System Review

Table 4.2: Sectoral Progress

Sector Item Baseline

FY 15

FY 19-20

As of Jun

Percentage

change Agricultural

Finance

Agri Credit Disbursem*nt

(Billion Rs.)

515.9 1,215 135.5

Outstanding (O/S) Borrowers

(Millions)

2.18 3.74 71.6

Microfinance

(MFBs)

MF Gross Loan Portfolio

(Billion Rs.)

45.6 218.2 378.5

No. of Outstanding Borrowers

(Millions)

1.29 3.54 174.4

SME

Finance

Outstanding SME financing (Billion Rs.)

260.7 401.13 53.8

Outstanding SME borrowers 152,495 188,804 23.8

State Bank of Pakistan Annual Report FY20

66

Box 4.1: Initiatives under NFIS Strategy

Development of Asaan Mobile Account (AMA) Scheme: The AMA Scheme has been developed to improve

accessibility of new customers for account opening, drive usage of digital financial services through increased

transaction volume across various channels and increase access to financial services through digital means. Pilot

testing of AMA scheme in a live environment was completed in March 2020 and commercial launch is expected

soon.

Setting up of Digital Financial Services (DFS) – Innovation Challenge Facility (ICF): The ICF facility was set

up to support financial service and financial technology providers/institutions to develop new or expand on existing

digital financial products, services and delivery platforms that increase financial access for people living at the

bottom of the pyramid. Currently, the facility focuses on two areas, i.e. (i) improving digital financial inclusion of

small businesses and (ii) scale up an affordable online tax filing portal for SMEs.

Automation of Central Directorate of National Savings (CDNS): CDNS was provided support to automate

its 165 branches to enable CDNS to: (i) reduce the cost of funds by at least 25 percent; (ii) Increase customer

base by at least 50 percent (iii) develop new digital channels to enhance customer experience; and (iv) develop

HR capability and capacity regarding digitalization.

Automation of Securities and Exchange Commission of Pakistan (SECP): SECP has been supported for its

Leading Efficiency through Automation Prowess (LEAP) Programme to help SECP in digitization and

automation of its business processes to improve ease of doing business in Pakistan. Particularly, under the

LEAP program, SECP has established an electronic Secured Transactions Registry (STR) in line with Secure

Transaction Act 2016. The registry helps SMEs to obtain financing from banks/DFIs against a registered charge

on their movable assets.

National Financial Literacy Program (NFLP): NFLP is SBP’s flagship program focused on imparting basic

financial education to unbanked/ underserved segments of population especially the women & youth. Keeping

in view the diversity & literacy level of target audience, the NFLP program has been segmented into two

components i.e. National Financial Literacy Program for Adults and National Financial Literacy Program for

Youth. As of June 2020, more than 924,000 individuals have benefited from these programs.

Banking on Equality-A Policy to Reduce the Gender Gap in Financial Inclusion by tackling the rising gender

gap in access and usage of financial services in Pakistan. The policy aims to introduce a gender lens within the

financial sector through identified pillars and specific measures, to bring about a shift towards women friendly

business practices. The policy document will soon be made available for public consultation. Once issued, identified

policy measures will be applicable on Commercial Banks, Islamic Banks, Microfinance Banks, Development

Finance Institutions (DFIs) and Electronic Money Issuers (EMIs).

Development of Electronic Warehouse Receipt (WHR) financing mechanism. The mechanism is being

developed to enhance farm credit and reduce post-harvest losses. The Securities & Exchange Commission of

Pakistan (SECP) in collaboration with SBP has issued the Collateral Management Companies (CMC) Regulations

on July 31, 2019, under the Companies Act 2017. Further, in line with CMC Regulations 2019, SBP has issued the

necessary amendments in Prudential Regulations for Agri. Financing, SME Financing, and Corporate &

Commercial Banking to facilitate banks to provide financing against WHR.

