Prudential regulations on SME financing revised

With a view to further facilitating the promotion of SME financing by providing enabling regulatory environment, the State Bank of Pakistan (SBP) has revised Prudential Regulations for Small and Medium Enterprises'' financing. As per amendments under Regulation SME R-1, for small enterprises (SEs) and medium enterprises (MEs) financing, condition of obtaining insurance for financing up to Rs 2 million has been made optional.
Program-based products (including those of Islamic banking) are now allowed to be approved by Chief Executive Officer/President/MD of the bank/DFI on the recommendation of the concerned committee. Further, banks and DFIs are encouraged to promote and adopt program based financing, the central bank said.
Revised Regulation SME R-2 says that banks and DFIs must adopt standardized and simplified loan application forms to be circulated by PBA for SE and ME borrowers. Accordingly, the condition of obtaining Borrower''s Basic Fact Sheet (BBFS) from prospective SME borrowers has been abolished. However, requirement of obtaining e-CIB Report will remain unchanged.
As per amended Regulation SME R-9, Banks and DFIs are advised to establish SME banking research & development divisions. Under the revised Regulation SE R-7, the requirement of maintaining general reserve of 1 percent against secured SE portfolio has been abolished while general reserve to be maintained against unsecured SE portfolio has been reduced from 2 percent to 1 percent. In addition time period required for credit approval process has been reduced from 30 working days to 15 working days (from the date of receipt of complete information).
As per amended Regulation ME R-6, banks/DFIs will not take more than 25 working days for the credit approval process (from the date of receipt of complete information). In this respect, the following minimum points shall also be considered:
The pre-approval requirements and post-approval requirements (security/collateral documentation etc.) shall be advised preferably in one go.
The facility will be disbursed only after security documentation is completed by the customer. According to State Bank these changes in regulations are applicable with immediate effect. Banks and DFIs have been advised to ensure circulation of these regulations among all their offices/branches for meticulous compliance in letter and spirit. Non-compliance of Prudential Regulations will lead to punitive action under the relevant provisions of BCO, 1962.