1. Overview SME Financing Trends and SBP Initiatives. 3. Markup Subsidy and Guarantee Facility for the Rice Husking Mills in Sindh

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1 State Bank of Pakistan (Infrastructure Housing & SME Finance Department) Mark-up Subsidy and Guarantee facility for Rice Husking Mills in Sindh April 2013 Hyderabad & Sukkur 1

2 OUTLINE OF THE PRESENTATION 1. Overview SME Financing Trends and SBP Initiatives 2. Refinance Scheme for Modernization of SMEs 3. Markup Subsidy and Guarantee Facility for the Rice Husking Mills in Sindh

3 OVERVIEW 3

4 Trends in SME Financing Trends in SME Financing % age Share of SME in Total - Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 - Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 SME Financing peaked at Rs. 437 billion in Dec Since then, SME Financing has shown a declining trend and has reached to Rs billion in Dec

5 SBP initiatives in SME Finance Refinance Facility for Modernization of SMEs Refinance Scheme for Revival of SMEs & Agricultural Activities in Flood Affected Areas Financing Facility for Storage of Agricultural Produce (FFSAP) Mark-up Subsidy and Guarantee facility for Rice Husking Mills in Sindh Credit Guarantee Scheme for Small and Rural Enterprises

6 REFINANCE SCHEME FOR MODERNIZATION OF SMES 6

7 Objectives: Facilitate SMEs to modernize their Units to produce quality products & improve value added chain. Eligibility: SME borrowers defined in Prudential Regulations for SMEs. Financing: New imported/local Plant & Machinery for BMR of existing/setting up of new units. New generators up to 500 KVA. Validity: December 31,

8 Illustrative List of SME Sectors: Rice Husking Fisheries Cotton Ginning Packaging / Processing Power Looms Dairy & Livestock Cutlery & Stainless Utensils Surgical Instruments Marble & Granite Engineering Goods, (Electronic) of Fruits / Vegetables Furniture Gems & Jewellery Sports Goods Agro-based Industry 8

9 Tenor & Pricing: Tenor of loan is 3-10 years with markup rates of 8% to 10% as under: Tenor Up-to 3 years Over 3 years and up-to 5 years Over 5 years and up-to 10 years Rate of Banks /DFIs End Users Refinance Spread Rate 5.50% 6.25% 2.50% 2.75% 8.00% 9.00% 7.00% 3.00% 10.00% Maximum grace period: Six Months 9

10 MARKUP SUBSIDY AND GUARANTEE FACILITY FOR THE RICE HUSKING MILLS IN SINDH 10

11 Markup Subsidy and Guarantee Facility for the Rice Husking Mills in Sindh IH & SMEFD Cir 6/2013 The Scheme was issued vide IH & SMEFD Cir No. 06 dated March 12, 2013 Objective is to facilitate establishment of new rice husking units and modernization of existing units to reduce production costs and improve profitability Financial Support for the Scheme was provided by Sindh Enterprises Development Fund, Government of Sindh. The Scheme incorporates feedback of all stakeholders, particularly banks.

12 Facilities under the Scheme Mark-up Subsidy for Rice Husking Mills: The End User mark-up rate is reduced to the bank spread level i.e. 2.75% Mark-up rate remains the same as under the Refinance Scheme i.e. Tenor Over 3 years and up-to 5 years Rate of Refinance Banks /DFIs Spread End Users Rate 6.25% 2.75% 9.00% The refinance component of mark-up rate i.e. 6.25% will be borne be borne by SEDF.

13 Facilities under the Scheme: Cont Credit Guarantee facility: State Bank will also provide partial Credit Guarantee risk coverage of 30%. The guarantee is invoked on categorization of borrower as Loss Loss: Overdue by 1 year or more The lending bank can lodge claim for reimbursement of 30% of outstanding principal from State Bank. The claim will be reimbursed from the guarantee and subsidy fund provided by SEDF.

14 Major Features of the Scheme: Purpose: BMR of Existing Rice Husking Mills in Sindh Establishment of New Rice Husking Mills in Sindh Eligible Borrowers under the Scheme Rice Husking Mills in Sindh Eligible under the existing lending criteria of the bank Verified as eligible/ deserving borrower by SEDF through its Letter of Comfort to the lending bank. Tenor of Loans Maximum tenor of 5 years; including Maximum grace period of six months Maximum per party Loan Limit Rs. 10 million for a single borrower

15 Procedure to avail facility: The borrowing Rice Husking Mill will approach the bank for facility under the Refinance Scheme with additional facilities of Guarantee and Subsidy. The Bank will evaluate the borrower as per its own lending criteria If eligible, the bank will forward loan request to the SEDF for issuance of Letter of Comfort The borrower can also approach SEDF for issuance of Letter of Comfort The bank will append the Request for Refinance facility with request for Subsidy and guarantee facility along with Letter of Comfort The Concerned field office will forward request for guarantee and Subsidy to the Development Finance Support Department (DFSD), SBP BSC Head Office. The DFSD will approve guarantee and subsidy facilities from the date of refinance facility.

16 Procedure to avail facility: Cont The Concerned field office will forward request for guarantee and Subsidy to the Development Finance Support Department (DFSD), SBP BSC Head Office. The DFSD will approve guarantee and subsidy facilities from the date of refinance facility. No Formal evaluation required by DFSD. After approval the borrower will pay mark-up of only 2.75%. Refinance rate will be charged to the subsidy and guarantee fund.

17 Procedure for Guarantee Claim The bank will forward its request to DFSD through the concerned field office. The DFSD will after preliminary examination reimburse guarantee claim to the concerned bank. Upon any subsequent recovery of defaulted amount from the borrower, the bank will return SBP guarantee share of 30% to SBP.

18 Which banks can avail this facility for their borrowers? Banks which already have refinance limit under the Refinance Scheme approach State Bank for allocation of Exposure Limits. State Bank selects participating banks and allocates Exposure Limits, based on the availability of funds Following Limits have already been allocated to the banks Bank Name National Bank of Pakistan Sindh Bank Allied Bank Limited Habib Bank Limited Total Exposure Limit Rs. 120 million Rs. 100 million Rs. 100 million Rs. 50 million Rs. 370 million Limits are based on the current demands of these banks. Other banks are approaching allocation of further limits under the Scheme.

19 FOR FURTHER INFORMATION PLEASE VISIT SBP WEBSITE

20 THANK YOU 20

SME Financing. Presented to: State Bank of Pakistan April 6 th,

SME Financing. Presented to: State Bank of Pakistan April 6 th, SME Financing Presented to: State Bank of Pakistan April 6 th, 2015 www.encludesolutions.com, www.encludecapital.com Contents Section A Definitions / Over view o Rural Finance o Agriculture Finance o Agriculture