• Financial Inclusion and Infrastructure Project (FIIP): In order to support the NFIS implementation, World Bank (WB) committed to provide a financial intermediary loan of USD 137 million to Govt. of Pakistan (GoP). SBP is responsible for implementing program components worth USD 127.6 million. This initiative aims to improve the access of financial services among masses by providing a line of credit to MFBs, MFIs and NBFCs for lending to micro-borrowers / enterprises. SBP successfully disbursed Rs. 9.1 Billion to the Participating Financial Institutions (PFIs). The PFIs have disbursed more than two hundred thirteen thousand (213,000) micro loans including more than one hundred fifty-five thousands (155,000) loans to women micro-borrowers. These loans are targeted to the poorest sector of the economy, especially women and will help in eliminating poverty and achieving a sustainable standard of living. Under FIIP, SBP is also developing a National Payment Gateway-NPG that provides an interoperable platform for micro, retail and high value payments.

Broadening Access to Financial Services

67

4.2 Agricultural Finance

During the

second half of

FY20, Pakistan’s

agricultural

sector faced

multiple

challenges due to

the COVID-19

and locust attack,

which reduced the sector’s growth prospects and put millions of farmers under distress. To overcome

these challenges, SBP along with the government and financial sector, made efforts to provide relief to

farming communities. For FY20, a lending target of Rs.1,350 billion was allocated to Participating

Financial Institutions (PFIs), to meet the growing credit demand of farmers. Despite the

abovementioned challenges, PFIs were able to disburse around 90 percent of the overall target i.e.

Rs.1,215 billion, an increase of 3.5 percent compared to last year disbursem*nt of Rs.1,174 billion

(Table 4.3)

The growth and resilience of agricultural financing can be attributed to SBP’s continuous monitoring

and follow-up of assigned targets with concerned financial institutions. Major initiatives taken by SBP

to support agriculture sector include the following:

Box 4.2: Initiatives for promotion of Agriculture Financing

Loan repayment relief to dampen the effects of COVID-19

Banks have been instructed to allow deferment of loan principal to agri. borrowers, for one-year, upon their request.

Regulatory space is also provided to facilitate banks in rescheduling/restructuring of loans for borrowers who cannot

service markup or need deferment exceeding one year.

Regulatory space for innovative financing

Relevant Prudential Regulations have been amended to allow Electronic Warehouse Receipt (EWR) as acceptable

collateral for bank financing. Further, the maximum tenure for agricultural development loans has been increased

from 5 to 10 years to encourage development and mechanization for efficiency, resource conservation and yield

enhancement. Additionally, Indicative Credit Limits and Eligible Items for Agri. Financing have also been revised

to allow banks to provide loans to farmers as per their internal policies. This will also facilitate provincial planning

departments in estimating the total financial and credit requirements of provinces/regions for agriculture sector.

Crop Loan Insurance Scheme (CLIS) & Livestock Insurance Scheme for Borrowers (LISB)

CLIS has enabled financial access for farmers, with premium for small farmers being borne by the government.

During the period July 2008 to June 2019, banks have submitted premium claims of Rs.8.2 billion against 6.1

million beneficiaries. Insurance premium for small livestock farmers, availing bank financing, continues to benefit

farmers as claims of Rs.2.3 billion against 0.6 million beneficiaries have been received during period July 2014 –

June 2019.

Adoption of Automation of Land Record for Agri. Financing

SBP is working in collaboration with provincial governments and financial institutions for implementing and

mainstreaming electronic land verification records and charge creation for availing bank loans. In Punjab, 32 out of

35 banks doing agriculture financing have signed MOU with Punjab Land Revenue Authority (PLRA) for availing

these services. Out of these, 20 banks are already using the portal for issuing loans to farmers, while other banks are

in process of integrating their banking system with the PLRA portal.

Table: 4.3 Agricultural Credit Targets and Disbursem*nt (Rupees in billions) FY 2019 - 20 FY 2018 - 19

Banks Target Disbursed %

achieved

Target Disbursed %

achieved

%

YoY

5 Big CBs 705.0 708.3 100.5% 651 654 100.5% 8.3%

ZTBL 100.0 62.3 62.3% 100 72 72.0% -13.5%

PPCBL 13.0 8.8 67.9% 13 10 76.9% -12.0%

DPBs(14) 253.6 225.0 88.7% 245 212 86.5% 6.1%

IBs(5) 55.0 42.1 76.6% 50 39 78.0% 7.9%

MFBs(11) 184.0 139.3 75.7% 156 154 98.7% -9.5%

MFIs/RSPs 39.4 28.9 73.4% 35 34 97.1% -15.0%

Total 1,350 1,215 90.0% 1,250 1,174 93.9% 3.5%

State Bank of Pakistan Annual Report FY20

68

4.3 Microfinance

During FY20, the microfinance industry, constituted by Microfinance Banks (MFBs) and Non-Bank

Microfinance Companies (NB-MFCs), was expected to continue to register growth across the board.

