SME Finance Awareness Session

SME Finance Awareness Session State Bank of Pakistan

SME Financing

SBP Definition for SE & ME SBP Definition for SE & ME- -SME SME Enterprises No. of Employees* Annual Sales Turnover Financing Limit** Small Enterprises upto 50 Upto 150 million Upto Rs. 25 million 51-250 (Mfg. & Service) Above Rs 150 million & up to Rs 800 million Medium Enterprises Upto Rs. 200 million 51-100 (Trading) *Including contract employees **From a single Bank/DFI or from all banks/DFIs

SMEs Contribution in Pakistan Economy Estimated Share in total businesses (3.2 million) 90% Estimated Contribution to GDP 40% Workers employed in non-agricultural workforce 80% Source: SMEDA

SME Finance Trends (Dec 2014 - Dec 2018) 600 60.0% 2019 Nov O/S SME Finance Rs. 450 Bn SME Borrowers: 184,288 55.0% 513 181K 500 50.0% 450 45.0% 164K 401 177K 400 40.0% 35.0% 288 305 158K 300 30.0% 134K 30% 25.0% 25% 200 20.0% 20% 15.0% 17% 15% 100 10.0% 8.9% 8.8% 8.5% 8.0% 8.0% 5.0% - 0.0% 2014 2015 2016 2017 NPLs % 2018 No. of SME borrowers SME Financing (in billions) % of Pvt Sector Credit Data Data

SME Financing SME Finance Targets for CY 2020 SME Finance Targets for CY 2020 Punjab 634.97 Bn (55%) Male 1039 Bn (90%) SME Outstanding Rs. 1154.5 Bn Sindh 369.44 Bn (32%) Female 115.45 Bn (10%) KPK 57.72 Bn (5%) Balochistan 23.09 Bn (2%) SEs MEs 519.53 Bn (45%) 634.97 Bn (55%) Others 69.27 Bn (6%)

SBP Policy for Promotion of SME Finance-2017

SBP Policy for Promotion of SME Finance - 2017 Pillars of SME Finance 6 7 9 8 1 5 3 4 2 6 7 9 8 1 5 3 4 2 & Innovation Challenge Leveraging Technology Non-Financial Advisory Improving Regulatory Program Based Lending Handholding of SMEs: Upscale Microfinance & Awareness Creation Simplified Taxation Simplified Procedures Risk Mitigation Capacity Building Value-Chain & Framework Regime Banks

SBP Policy for Promotion of SME Finance - 2017 Pillar # 1: Improving Regulatory Framework Retail exposure increased from Rs. 75M to 125 M for preferential risk weight of 75% in CAR calculation Insurance for SE Loans up to Rs 2 M made optional R&D units in banks General Reserve reduced from 2% to 1% against unsecured SE fin. port General Reserve of 1% withdrawn against secured SE portfolio Province-wise and gender based SME financing targets Working Capital loans for priority sub-sectors

SBP Policy for Promotion of SME Finance - 2017 Pillar # 2: Up-scaling Microfinance Banks MFBs into MSE Banks Financing limit of eligible MFBs increased from Rs 0.5 -- Rs 1 M Pillar 3: Risk Mitigation Low-end MEs covered in Credit Guarantee Scheme Credit Guarantee Company Risk sharing schemes under partnership of GoPb & GoS Secured Transaction Registry (e-Registry)

SBP Policy for Promotion of SME Finance - 2017 Pillar 4: Simplified Procedures Loan Application Forms simplified & BBFS withdrawn TAT reduced for ME (25 days ) and SE (15 days) SE documentation to be standardized through PBA. Pillar 5: Value-Chain & Program-Based Lending Banks to serve SMEs under VCF/SCF and Program-based Lending Pillar 6: Capacity Building & Awareness Creation Training & Awareness programs by SBP, NIBAF, SBP BSC and other stakeholders.

