Government provides loan loss guarantees to lenders

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ISLAMABAD: The government will give large lenders such as banks, DFIs and others a 100 percent loan default guarantee for the provision of subsidized loans under the Kamyab Pakistan Program (KPP).

This guarantee will help the government get banks to divert funds into the much-touted CPP programs. The banks make funds available to the providers, for example selected microfinance institutions (MFIs), in order to pay out the subsidized loans to the borrowers.

The operational cost of running KPP is estimated to be around Rs.273.6 billion for three years, including overheads and 10 percent of the project cost of Rs.24.874 billion. That included Rs 76 billion for training, Rs 25 billion for skills development, Rs 69 billion for the customer awareness campaign, Rs 27 billion for research and reporting, Rs 24 billion for digitization and Rs 24 billion for the project’s resource needs.

However, the Treasury Department spokesman denied it, saying it was incorrect. “There is no budget allocation for Hunarmand Pakistan. It’s just a collaboration with the ongoing skills development projects, ”he said.

The official said the government will provide wholesale lenders with a 100 percent loan default guarantee against the funding granted to the Executing Agencies (EAs), initially at the beginning of the program. However, the guarantee coverage will be reduced to 50 percent over time with the term of the program.

This 100 percent government loan default guarantee, which must be notified by the SBP, is an implied guarantee, similar to the Prime Minister Kamyab Jawan-Youth Entrepreneurship Scheme (PMKJ-YES), and is entitled to all of the benefits associated with the express guarantee. The definition of arrears is triggered within 90 days of non-payment.

The federal government provides an additional grant of eight to ten percent for the successful operation of the KPP.

With three major programs such as Kamyab Karobar, Kamyab Kissan, and Low-Price Housing Programs, the premium grants paid to major lenders such as banks and DFIs are converted into Karachi Inter-Bank Offered Rates (KIBOR) plus 0.50 percent interest for about a year.

When asked by the Treasury Department spokesman, he said that the decision on how much premium to add beyond the KIBOR will be made after the bidding. But yes, it will be the same for all companies, added the spokesman.

The sources said the government will grant Executing Agencies (EAs) a 10 percent default loss on Kamyab Pakistan Micro Loans portfolios booked under the KPP.

KPP’s Executing Agencies (EAs) should also be able to grant more loans and reach the lowest income brackets in the model, as there is a 10 percent guarantee at portfolio level for microcredits to cover costs in the event of a government failure. Finances. This is a stricter and more controlled framework compared to other similar systems and could effectively reduce the tax burden on the treasury, according to official documents prepared by the Treasury Department.

The program is designed in such a way that the federal government’s guarantee claims are as low as possible. The payment of the loan default grant to the executing agencies and large lenders is made quarterly within the framework of the program up to 10% or 100% of the disbursed portfolio via the SBP. The Loan Application Form (LAF) to be used by all participants includes the Kamyab Pakistan logo.

The program will initially run for seven years and could be extended further. However, the program will be reviewed after three years for its performance and intended outcomes. Banks will continue to issue new clean loans (T-1) up to Rs 500,000 per borrower under the existing PMKJ-YES, but with a zero percent markup instead of the previous three percent interest rate. The SECP will give its blanket approval to the SBP, the government’s # 1 account for paying additional subsidy and credit loss claims to the EAs.


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