Microfinance Sector is the largest contributor towards financial inclusion at the base of the pyramid in

Pakistan and a major engine for poverty reduction and employment for the unbanked and underserved

segment of the economy. As of June 2020, around 46 Microfinance Providers (MFPs) reported

provision of microfinance services to poor and low-income clientele to help them increase their

income and improve their standard of living. Microfinance Banking sector includes 11 deposit taking

Microfinance Banks (MFBs) and MCB Islamic Bank8 that are regulated by SBP while the rest were

NB-MFCs regulated by Securities & Exchange Commission of Pakistan (SECP). MFPs are offering a

host of financial services to low income segment to improve their livelihood opportunities and social

well-being.

At the close of FY20, MFBs’ asset base crossed Rs.400 billion, an increase of 14 percent from previous

corresponding period (Rs.350 billion).

MFBs witnessed a growth of 5.2 percent

(Rs.10.9 billion) in its microcredit portfolio

to reach Rs.218.3 billion as against Rs.

207.5 billion at the end of preceding fiscal

year. Likewise, the number of MFBs’

microcredit borrowers recorded an increase

of 1.6 percent to grow over 3.5 million by

the end of the FY20. Similarly, growth was

also witnessed in MFBs’ deposits that

reached Rs.292.2 billion from Rs.248.8

billion, registering an impressive growth of

17.5 percent (Rs.43.4 billion). Concurrently, the number of depositors increased by 15 million to reach

49.3 million in FY20 from 34.3 million in FY19, an impressive 43.8 percent growth in outreach of

deposit services. By the end of FY20, MFBs’ aggregate equity stood at Rs.43.4 billion. (Table 4.4)

Altogether, banks and non-bank

microfinance providers were able to

register 2.1 percent growth in

aggregate microcredit portfolio,

which grew by Rs.6.2 billion to

surpass Rs.299.9 billion as of FY20

from Rs.293.6 billion in previous

fiscal year. However, the number of borrowers dropped by 3.6 percent to over 6.8 million at the end of

FY20.

8 Through separate counters in existing branches.

Table 4.4: Microfinance Banking Indicators

(Rupees in billions)

Indicators FY19 FY20 Annual

Growth

No. of Borrowers 3,485,757 3,541,183 1.6 %

Gross Loan Portfolio 207.500 218.360 5.2 %

Average Loan

Balance (in Rs.)

59,528 61,663 3.6 %

Deposits 248.809 292.239 17.5 %

No. of Depositors 34,327,968 49,360,158 43.8 %

Equity 47.176 43.445 -7.9 %

Assets 350.139 400.417 14.4 %

Borrowings 27.329 24.408 -10.7 %

Source: Agricultural Credit & Microfinance Department, SBP.

Table 4.5: Microfinance Industry Major Indicators

(Rupees in billions) Indicators FY19 FY20* Annual Growth

No. of Borrowers 7,142,247 6,885,117 -3.60 %

Gross loan portfolio 293.695 299.948 2.13 %

Average Loan Balance (in Rs.) 41,121 43,565 5.94 %

Source: PMN MicroWatch, Issues 52 & 56.

Broadening Access to Financial Services

69

Over the years NB-MFCs served a larger number of borrowers, however, it was for the first year that

MFBs were able to register their lead by serving 52 percent borrowers. Moreover, the MFBs also

continued to be front-runners in terms of the aggregate value of loans (72 percent). The industry-wide

average outstanding loan balance increased to Rs.43,565 billion, however, average outstanding balance

of loans offered by MFBs (Rs.61,663) continued to be on a higher side (Table 4.4) when compared

with their non-banking counterparts. (Table 4.5).

Box 4.3: Initiatives for Promotion of Microfinance

SBP has provided continued support to microfinance sector to boost financial inclusion in Pakistan. Key initiatives to

promote the sector are as follows:

a) Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) for MFBs were further aligned

with the Financial Action Task Force (FATF) recommendations. The revisions are aimed at adding clarity besides

strengthening the framework to preserve the integrity, soundness and safety of the financial system and deter against

possible use of MFB channel for money laundering, terrorist financing, proliferation financing and other illicit activities.