SBP Policy for Promotion of SME Finance - 2017 Pillar 7: NFAS Banks to provide NFAS to SMEs 3S forum (SBP, SMEDA & SECP) for NFAS| SME Pakistan Forum Pillar 8: Leveraging Technology & Innovation Challenge IT for SME Finance & Development of web-based marketplace for e- Commerce. Pillar 9: Simplifying Taxation Regime Tax rate reduction on banks income derived from SME financing Tax holiday for eligible start-ups & Women SE borrowers.

GoP Enhanced NFIS 2023 on SME Financing

GoP Enhanced NFIS 2023 SME Financing Targets Indicative Targets for 2023 - Increase SME share to 17% -Increase SME financing to Rs 1.9 trillion -Increase number of SME borrowers to 700,000 (Dec 2023) Status* of SME Financing - Rs 513 billion SME financing (outstanding) - Number of borrowers is 180,704 ( Dec 2018) *December 2018

SBP Refinance Schemes (Markup subsidy &/or risk coverage)

SBP Refinance Schemes for SMEs SBP Refinance Schemes for SMEs 1. Refinance Facility for Modernization of SMEs (Shariah compliant alternates has also been issued) 2. Mark-up Subsidy & Guarantee Facility for Rice Husking Mills in Sindh 3. Refinance & Credit Guarantee Scheme for Women Entrepreneurs 4. Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises 5. Financing Facility for Storage of Agricultural Produce

SBP Refinance Schemes for SMEs SBP Refinance Schemes for SMEs 6. Financing Scheme for Renewable Energy 7. Credit Guarantee Scheme (CGS) for Small and Rural Enterprises 8. Small Enterprise (SE) Financing and Credit Guarantee Scheme for Special Persons 9. Prime Minister Kamyab Jawan Youth Entrepreneurship Scheme

Refinance Facility for Modernization of SMEs Refinance Facility for Modernization of SMEs Brief Description For purchase of new local/ imported plant and machinery for the BMR of existing SMEs or for setting up new SME units and for the purchase of new generators of up-to 500 KVA Limits For SEs Rs. 25 M and for MEs Rs 200 M Features 1) Financing available only against LC in case of purchase of imported plant and machinery. 2) Financing available to the extent of C&F value of imported new plant and machinery and ex-factory/ show room price of local plant and machinery. 3) Shariah Complete version available. Rate of Mark up End user rate is 6% out of which 4% is bank s share Financing tenor Maximum financing tenor is 10 years with maximum grace period of six months.

Mark-up Subsidy & Guarantee Facility for Rice Husking Mills in Sindh Brief Description Launched in 2013, in collaboration with Sindh Enterprise Development Fund (SEDF) GoS to facilitate rice mills of Sindh in establishment and BMR of rice husking mills. Also available for installing mechanized dryers. Mark up End user rate is 2%. Banks spread is 4.75% out of which 2.75% is borne by SEDF. SBP s refinance rate of 2% is also borne by SEDF. Risk Coverage 30% risk coverage against outstanding principal Financing Limit Maximum Rs 10 million. To install mechanized dryers upto Rs 16 million. Financing tenor Maximum financing tenor is 5 years.

Refinance & Credit Guarantee Scheme for Women Entrepreneurs Brief Description For women entrepreneurs in the country s for setting up of new businesses or expansion of existing ones. Mark up End user rate up-to 5% that entirely goes to banks. SBP refinance rate is 0%. Financing Limit Rs 1.5 million Financing tenor 5 years with maximum grace period of 6 months Risk Coverage 60% of outstanding principal Quota 20% for Baluchistan

Financing Facility for Storage of Agricultural Produce For establishment, expansion and BMR of steel/ metal/ concrete silos, warehouses & cold storage facilities. For purchase of new imported/ local plant & machinery/ equipments/ accessories to be used in silos, warehouses and cold storage facilities. Generators with maximum capacity not in excess of in- house energy requirements can be financed Financing available up to 65% cost of civil works. Shariah compliant version available Brief Description Markup For SMEs up-to 6% p.a. (bank s share is 4%) Financing Limits Maximum for single project is Rs 500 million. For SEs Rs 25 M & for MEs Rs. 200 M Tenor for SMEs 10 years, others 7 years

