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KARACHI: The State Bank of Pakistan (SBP) has announced to extend the Rozgar Scheme for Supporting Employment and Risk Sharing Facility (RSF) for another three months. Further, in collaboration with the federal government risk coverage for SMEs under the Rozgar Scheme has also enhanced from 40 percent to 60 percent.

Soon after the outbreak of Covid-19 pandemic, the SBP took a number of steps to provide economic support to businesses and households.

As a part of these measures, the State Bank introduced a temporary refinance scheme for payment of wages and salaries to the workers and employees of the business concerns aims to finance wages and salaries of permanent, contractual, daily wagers as well as outsourced employees for three months (April 2020 to June 2020).

Refinance Scheme to Support Employment and Prevent Layoff of Workers, commonly known as SBP Rozgar scheme, provides concessional loans maximum at 3 percent per annum (p.a.) for end users who are in active tax payers' list to businesses for wages and salaries expenses provided they commit not lay off their employees for the period of the loan.

As the businesses are still affected with Covid-19, in order to facilitate the business concerns, SBP has decided to extend the Rozgar scheme and in collaboration with the government, has increased the risk coverage for SMEs under the scheme from 40 percent to 60 percent.

In the light of feedback from the stakeholders and with a view to provide further support to the businesses to help them avoid laying off of their workers and employees, State Bank has decided to extend validity of the schemes for next three months i.e. from July 2020 to September 30, 2020.

Businesses will now be able to obtain financing to pay wages and salaries for a maximum period of 6 months starting April 2020 till September 2020. With this extension, the businesses will now be able to avail facility to cover wages of three more months, but can also get reimbursement for the wages and salaries paid during April-June 2020.

For those who have already availed financing under the scheme, financing limits for the months of July to September 2020 will be calculated on the same basis on which limits were calculated for the months of April to June 2020.

Further, in order to encourage those businesses which have met the terms and conditions of the scheme but could not avail this facility, will also be allowed to apply for 6 months salaries and wages including reimbursement for the months of April, May, and June 2020.

The same extension will be allowed for Islamic Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns.

Under the scheme, up till 19th June 2020, financing of Rs 112.8 billion have been approved by banks for 1653 businesses covering wages and salaries of over 1.1 million employees.

In addition, with a view to incentivize banks/DFIs for financing to SMEs and non SME corporates, Government of Pakistan (GoP) introduced a Risk Sharing Facility (RSF) for SBP's Rozgar Scheme.

Under this facility, GoP bears 40 percent first loss on disbursed portfolio (principal portion only) for eligible borrowers.

Now the federal government has not only to extend validity of its risk sharing facility for another three months for SMEs and small corporates with turnover of up to Rs 2 billion but also enhanced risk coverage for SMEs from 40 percent to 60 percent First Loss on portfolio basis.

This higher risk coverage will help banks to provide financing under Rozgar scheme to collateral deficient SMEs which are otherwise struggling hard.

The SBP now expects that more SMEs will benefit from the scheme mainly due to higher risk coverage, more awareness of the scheme among the stakeholders and robust support mechanism to address queries and complaints with well-organized set up comprising regional focal persons of SBP Offices and banks all across the country.

Under the risk sharing facility, security arrangements will be as per executing agency's own credit policy after taking into account the factor of this risk sharing facility. Hence, banks are encouraged to facilitate collateral deficient borrowers. In any case, banks will not be asking for additional collateral over and above the non-guaranteed principal portion and markup thereon.

Under the RSF, up till 19th June 2020, financing of Rs 25.4 billion have been approved by banks for around 1100 businesses covering wages and salaries of over 220,000 employees.

It may be mentioned here that in order to reduce the financial cost to the private and public businesses and households, the SBP had cut the key policy rate by a cumulative 625 basis points since 17th March 2020.

While, under the Covid-19 measures, SBP has also allowed deferment of principal amount and restructuring of loans to improve the cash flow of businesses and households.

In addition to these measures, the SBP introduced several refinance schemes to support employment and investment to fight the economic impact of Covid-19.

Copyright Business Recorder, 2020