Amendments to align AML/CFT Regulations for MFBs with the Financial Action Task Force (FATF)

recommendations9.

Compliance of AML/CFT Regime for MFBs, that require time bound biometric verification of accounts.10

b) Additional guidance on Fit & Proper Test (Criteria) for MFBs were issued to ensure that persons subject to FPT

shall become disqualified if they are designated/proscribed or associated directly/indirectly with designated/proscribed

entities/persons under United Nations Security Council Resolution on Anti-Terrorism Act 199711.

c) The scope of SBP’s AML/CFT Guidelines on Risk Based Approach (RBA) has been broadened to include MFBs.

These guidelines emphasize on (i) identifying and assessing the ML/TF risks in line with nature, scale, diversity and

complexity of business, (ii) ensuring that internal policies, procedures etc. are compliant with applicable AML/ CFT

laws and regulation and (iii) implementing adequate, reliable, efficient automated systems and technologies

proportionate to ML/ TF/ PF risks.

d) SBP has enhanced the lending limits under ‘Housing Finance’ for MFBs by increasing the maximum loan size from

Rs. 500,000 to Rs. 1,000,000. Moreover, the restriction to maintain 60 percent of housing portfolio within the loan

limit of Rs.250,000/- has also been removed. MFBs have been advised to develop related institutional capacity and

appropriate mechanisms for monitoring the housing finance exposure.

e) Regulation G-2 ‘Remuneration to Directors’ has been revised to enhance remuneration ceiling and provide detailed

guidance to ensure transparency and disclosure12. The revision is expected to enable MFBs to hire and retain experts

on their BoD for a better strategic direction and long-term growth.

f) Measures to dampen the adverse effects of COVID-19 for MFBs/microfinance borrowers

In order to dampen the adverse effects of COVID-19 for microfinance borrowers and to enable the Microfinance Banks

to continue to fulfill their role in funding the real economy, following significant decisions had been taken by State

Bank of Pakistan.

Payment of principal on loan obligations will be deferred by Microfinance Banks (MFBs).

Microfinance Banks will defer the payment of principal loan amount by one year. To avail this relaxation,

borrowers should submit a written request to the MFBs before June 30, 2020. They will, however, continue to

service the mark-up amount as per agreed terms and conditions. The deferment of principal will not affect

9 AC&MFD Circular No. 03 of 2019 10 AC&MFD Circular No. 04 of 2019 11 AC&MFD Circular Letter No. 04 of 2019 12 AC&MFD Circular No. 01 of 2019

State Bank of Pakistan Annual Report FY20

70

borrower's credit history and such facilities will also not be reported as restructured in the credit bureau's data. As

COVID-19 pandemic prevails, the relief period has been extended up to September 30, 2020.

Regulatory criteria for restructuring/rescheduling of loans have been temporarily relaxed till 31st March 2021 for

MFBs.

For borrowers, who are not able to service the mark-up amount and their financial conditions require extension

exceeding one year, SBP has relaxed the regulatory criteria for restructuring/rescheduling of loans. The loans that

are re-scheduled/restructured within 90 days from the due date of payment will not be treated as defaults and such

facilities not be reported as restructured in the credit bureau's data. By the end of June 2020, around 1,018,204

microfinance banks’ borrowers have applied for afore-stated relief and over Rs. 64 billion has been restructured or

rescheduled by the microfinance banks for the period up to one year to ease the financial burden on low-income

households from the impact of COVID-19.

Relief to borrowers adversely affected by natural calamity: MFBs continued to provide relief to adversely

influenced borrowers in eight districts declared as calamity affected by the Government of Sindh namely

Tharparkar, Umer Kot, Sanghar, Thatta, Jamshoro, Dadu, Badin and Kamber Shahdad Kot. Microfinance banks

were advised to undertake all possible measures in line with Prudential Regulation R – 9: ‘Rescheduling/

Restructuring of Loans.’ The regulation requires MFBs to have in place a policy duly approved by their Board of

Directors that among other things shall envisage steps to provide relief to borrowers adversely affected by natural

calamities. As of June 2020 MFBs collectively provided relief of Rs.706 million to 11,636 borrowers in terms of

restructuring and rescheduling of loans. Keeping in view ongoing Coronavirus Pandemic situation, aforesaid relief

provided to MFBs' borrowers in calamity affected areas of Thar has been extended by SBP for one year till March

2021.

