Government to provide credit loss guarantee to wholesale lenders

ISLAMABAD: The government will provide 100 percent credit loss guarantee to wholesale lenders such as banks, DFIs and others to provide subsidized loans under the Kamyab Pakistan (KPP) program.

This guarantee will help the government encourage banks to embezzle funds for high-profile KPP programs. Banks will provide funds to executing agencies, such as microfinance institutions (MFIs) selected to disburse soft loans among borrowers.

The operational cost for running KPP is estimated at around Rs 273.6 billion for three years, including overheads and 10 percent of the project cost of Rs 24.874 billion. It included Rs 76 billion for training, Rs 25 billion for skills development, Rs 69 billion for the customer awareness campaign, Rs 27 billion for research and reporting, Rs 24 billion for digitization and Rs 24 billion for the resource requirements of the project.

However, the finance ministry spokesman denied it and said it was not correct. “There is no budget allocation for Hunarmand Pakistan. It’s just a collaboration with ongoing skills development projects, ”he said.

The official said the government will provide a 100% credit loss guarantee to wholesale lenders against funding given to executing agencies (EAs) initially at the start of the program. However, warranty coverage will be reduced to 50 percent over time as the program matures.

This 100 percent credit loss guarantee by the government, to be notified by the SBP is an implied guarantee, similar to the Prime Minister Kamyab Jawan-Youth Entrepreneurship Scheme (PMKJ-YES), and will be entitled to all the benefits associated with the explicit warranty. The definition of default will be triggered after non-payment within a 90-day period.

The federal government will provide the additional eight to 10 percent subsidy to operate the KPP successfully.

For three major programs, such as Kamyab Karobar, Kamyab Kissan and low cost housing programs, top-up subsidies paid to wholesale lenders such as banks and DFIs will hover around one year like Karachi Inter-Bank Offered Rates (KIBOR) plus Interest rate of 0.50%.

Asked about this by the spokesperson for the Ministry of Finance, he said that the decision on the amount of the increase to be granted beyond KIBOR will be decided after the call for tenders. But yes, it will be the same for all companies, added the spokesperson.

The sources said the government will provide 10% loss by default to executing agencies (EAs) for Kamyab Pakistan’s micro-loan portfolios accounted for under the KPP.

KPP’s Executing Agencies (EAs) will also be able to lend more and reach the lowest income strata under the model, as there will be a 10 percent guarantee at the portfolio level to support the cost of government default for micro-loans / finance. It is a stricter and controlled framework compared to other similar regimes and could effectively reduce the tax burden on the public treasury, according to official documents prepared by the finance ministry.

The program was designed to ensure that there are minimum claims under the guarantee of the federal government. Payment of the credit loss grant to executing agencies and wholesale lenders will be made up to 10 percent and 100 percent of the disbursed portfolio, respectively, under the program on a quarterly basis through the SBP. . The Loan Application Form (LAF) to be used by all participants will contain the Kamyab Pakistan logo.

The program will initially run for seven years, which could be extended further. The program, however, will be reviewed after three years for its performance and expected results. Banks will also continue to provide new own (T-1) loans of up to Rs 500,000 per borrower under the existing PMKJ-YES, but at a zero percent mark-up instead of the current three percent rate. . SECP will give general approval to SBP to debit government account no. 1 for the payment of additional grants and loan loss claims to EAs.

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