Financing Scheme for Renewable Energy Financing Scheme for Renewable Energy For power generated by using alternative/ renewable energy sources like solar, wind, hydro, biogas, bio-fuels, bagasse cogeneration, and geothermal as fuel. Category I Category II Category III Prospective sponsors, desirous of setting up renewable energy power projects with a capacity ranging from more than 1 MW and up-to 50 MW for their own use, selling of electricity to the national grid (including distribution companies) or combination of both. Prospective sponsors, desirous of installing renewable energy source based projects/ solutions for generation of electricity up-to 1 MW. Vendors and suppliers certified under AEDB (Alternative Energy Development Board) Certification Regulation 2018 for installation of wind and solar systems on lease basis or selling of electricity to ultimate owners/users. Brief Descripti on Fin. limit Rs 6 billion for single project. Rs 400 M for single borrower. Rs 1 billion for single vendor / supplier

Financing Scheme for Renewable Energy Financing Scheme for Renewable Energy For power generated by using alternative/ renewable energy sources like solar, wind, hydro, biogas, bio-fuels, bagasse cogeneration, and geothermal as fuel. Category I Category II Category III SBP Refinance shall be up- to100% of total financing (debt) of an eligible RE project of upto 20 MW and up-to 50% of financing (debt)of an eligible RE Project of more than 20 MW. SBP Refinance shall be up-to 100%of financing to the eligible borrowers. SBP Refinance shall be up-to 100% of financing to the eligible borrowers. SBP Refinanc e Fin Tenor Max 12 Yr--2 Yr. GP Max 10 Yr--3 Mon GP Max 10 Yr Mark up 3% SBP + 3% Bank=6% p.a. 2% SBP + 4% Bank=6% p.a. 3% SBP + 3% Bank=6% p.a. Shariah compliant version available.

Refinance Scheme for Refinance Scheme for Working Capital Financing of SEs & Working Capital Financing of SEs & Low Low- -end MEs end MEs Brief Description Financing is initially available to meet working capital requirements of below mentioned SME sectors: Information Technology (IT) Gems and jewelry Furniture Surgical goods Leather industry Fruits, vegetables and food processing & packaging Printing & packaging Dates processing Mark up End user rate up-to 6% p.a. with banks spread 4% p.a. Eligible Enterprises All small enterprises as per SBP s PRs Medium enterprises with annual sales of Rs 300 million Financing Amount Upto Rs 25 million for SEs Upto Rs 50 million for MEs Financing Tenor Maximum financing tenor is 1 year Shariah compliant version available.

Credit Guarantee Scheme (CGS) for Small Credit Guarantee Scheme (CGS) for Small and Rural Enterprises and Rural Enterprises SBP launched Credit Guarantee Scheme (CGS) for Small and Rural Enterprises in March 2010 in collaboration with UK s Department for International Development (DFID). Under this scheme, risk coverage of upto 60% is provided against credit losses of participating financial institutions on their lending to small, micro and rural enterprises. The extent of risk coverage is linked with the level of loan collateralization. The lower the loan collateralization, the higher is the risk coverage extended under the scheme Risk coverage of 60% is provided against all loans extended to women borrowers, start-up businesses and small, rural and micro enterprises operating in the underserved areas of the country

Small Enterprise (SE) Financing & Credit Guarantee Scheme for Special Persons Brief Description Special persons holding CNIC with disability logo/symbol will be provided finance for setting up of new business enterprises or for expansion of existing ones Rate of Mark up End user rate upto 5% p.a. that entirely goes to banks. SBP refinance rate is 0%. Financing limit Rs 1.5 million Financing tenor Maximum financing tenor is 5 years with maximum grace period of 6 months Risk Coverage 60% of outstanding principal