Similarly, amid prevailing pandemic, MFBs have been advised to resume biometric verification, prescribed vide

AC&MFD Circular No. 04 of 2019 with revised timelines of January 31, 2021 and March 31, 2021 for customers

assigned medium and normal priorities, respectively.

4.4 Branchless Banking (BB)

Performance of the Branchless Banking Industry

During FY20, all key indicators of branchless banking exhibited an encouraging growth, which bodes

well for the gradual adoption of digital channels and usage of basic financial services in the country.

At the end of FY20, thirteen

Authorized Financial Institutions

(AFIs/branchless banking players)

were operating and providing basic

financial services across the country.

The number of BB accounts reached

52.5 million after witnessing growth

of 47 percent as compared to

previous year. BB deposits increased

by 42.8 percent during FY20 to reach Rs.36.7 billion from Rs.25.7 billion, compared to last year.

Branchless banking players have also increased their agent network throughout the country to reach

445,181 by FY20 as compared to 421,053, showing a growth of 5.7 percent. Similarly, the volume

and value of transactions witnessed 33.5 and 24.8 percent increase, respectively over FY19, which is a

positive indicator regarding usage of BB channel. The number of transactions performed during FY20

Table 4.6 : Branchless Banking Indicators

BB Indicators FY19 FY20 Growth

Number of Agents 421,053 445,181 5.7 %

Number of Accounts 35,730,704 52,522,222 47.0 %

Deposits (Rs. in millions) 25,664 36,660 42.8 %

No. of transactions ('000') 1,116,266 1,489,664 33.5 %

Value of transactions (Rs. in

millions) 4,128,868 5,151,391 24.8 %

Source: Agricultural Credit & Microfinance Department, SBP.

Broadening Access to Financial Services

71

were 1.49 billion with total value of around Rs.5.2 trillion. These compute to more than 4 million

transactions per day and average transaction size of Rs.3,458.

Box 4.4: Initiatives for Promotion of Branchless Banking

a) Branchless Banking Regulations for Financial Institutions: In order to enhance the outreach of Branchless

Banking (BB) operations for achieving the objective of financial inclusion and strengthening the controls

related to Money Laundering (ML)/ Terrorist Financing (TF) risks, SBP issued revised Branchless Banking

(BB) Regulations for Financial Institutions vide BPRD Circular No. 10 of 2019 dated December 30, 2019. It

may be noted that SBP introduced BB in 2008 which is updated from time to time based on technological

developments and market assessment/demand. The BB Framework of 2019 emphasized the prerequisites of

Simplified Due Diligence of BB Operations in light of Financial Action Task Force (FATF)’s

recommendations. Other key highlights of BB Framework of 2019 include:

Gradually phasing out of Person-to-Person (P2P) transfer by June 30, 2020

Biometric Verification is made mandatory for all Level 1 account

Complete Biometric verification of all legacy BB accounts

Enhance monthly limit of BB level 1 account to Rs. 200,000/- per month

b) Measures to dampen the adverse effects of COVID-19: SBP prescribed following measures (vide BPRD

Circular Letter No. 10 dated March 26, 2020) to minimize the risks of the pandemic;

Extended timelines for Biometric Verification of legacy BB Level - 1 accounts since March 2020 till

September 30, 2020 enabling customers to open and use BB platform for financial services.

Encouraged AFIs to introduce Biometric Verification through smart phone applications after complying

with NADRA's security standards and also use digital channels for BB agents on-boarding with an

objective of increasing financial services access points.

Directed AFIs to ensure safety and hygiene measures, including the availability of liquid Soap/ Sanitizers,

at all biometric touch-points. c) Capacity Building Program of BB Agents: SBP initiated capacity building of BB agents on nationwide scale.

In Phase-1 of the project, 73 bank officials were trained as trainers. During 2019, SBP launched Phase-2 of this

project, under which the trained bank officials will further impart training to 10,000 unique BB agents in two

years. This project is expected to enhance the capacity of BB agents through classroom training. As of

December 2019, 4,140 BB agents were trained across 15 major cities.

