SBP to enhance financing limit to Rs 25 million under CGS

In order to facilitate the Small and Rural Enterprises, the State Bank of Pakistan (SBP) has announced to enhance financing limit upto Rs 25 million under Credit Guarantee Scheme (CGS).
The SBP has made some changes in CGS with effect from January 01, 2017 and guarantee coverage under the scheme has been also increased to 60 percent for loans extended to start up businesses, women borrowers and small and rural enterprises operating in under-served areas of the country with respect to SME financing.
According to IH&SMEFD Circular No. 01 of 2017, the maximum financing that can be extended for a maximum tenor of five years to small enterprises under the scheme has been enhanced upto the maximum financing allowed to Small Enterprise under SBP''s Prudential Regulations on Small Enterprises, which is currently Rs 25 million. Previously financing limit under the CGS was fixed at Rs 15 million.
Microfinance banks may extend loans from Rs 150,000 to Rs 500,000 to Micro Enterprises for a tenor not exceeding five years. While, farmers may be extended financing under the Scheme upto the maximum amount of Rs 2 million. The maximum loan tenor allowed for the purchase of tractors and other agri loan implements under the Scheme is five years.
However, in order to avoid portfolio concentration in tractor and other implements financing, the aggregate financing under this category shall not exceed 20 percent of the total allocated guarantee limit of the bank.
For eligible borrowers, the risk coverage ratio will be linked with the level of collateralization. On clean lending (Value of Collateral) guarantee cover will be 60 percent, upto 100 percent of loan guarantee cover value will be 40 percent and 20 percent in case of when Value of Collateral more than the Loan Amount. In cases, where a loan falls in two categories, higher risk coverage shall prevail, SBP said.
Participating Financial Institutions (PFIs) has been asked to manage the loans under this risk coverage scheme keeping in view their assigned limits, which are dependent on the availability of funds under the scheme.
All Banks/Microfinance Banks have been directed that any amount recovered from defaulted cases against which SBP had paid the claims may be deposited to SBP BSC on quarterly basis and recovered amount should be deposited by last date of the respective quarter.
The Development Finance Support Department (DFSD), SBP BSC will henceforth process the guarantee claims of PFIs in 15 working days after receipt of complete information.
Leasing companies have been included as participating financial institution in CGS. The leasing companies intending to avail this credit guarantee facility may apply to SBP for the same.
Since PFIs have been encouraged under the Scheme to serve collateral deficient borrowers, they may amend their credit policies for this purpose.
It may be mentioned here that realizing the importance of this sector for economic growth and to improve access to formal sources of finance, SBP in collaboration with Federal Government and UK''s Department for International Development (DFID) had launched Credit Guarantee Scheme (CGS) for Small, Rural and Micro Enterprises in March 2010.