Pakistan’s new collateral-free financing scheme to benefit 10 million small businesses — traders 

In this picture taken on July 14, 2021, a general view of Sitara market is pictured in the Karkhano area on the outskirts of Peshawar. (AFP)
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Updated 20 August 2021

Pakistan’s new collateral-free financing scheme to benefit 10 million small businesses — traders 

  • Majority of small businesses that do not have collaterals currently borrow at a minimum 25 percent rate 
  • Central bank says the government will cover risk for small loans up to 60 percent under ‘SME Asaan Finance’ initiative 

KARACHI: A collateral-free financing scheme introduced by Pakistan’s central bank is expected to solve the liquidity problems of around 10 million Small and Medium Enterprises (SMEs) in the country, traders and a financial expert said on Friday. 
The State Bank of Pakistan (SBP) this week rolled out an innovative initiative to improve access to finance for SMEs that cannot offer collateral or security to banks. 
Under the scheme, titled ‘SME Asaan Finance or SAF,’ the government will provide risk coverage of 40-60 percent to selected banks against losses, depending on the size of loans.  
A majority of SMEs in the informal sector are currently borrowing in cash at a minimum 25 percent interest rate due to several reasons, including higher loan losses, high-cost bank finance models, less use of appropriate technology for SME finance and a lack of acceptable security, according to the SBP. 
Union of Small and Medium Enterprises (UNISAME) President Zulfikar Thaver appreciated the SBP’s new initiative, calling it the fulfilment of a long-standing demand by SMEs. 
“This is indeed a very big step to facilitate the sector,” Thaver said. “This move will help some 10 million SMEs, including farmers, in playing a vital role in the national economy.” 
SMEs were previously entitled to get only a Rs100,000 loan on the provision of security or collateral, which was later increased to Rs1 million.  
“The collateral-free loans will enable thousands of small traders to get financing which is their right,” Thaver said.
The UNISAME president said SMEs were the backbone of the country’s economy and a major contributor to the export sector. “With the financing made available, the exports are expected to boost,” he told Arab News. 
“This risk cover will be 60 percent for small loans up to Rs4 million, 50 percent for midsize loans from above Rs4 million to Rs7 million, and 40 percent for relatively larger loans of Rs7 million to Rs10 million,” the central bank said about the new scheme. 
Pakistani SMEs play a key role in the national economy and are estimated to contribute 40 percent to the gross domestic product (GDP) and 25 percent to export earnings. Despite this, small businesses find it difficult to access bank finance as SME financing stood at Rs444 billion on March 31, or only 6.6 percent of the total private sector credit, according to the Small and Medium Enterprises Development Authority (SMEDA) and SBP. 
Under the new scheme, the central bank will provide refinancing for three years to selected banks. Banks will get refinancing from SBP at 1 percent per annum and extend financing to SMEs at the end-user rate of up to 9 percent per annum, which is very attractive compared to informal finance costs, according to SBP, which has also added Shariah compliant features to the SAF scheme to accommodate financing needs of faith-sensitive borrowers. 
Some traders say the 9 percent interest rate being offered is still high.  
“The interest rate is high and if the process is done through banks it would be difficult for small businesses to get financing,” Iftikhar Ghani Vohra, the convener of the Federation of Pakistan Chambers of Commerce and Industry’s central committee on SMEs, told Arab News.  
Vohra said the FPCCI committee was studying the scheme and would present a detailed review at a later date. 
Samiullah Tariq, a research director at Pakistan-Kuwait Investment Company, said the relatively cheap financing rates would provide working capital to small businesses, which may ultimately enhance productivity. 
“This will help small businesses with liquidity for their working capital, expansion, vehicles and generators,” he said, “and will improve supply chain and productivity.”


Pakistan approves imports in local currency from neighboring Afghanistan

Updated 20 min 44 sec ago

Pakistan approves imports in local currency from neighboring Afghanistan

  • The move is mainly aimed at buying coal to help ease energy shortages
  • Pakistan has shortage of forex reserves to buy LNG, oil in international market 

ISLAMABAD: Pakistan on Tuesday approved imports from neighboring Afghanistan in exchange for local currency, a move mainly aimed at buying coal to help ease an energy shortage.
The decision was taken in a meeting of Pakistan’s Economic Coordination Committee (ECC), a finance ministry statement said.
The ECC approved amendment in the Import Policy Order 2022 “to allow import of goods of Afghan origin against Pak Rupee” for a period of one year, it said.
The move is aimed at importing Afghan coal for Pakistan as it faces an energy crises due to a shortage of foreign reserves to buy LNG or oil in the international market to run its power plants.
Prime Minister Shehbaz Sharif announced plans last week to import coal from Afghanistan using local currency to save foreign reserves.
Islamabad has already announced an easy visa regime for Afghan nationals to help facilitate trade on both sides of the border. An Afghan finance ministry spokesman did not immediately respond to request for comment.
Customs duties from coal exported to Pakistan are a key source of revenue for cash-strapped Afghanistan. Sanctions on the banking sector and the cut in development aid since the Taliban took control last August year have severely hampered its economy.
No country has officially recognized the Taliban government, which has meant international financial assistance has dried up while Afghanistan faces a humanitarian and economic crisis.
The Afghan Taliban have lately stepped up coal exports to Pakistan to generate more revenue from its mining sector in the absence of direct foreign funding.
Kabul has raised duties on sales and increased rates recently.
Pakistan has also been facing an economic crises, with foreign reserves falling as low as hardly enough for 45 days of imports.