4.5 Small and Medium Enterprise Finance

Small and Medium Enterprise (SME) sector is playing a pivotal role in the economy of Pakistan. SME

sector is considered as backbone of the economy as it employs more than 80 percent of non-

agricultural workforce. However, banks have been reluctant to lend to SME sector due to multitude of

factors. This includes lack of acceptable collateral, perceived riskiness of the sector, corporate

mindset, high transaction cost, lack of banking products matching with the business needs of SMEs,

low level of financial literacy, taxation issue, religious mindset of potential borrowers, etc. SBP has

taken following initiatives for promotion of SME financing during FY20:

4.5.1 Outstanding SME Finance

The outstanding portfolio of SME Financing by Banks/ DFIs as of June, 2020 stood at Rs.401 billion

as compared to Rs.464 billion as of June, 2019, showing YoY decline of 13.7 percent. Main reason

for this decline was COVID-19 pandemic which affected businesses and their borrowing capacity.

Besides, banks also adopted cautious approach while lending to SMEs.

State Bank of Pakistan Annual Report FY20

72

4.5.2 Establishment of Pakistan Credit Guarantee Company

Pakistan Credit Guarantee Company (PCGC) has been established to provide risk sharing facility to

banks on their lending to SMEs. The company has been incorporated with SECP and has been

notified as DFI by Federal Government and is being operationalized.

4.5.3 Strengthening Secured Transactions Framework in Pakistan

SBP provided support and coordinated with Ministry of Finance, Government of Pakistan and SECP

in setting up electronic Secured Transactions Registry (STR). The registry has been made operational

under the ambit of SECP since April 30, 2020. The STR would enable SMEs to avail financing

against their movable assets as collateral since this registry will allow banks to create charge on

movable assets. The process of charge registration with STR has also started and SBP provided

necessary support by holding awareness sessions for banks in May-June, 2020.

4.5.4 Prime Minister's Kamyab Jawan – Youth Entrepreneurship Scheme (PMKJ-YES)

Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES) was launched in

October, 2019 to enable youth to avail affordable financing for starting up new business or

strengthening their existing business. The scheme has been launched with the main objective of

providing subsidized loans to unemployed youth aged between 21 and 45 years, however, minimum

age limit for IT/e-commerce related businesses is 18 years. Government is providing markup subsidy

to make loans affordable for the borrowers, while risk coverage of upto 50 percent is also provided by

the government under this scheme to motivate banks to extend loans to SME sector. As of June 30,

2020, disbursem*nt of Rs.655 million has been made to 1,595 borrowers under the scheme.

4.5.5 Capacity Building and Awareness Creation Campaign

In FY20, NIBAF conducted 20 training programs on SME financing for the banking officials. In

addition, NIBAF conducted 14 awareness cum handholding sessions for SMEs in different cities of

the country. Total 1,373 participants attended these training and handholding sessions. Additionally,

SBP-BSC conducted 281 awareness sessions across the country in FY20. These programs are being

held under capacity building and awareness creation campaign launched by SBP.

4.5.6 Regulatory Relief to Dampen the effect of COVID-19

SBP allowed banks/DFIs to defer repayment of principal part of loan amounts by one year, upon

receipt of written request of SME borrowers and housing finance borrowers till September 30, 2020;

provided the obligor will continue to service the mark-up as per agreed terms & conditions. In case

where obligors are unable to service the mark-up amount or need deferment exceeding one year, SBP

allowed banks/DFIs to reschedule / restructure such financing facilities upon written request of the

borrowers. If the rescheduling / restructuring is done within 180 days of the loans being past due, such

financing facilities will continue to be treated as regular and reported in the eCIB accordingly.

4.5.7 Increase in regulatory limit on extension of credit to SMEs

In an era of economic turmoil, SMEs are typically at the forefront to bear the brunt of credit supply

contractions. Therefore, as a tool to incentivize banks to provide additional loans to SMEs, the

existing regulatory retail limit of Rs.125 million has been enhanced to Rs.180 million. This measure

will incentivize banks to provide loans to SMEs since such loans will attract less capital charge.

