Creating viable finance mechanisms: Baqir underscores need for reaching out to unserved areas of Balochistan, KP

ISLAMABAD: State Bank of Pakistan (SBP) Governor Reza Baqir said Wednesday that a viable mechanism should be chalked out in consultation with the stakeholders to ensure credit/lending to the end-users of the under-served areas of Balochistan and the Khyber-Pakhtunkhwa.

The SBP governor informed the Senate Standing Committee on Finance that the banks are not lending properly in under-served areas. “We are equally concerned about the distribution of credits,” he said.

One of the options under discussion is the changes in the law. “We are also examining pros and cons of other options,” he added.

The Senate finance committee, unanimously, approved the State Bank of Pakistan (Amendment) Bill, 2021 moved by Senator Mohsin Aziz. The State Bank of Pakistan (Amendment) Bill (2021) introduced by Senator Mohsin Aziz was passed with amendments in the meeting of the Standing Committee on Finance, Revenue and Economic Affairs, held on Wednesday at the Parliament House.

The bill seeks to rectify unjustified and inequitable credit lending that has been the long standing demand of the smaller provinces. The bill will ensure that minimum credit/lending of commercial banks to the private sector for establishing industry and commercial activities in smaller provinces is at par with those provinces total deposits.

The SBP governor suggested that the committee should hear the viewpoint of the relevant stakeholders including Pakistan Banks Association on the said issue to have prospective of the banks as well.

Baqir informed the committee that the SBP cannot interfere in the credit decisions of the banks. All banks are not private and a number of banks are working in the public sector. In cases, where the ownership of the banks is of public sector, these banks should be specially directed through their boards to do lending in the under-served areas of the Balochistan and the KP. The management of those banks should be answerable.

The SBP governor further stated that the federal and the provincial governments can consider to give risk guarantees where the borrower is in the under-served area to overcome banks’ hesitation to serve in these areas of the country.

He quoted the SME Asaan Finance (SAAF) scheme, which received encouraging response. He said the SBP would also publish scorecards to ascertain that how much banks are making lending in the under-served areas of the country.

Baqir said the SBP had also brought the concept of champion banks in every underserved area of the country. On the agriculture side, there would be a provincial champion bank, who would take lead in the under-served area of that province.

Senator Mohsin Aziz informed the committee that the private sector of smaller provinces of the country especially, Balochistan and Khyber-Pakhtunkhwa had a long standing demand to eliminate improper, unjustified, and inequitable credit/lending by the commercial banks in their provinces, which is leading to continuous deprivation, disparity and slow progress of industrialisation and commercial activities in those provinces.

The Senate Standing Committee on Finance observed that the commercial banks cannot be forced to extend loans unless a law exists that demands the same, hence, recommended to bring legislation in this regard.

Moreover, the Senate had unanimously passed a resolution demanding immediate and result-oriented steps including introduction of a new legislation or amending the present laws/rules/regulations to ensure that the minimum credit/lending of the commercial banks to the private sector for establishing industry and commercial activities in the smaller provinces is at par with those provinces total deposits in the banks. Hence, the bill seeks to achieve the said purpose.

Commercial banks cannot be forced to extend loans unless a law exists that demands the same. In this regard, the committee recommend to the government and to the SBP to either promulgate legislation or amend the existing prevailing laws/policies/schemes in order to remove obstacles and hindrances in the banking sector policies, which are leading to slow progress of industrialisation and commercial activities in small provinces of the country, especially due to improper, unjustified and inequitable credit/lending by the commercial banks by the private sector in those provinces.

According to the proposed SBP (Amendment) Bill 2021, the bank shall determine and ensure maintenance of minimum limit of credit to be extended by the scheduled banks or financial institutions to the private sector in each province and the Islamabad Capital Territory in pursuance of its monetary and fiscal policy objectives.

The minimum credit limit required to be maintained shall not be less than the total deposits received scheduled banks or financial institutions from that province or as the case may be, the Islamabad Capital Territory, it added.

Copyright Business Recorder, 2022