Prime Minister Kamyab Jawan Youth Entrepreneurship Scheme I. All men/women holding CNIC, aged between 21 and 45 years with entrepreneurial potential are eligible. For IT/ E-Commerce related businesses, the lower age limit will be 18 years. II. Small enterprises (startups and existing businesses) as per definition of SBP and owned by youth as per above mentioned age brackets are also eligible. III. For IT/E-Commerce related businesses, at least matriculation and/or experience of at least six months. Size of the loan is segregated into two tiers, as under: Tier 1 (T1) loans- Rs 100,000 to Rs. 0.5 million Tier 2 (T2) loans- Above Rs 0.5 million and upto Rs 5 million Working capital loans and term loans Upto 8 years with maximum grace period of upto one year. T1 loans- 90:10 T2 loans- 80: 20 The borrower s contribution of equity would be in the form of cash or immovable property and will be required after approval of the loan. Eligibility Criteria Loan size Loan type Loan Tenor Debt to Equity ratio 27

Prime Minister Kamyab Jawan Youth Entrepreneurship Scheme Focus on Women 25% of the loans will go to women borrowers. Security arrangements will be as under: T1 loans: Clean, however, only personal guarantee of the borrower T2 loans: As per bank s own credit policy Security Requirements Government will bear credit losses (principal portion only) on the disbursed portfolio of the banks as under: T1 loans: Upto 50% T2 loans: Upto 10% Risk Mitigation Finance Division shall allocate funds in each fiscal year s budget as per estimates provided by SBP. Payment will be made on submission of consolidated claims of all the banks by the SBP. Allocation in Budget 28

Prime Minister Kamyab Jawan Youth Entrepreneurship Scheme Pricing for Working Capital & Term Loans: T1 loans: 6% p.a. fixed for borrower. Government will pay the difference of the cost at KIBOR+500bps T2 loans: 8% p.a. fixed for borrower. Government will pay the difference of the cost at KIBOR+400bps Pricing Executing Agency NBP, Bank of Punjab and Bank of Khyber. NBP s share in total disbursed loans will be upto 50%. All sectors. Standardized schemes/ projects/ undertakings designed by SMEDA, or projects designed by private sector service providers or by individuals, themselves will also be admissible. Sectors and Products 29

SBP Financing Facilities for Exporters Export Finance Scheme/ Islamic Export Finance Scheme (EFS/IERS) A short-term financing facility for exports of value added goods available through Banks. Financing for max 180 days. Existing mark-up under EFS is 3% p.a. Shariah compliant version (IERS) available. Higher export performance qualifies for further rebate. Higher banks spread for the SME exporters.

SBP Financing Facilities for Exporters Long-Term Financing Facility (LTFF) For purchase of imported/locally manufactured new plant & machinery. Available for export-oriented projects through Banks/DFIs. Max financing period 10 years including grace period of up to 2 yr. Mark-up rate is 6% p.a. except for textile sector 5% p.a. Financing limit per project Rs 2.5 Billion Shariah compliant structure available.

SBP Refinance Schemes for SMEs- summarized Maximum Tenor (Years) Mark-Up (%) Scheme Financing Limit Up to Rs. 25 Million for SEs Up to Rs. 200 Million for MEs Refinance Facility for Modernization of SMEs 6 10 Financing Facility for Storage of Agricultural Produce Up to Rs. 200 Million 6 10 Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises Up to Rs. 25 Million for SEs Up to Rs. 50 Million for MEs 6 1 Refinance and Credit Guarantee Scheme for Women Entrepreneurs Up to Rs. 1.5 Million 5 5 Small Enterprise Financing and Credit Guarantee Scheme for Special Persons Up to Rs. 1.5 Million 5 5 Category I: Rs. 6,000 Million Category II: Rs. 400 Million 6 6 12 10 SBP Financing Scheme for Renewable Energy Category III: Rs. 1,000 Million 6 10

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