Broadening Access to Financial Services

73

4.6 SBP Refinance Schemes

SBP is continuously making efforts to emphasize banks and DFIs to meet the financing needs of

different priority segments of the country including SMEs and exporters. SBP launched a number of

refinance schemes under which short and long-term financing facilities are available to priority

segments through banks at concessional mark-up rates. Major SBP refinance schemes are as under:

4.6.1 Export Finance Scheme and Islamic Export Refinance Scheme (EFS/IERS)

Export Finance Scheme is a short-term financing facility for exports of value added goods available

through participating banks as per the limits allocated to individual banks. Maximum loan tenor for

financing is 180 days. The existing rate of mark-up under EFS is 3 percent per annum while higher

export performance against availed ERF facilities qualifies the exporters for additional markup rebate.

Shariah compliant mode of financing is also available for exporters under Islamic Export Refinance

Scheme (IERS). The outstanding export finance as of June 30, 2020 stood at Rs.504 billion, which is

33 percent higher on YoY basis (Rs.379 billion as of June 30, 2019).

4.6.2 Long-Term Financing Facility (LTFF)/ Islamic Long Term Financing Facility (ILTFF)

LTFF / ILTFF is a long-term refinance facility to promote export oriented industrial development.

With a view to promote industrial development, the per project limit under LTFF/ ILTFF was

increased from Rs.1.5 billion to Rs.5 billion in January 2020. Further, the scope of LTFF / ILTFF has

also been extended to all sectors, which are allowed as per ambit of export policy order issued by the

Ministry of Commerce from time to time. As of June 30, 2020, outstanding finance under LTFF /

ILTFF stood at Rs.209 billion which is 33 percent higher YoY (Rs.157 billion as on June 30, 2019).

4.6.3 Refinance Schemes by SBP to support business community and health sector during

COVID-19 Pandemic:

To support business community and health sector during COVID-19 pandemic, SBP issued the

following time bound refinance schemes along with Shariah compliant versions:

Temporary Economic Refinance Facility (TERF)

SBP announced TERF in March 2020 to propel investment in the industrial sector. Under this scheme,

SBP provides refinance through participating banks / DFIs at a maximum end-user rate of 5 percent

with SBP refinance rate of 1 percent. Maximum financing limit is Rs.5 billion per establishment. The

refinance is provided for a maximum time period of 10 years inclusive of two years grace period. The

main purpose is for setting up of new industrial units as well as BMR / expansion of existing ones.

Shariah compliant alternate of this facility is also available. As of September 03, 2020, Rs 53.73

billion have been approved for 99 industrial projects under this refinance facility.

Refinance Facility for Combating COVID-19 (RFCC)

In order to combat the impact of COVID-19, SBP introduced in March 2020 a time bound emergency

support refinance scheme for hospitals/medical centers & manufacturers of protective gears and

equipment, including items such as masks, dresses, testing kits, hospital beds, ventilators etc. Further,

100 percent cost of civil works of isolation wards is also provided under the scheme. SBP provides

refinance at zero percent while the end-user rate is 3 percent for 5 years including grace period of upto

6 months. Further, maximum financing limit to a single hospital / medical center was enhanced to Rs.

500 million from initial level of Rs.200 million. Shariah compliant alternate of this facility is also

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available. As of September 03, 2020, Rs.6.24 billion have been approved for 31

hospitals/manufacturers under this facility

Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of

Business Concerns

SBP introduced this refinance scheme in April, 2020 with a view to facilitate businesses to retain their

employees and prevent layoffs. The end user rate is 5 percent under the scheme while SBP rate of

refinance is 2 percent for corporate / commercial and 1percent for SME borrowers. Further, additional

rebate of 1 percent by SBP is provided to borrowers who are on active tax payers list. With budgetary

allocation from Government of Pakistan, risk sharing facility was also introduced under the scheme,

wherein risk sharing of 40 percent is being provided against first loss on disbursed portfolio (principal

portion only) of eligible borrowers with sales turnover upto Rs.2 billion while for loans to SMEs with

turnover up to Rs.800 million, 60 percent risk coverage is being provided. Shariah compliant alternate

of this scheme is also available. As of August 21, 2020, Rs.183.43 billion had been approved under

this facility to pay off salaries and wages of approximately 1.43 million jobs.

Relaxations on financing under SBP’s Refinance Schemes

In case of deferral of principal or restructuring / rescheduling of financing of borrowers under

SBP’s long term refinance Schemes, SBP has allowed banks/ DFIs to extend repayment period

for an additional period of one year over the maximum tenor available under these schemes.

