ISLAMABAD: Special Assistant to Prime Minister on Social Protection and Poverty Alleviation, Dr Sania Nishtar has reportedly pointed out several flaws in the Finance Ministry's Kamyab Pakistan Program's lending plan, well-informed sources told Business Recorder.
At a Cabinet meeting held on August 3, 2021, differences were also noted between Finance Minister Shaukat Tarin and State Bank of Pakistan (SBP) Governor Dr Reza Baqir on the GoP guarantee to commercial banks.
On August, 3, 2021, it was pointed out that the Federal Cabinet, while ratifying the decisions of the above the ECC meeting, had deferred its decision on "Kamyab Pakistan Program" till next meeting of the Cabinet on the request of the Finance Division.
The Minister for Finance & Revenue highlighted that in the past, governments had relied on a trickle-down approach to ameliorate the economic conditions of the marginalized segments of the society. Unfortunately, this strategy had not borne positive results and there was a need to introduce a bottom-up approach, which envisaged direct interventions at the lowest level.
Secretary Finance explained Micro Finance Providers (MFPs) and Housing Finance Companies (HFCs) cannot raise public deposits at cheaper rates and are dependent on loans from banks for funding needs on Kibor based pricing. Resultantly, MFPs provide small loans to borrowers in the north of 20% - 25% p.a. which makes it unaffordable for common man and also becomes the predominant cause of defaults.
Kamyab Karobar: (i) new tier-0 (clean loans @ 0% Mark-up, only through MFPs); (ii) enterprise loans for small businesses and start-ups in both rural and urban areas; (iii) dairy, livestock, poultry, and fisheries sectors also included; (iv) loan size of up to Rs 500,000; (v) zero % mark-up rate (T-l Rate is 3% p.a. under KJ); (vi) no maximum age limit requirement (45 years under KJ); (vii) loan tenor of up to 3 years and (viii) repayment in easy monthly installments.
Kamyab Kissan; (i) new tier-0 (clean loans @ 0% mark-up, only through MFPs); (ii) agricultural loans for farmers with landholding up to 12.5 acres; (iii) loan size Rs 150,000 for crop inputs and/or up to Rs 200,000 for machinery and equipment; (iv) zero percent mark-up rate; (v) no maximum age limit requirement; (vi) loan tenor of up to 2 crop cycles of six months each for farm loans and; (vii) maximum one year for farm and machinery loans.
While soliciting ratification of the decision of ECC on Kamyab Pakistan Program, following additional approvals were sought, in the light joint meeting of Steering Committee and Advisory Board on Kamyab Pakistan Program: (i) additional subsidy payable to Executing Agency (EAs) shall remain at 8 per cent. Finance Division may be allowed to pay 5 per cent upfront of additional subsidy to MFPs on case-to-case basis to improve their liquidity; (ii) GoP's guarantee coverage to be enhanced to 100 per cent for Wholesale Lenders (WLs). The ECC approved this at 50 per cent, however, it is being recommended to launch the program with 100 per cent guarantee and reduce it to 50 per cent as the program progresses; (iii) initially in order to remain within the guarantee ceiling agreed with IMF, maximum ceiling of Rs 50 billion will be adhered to. Upon approaching this ceiling, the Finance Division would either approach IMF or reduce the rate of guarantee to remain within the limit; and (iv) any addition to the list of WLs and EAs will be done by Finance Division upon recommendations of the respective regulators (SBP & SECP) and the related modalities for subsidy payments & otherwise shall be finalized by the Finance Division.
During discussion, the Governor State Bank of Pakistan welcomed the goals of Kamyab Pakistan Program, especially the bottom-up approach. He suggested that for better burden sharing between the banks and the taxpayers, it might be advisable to keep the GoP guarantee to commercial banks limited at 50 percent of the banks' lending, as was decided in the ECC. This would help to ensure that banks had a stake in the program, conduct the needed credit assessment before lending, and, thereby, reduce the potential bill to the taxpayers from GOP guarantees being called.
