SBP Encourages SMEs By Rescheduling Spread Rates At 4%

To encourage banks and DFIs, State Bank of Pakistan (SBP) has rescheduled a 4% increase in the interest rates. It will help raise the flow of consistent loans and financing to small and medium-sized enterprises (SMEs).

However, refinancing rates have been decreased to 2%, affecting the banks offering loan to small businesses. The banks have been offering 6% interest to the entrepreneurs for the last 10 years.

According to SBP, the new rates of refinancing and interest for banks will be implemented on 1st June 2017.

These new rates will enable commercial banks to earn additional income with great margins as well as offer increased loans for SMEs.

The rescheduling of the bank interest and refinancing rates would be a mutual benefit for banks as well as customers. The rates will offer higher profit margins for the banks and enable customers (entrepreneurs) to benefit from low refinancing rates.

The revision of payment due for repaying debts is called refinancing. Following, a new loan is provided under new conditions after the previous loan is paid off.

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Traditional rates of interest and refinancing

The banks’ interest rates varied from 2.50% to 3.50%, two years back in 2015. The variation depended upon the duration of loan taken. Under the program of Refinance Facility for Modernization of SMEs and Financing Facility for Storage of Agricultural Produce (FFSAP) the banks offered 3.50 to 2.50% refinancing rates.

In 2009, SBP introduced these programs as an objective to achieve its main goal; development of SME sector in Pakistan. In that period, there was a smart difference between the spread rates and the interest and finance rates for customers. The interest rates for banks were marked from 2 to 3% while the refinancing rates were set from 8 to 10%. These rates varied on borrowings for certain time period.

These programs have bought a great opportunity for SMEs to borrow loans from different banks. It will benefit them to invest more capital and expand their business with these opportunities.

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Spreading awareness

SBP set banks/DFIs responsible to promote appropriate awareness of such programs among existing potential customers.

Banks and DFIs are directed to perform the following actions:

  • Post brochures around the branches boards as well as at the ATMs briefing about the programs mentioned above
  • Upload the information about these programs on their websites
  • Conduct regular session to provide awareness to their potential customers about these programs

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Role of Banks/DFIs

Banks/DFIs are responsible to submit an annual report for the awareness sessions held with SME Associations to SBP. Moreover, banks/DFIs are bound to report quarterly updates on sessions with Development Support Finance Department, SBP BSC, and Karachi Head Office.

Under the concerned provision of BCO, 1962, if any banks/DFIs fail to provide awareness sessions among their branches and SMEs, strict actions may be taken against them.

Image: Mohsin Jaffery / Flickr

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