Export Finance Scheme (EFS): SBP reduced the performance requirement under EFS Part-II

from twice to one-and-a-half times that is not only effective for FY20 but also for FY21. SBP

also extended existing export performance period under EFS Part-II of one year by another 6

months for FY20. The export performance of extended period will also be accounted for

exporters’ limits under EFS Part-II for FY 21, thereby allowing higher limits to exporters.

Further, the shipment period under EFS Part-I has also been extended by 06 months for

shipment falling due from January 2020 till June 2020.

Long term Financing Facility: The eligibility requirement for availing financing has been

reduced from exports upto 50 percent, or USD 5 million to 40 percent or USD 4 million,

whichever is lower, for all the borrowings during the period January 01, 2020 to September 30,

2020. In case of exporters opting for projected exports criteria, SBP has extended export

performance period by one year for each stage of meeting minimum exports, thereby extending

the maximum period of existing 4 years to 5 years.

4.7 Infrastructure Project Finance

The financing to infrastructure projects from banks and DFIs witnessed 5.43 percent increase during

FY20. As of June, 2020, the outstanding financing for infrastructure projects reached Rs.767.7 billion

as compared to Rs.728.1 billion in June 2019.

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4.7.1 SBP Financing Scheme for Renewable Energy

SBP Financing Scheme for Renewable Energy was issued in June 2016 with the aim to address dual

challenge of energy shortage and climate change. The scheme comprised of two categories: Category

1 allowed financing for setting up of renewable energy power projects with capacity ranging from 1

MW to 50 MW while category II allowed financing for installing renewable energy based solutions

for generation of electricity up-to 1 MW. On July 26, 2019, SBP, based on feedback of stakeholders,

introduced revised Financing Scheme for Renewable Energy (RE Scheme) along with offering its

Shariah complaint version. This revised scheme introduced a new Category III for facilitating

financing to vendors / suppliers for installation of wind and solar systems/ solutions of up-to 1 MW.

The validity of the scheme has also been extended until June 30, 2022.

Since the issuance of the scheme, total outstanding financing under the scheme, as of June 30, 2020,

reached to Rs.15.56 billion for 217 projects having combined potential of adding 292 MW to national

grid. The current revision in the scheme is expected to not only attract fresh investment in the sector

but also facilitate production of clean energy in the country, which will help in mitigating effect of

climate change.

4.7.2 Green Banking Guidelines (GBGs):

The primary objective of GBGs is to motivate banks / DFIs for Green / Sustainable banking practices

and reduce vulnerability of financial system from risks arising from the environmental hazards. SBP

formulated a plan to implement the GBGs in all banks and DFIs. Under the plan, SBP seeks the

implementation status of GBGs from all banks and DFIs, as and when required, through prescribed

format.

4.8 Housing Finance Division

4.8.1 Pakistan Mortgage Refinance Company (PMRC)

PMRC has been incorporated to provide long term funding to Primary Mortgage Lenders (PMLs).

Keeping in view the distinctive mode of PMRC operations, its low risk profile and mono-line

business activity, SBP granted regulatory relaxations to PMRC in capital and reserve requirements.

PMRC has also been allowed to avail preferential risk weights for its refinance portfolio and securities

issued, owing to its low risk profile. It commenced business on June 12, 2018 and has an outstanding

refinance portfolio of over Rs.10.7 billion as of June 30, 2020.

4.8.2 Capacity Building

In order to promote bank’s outreach to borrowers in the area of Housing Finance, SBP in

collaboration with NIBAF initiated capacity development programs for banks. Nine iterations of the

housing finance capacity building programs have been conducted during FY20.

4.8.3 Mandatory Targets to banks to increase housing & construction financing

To promote housing and construction of buildings activities in the country, as envisaged by the GoP,

SBP issued instructions for mandatory targets of financing for banks to extend mortgage loans and

financing for developers and builders. Banks will be required to increase their housing and

construction of building loan portfolios to at least 5 percent of their private sector credit by the end of

December 2021.

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4.8.4 Regulatory Relief to Dampen the Effects of COVID-19

Banks have been allowed to release and use the general provision maintained in terms of Regulation

HF-9 of Prudential Regulations for Housing Finance, against the specific provision requirement of the

housing finance portfolio until December 31, 2021.