He also requested that the proposal be corrected to replace the phrase "SBP's QCR-rated audit firms" with "External Audit Firms on the Panel maintained by SBP" and that payments by the SBP of claims related to MFIs would only be made on the instruction of the Finance Division since MFIs are not regulated by the SBP.
Special Assistant to the Prime Minister on Social Protection and Poverty Alleviation, Dr Sania Nishtar pointed out that the proposal wasn't routed through the Poverty Alleviation and Social Safety Division although the scheme was predicated on Ehsaas Programme data. However, while endorsing the principle behind this initiative, she felt that the design needed a careful review. With respect to targeting, it would be advisable to offer loans only to "graduating" Ehsaas beneficiaries, and discontinue Ehsaas grants to those who receive loans to avoid duplication. She pointed out that the summary stipulated that those below the income of Rs. 50,000 would be eligible, but that meant over 30 million families. There was a need to clearly define how the 3 million were going to be selected out of the potential 30 million beneficiaries. The summary also indicated that 4.5 million at the bottom would be prioritized. However, it needed to be brought to bear that these were not credit-worthy, and the risk of bad debt accumulating was high, especially with the government's sovereign guarantee.
On the matter of procurement, she said that since subsidy and fee was involved, it would have been ideal to go into open competitive bidding under the new PPRA rule 16(A). She also suggested that in presence of organizational entities responsible to steward lending, such as PPAF and PMIC, there was no need to entrust execution to a PMU in the Finance Division. The SAPM also mentioned the need to explore how the sovereign guarantees appeared in the context of the Fiscal Responsibility and Debt Limitation Act and the need to study the risk sharing arrangements of the housing initiative, which appear better organized. Furthermore, she said it should be made mandatory to ensure that the loan recipients are "new" so that there is no risk of more expensive credit being replaced by cheaper credit.
Minister for Finance & Revenue assured that all aspects of the scheme had been thought through and duly discussed with the stakeholders. Alluding to the risk averseness of the scheduled banks, he fretted that scheme would be considerably delayed if at start the GoP did not give coverage of 100% guarantee. While stressing the need for 100% sovereign guarantee, he stated that the 100% government guarantee would be tapered off to 50% gradually in due course.
After detailed discussion, the Cabinet took the following decisions: (i) while the additional subsidy payable to Executing Agency shall remain at 8% p.a., Finance Division is allowed to pay 5% upfront of additional subsidy to MFPs on case by case basis to improve their liquidity; (ii). GoP's guarantee coverage to be enhanced to 100% for Wholesale Lenders to launch the program, which shall be progressively reduced over a period of eighteen months to 50% as the program progresses. (iii) initially, in order to remain within the guarantee ceiling agreed with IMF, maximum ceiling of Rs50 billion will be adhered to. Upon approaching this ceiling, Finance Division would either approach the IMF or reduce the rate of guarantee to remain within the limit; (iv) any addition to the list of Wholesale Lenders and Executing Agency will be done by Finance Division upon recommendations of the respective regulators (SBP & SECP) and the related modalities for subsidy payments and otherwise shall be finalized by the Finance Division;(v) the phrase "SBP's QCR-rated audit firms" in the minutes/decision shall be replaced with "External Audit Firms on the Panel maintained by SBP"; (vi) the payments by SBP, of claims related to MFIs, would only be made on the instruction of the Finance Division since MFIs are not regulated by the SBP; (vii) Special Assistant to Prime Minister on Social Protection & Poverty Alleviation, Dr. Sania Nishtar shall be included as a Member in the Committee constituted for overall supervision/implementation of Kamyab Pakistan Program and (viii) measures shall be taken to avoid duplication of loan/benefits to beneficiaries of Kamyab Pakistan Program by using Ehsaas data base.
Copyright Business Recorder, 2021