Media watchdog demands Pakistan ensure safety as two reporters killed in two days

Updated 05 July 2022

Media watchdog demands Pakistan ensure safety as two reporters killed in two days

  • Gunmen killed Ishtiaq Sodharo of Sindhi weekly Chinag in Khairpur district in Sindh province on July 1
  • Iftikhar Ahmed from Daily Express shot dead in northwestern Pakistani district of Charsadda the next day

ISLAMABAD: The International Federation of Journalists (IFJ) on Tuesday demanded the Pakistani government ensure the safety of journalists, days after gunmen killed two reporters within two days in two separate incidents.

Unidentified assailants killed Ishtiaq Sodharo, associated with the Sindhi weekly Chinag, in Khairpur district of the southern Sindh province on July 1. A day later, Iftikhar Ahmed, a reporter for the Daily Express, was shot dead in the northwestern Pakistani district of Charsadda. Police are investigating the motive behind Ahmed’s death, including personal enmity, while Sodharo’s wife has alleged he was killed on the orders of a local policeman. 

The IFJ condemned the murders and called on the Pakistani authorities to fulfil their international obligations under Pakistan’s constitution to safeguard press freedom.

“Pakistan’s government must take appropriate measures to ensure journalists’ safety and security, as required by law, and act to reduce assaults on journalists so that they may carry out their work without fear,” the IFJ said in a statement on its website.

Pakistan is considered a dangerous country for journalists who often have to face violence, legal cases, abductions, detentions and threats from both state and non-state actors. 

In May, the country fell 12 points on the World Press Freedom Index from 145 in 2021 to 157 in 2022.


Pakistan concludes Hajj flights, all 83,312 pilgrims arrive in Saudi Arabia

Updated 51 min 25 sec ago

Pakistan concludes Hajj flights, all 83,312 pilgrims arrive in Saudi Arabia

  • 34,453 pilgrims traveled under government scheme and over 48,000 through private operators
  • 52 flights have utilized the Route to Makkah immigration facility at Islamabad airport this year

ISLAMABAD: Pakistan’s director-general of Hajj in Jeddah said on Tuesday the country’s Hajj flight operation was complete and all 83,312 Pakistani pilgrims had arrived in Saudi Arabia. 

One of Islam’s five main pillars of faith, the Hajj was restricted over pandemic fears to only 1,000 people living in the Kingdom in 2020 and to 60,000 domestic participants last year, compared with the pre-pandemic 2.5 million pilgrims annually. 

This year, after Saudi Arabia lifted COVID-19 restrictions, the kingdom will welcome one million domestic and foreign pilgrims. A quota of 81,132 pilgrims was initially allocated for Pakistan this year, which was later increased by 2,000.

“Our Hajj flights have been completed and all 83,312 Pakistani pilgrims have arrived in Makkah,” DG Hajj, Abrar Ahmed Mirza, told Arab News over the phone from Makkah.

He said 34,453 pilgrims had traveled under the government scheme and over 48,000 through private operators.

“We are now giving them training on Hajj rituals which are starting from Wednesday especially preparing them for Mina, Arafat, and Muzdalifah where pilgrims from all over the world move at the same time,” Mirza said.

Haseeb Ahmed Siddiqui, the director of the Hajj Complex in Islamabad, said 52 flights had utilized the Route to Makkah facility at Islamabad airport this year. 

The Route to Makkah initiative allows pilgrims to fulfil all immigration requirements at the airport of origin. This saves them several hours upon reaching the kingdom since they can enter the country, having already gone through immigration at home. 

“17,077 pilgrims proceeded to the Kingdom under Route to Makkah project using 52 flights this year,” Siddiqui told Arab News.

Adeel Ahmed, a pilgrim from Rawalpindi, said he had no words to express his happiness at being selected for the pilgrimage.

“My name was not part of the first draft and I got a chance at the last moment,” Ahmed told Arab News. “I am unable to share my feelings and happiness as Allah has granted me this privilege to fulfill my dream.” 

Sumera Kiran, another pilgrim from Rawalpindi, expressed satisfaction with arrangements at the airport.

“The [Saudi] government and Pakistani authorities have done very good arrangements at the airport,” she said, adding that she had received her luggage at the hotel.


Pakistan central bank may raise rates by 125 bps to tame 13-year high inflation

Updated 05 July 2022

Pakistan central bank may raise rates by 125 bps to tame 13-year high inflation

  • The South Asian nation is wrestling with economic turmoil, a fall in reserves and a weakening currency
  • Another hike would increase government debt servicing costs as well as hurt industries, says an economist

ISLAMABAD: Pakistan’s central bank looks set to raise its key policy rate by 125 basis points at its review on Thursday, as it attempts to tackle 13-year high retail inflation, according to the median estimate in a snap poll of 10 economists and market watchers. 

The economists, analysts and senior professors surveyed were widely split on the quantum of increase by the State Bank of Pakistan (SBP), with views ranging from 50 to 200 basis points. 

Two respondents did not see a need for a rate increase. 

The central bank raised the benchmark interest rate by 150 bps in May, taking the total increase to 400 bps so far this year to counter rising inflation. 

The South Asian nation is wrestling with economic turmoil, a fall in reserves and a weakening currency. 

Data on Friday showed consumer prices in June leapt 21.3 percent from a year earlier, largely on account of a 90 percent spike in fuel prices since the end of May after the government scrapped costly fuel subsidies. 

With the current policy rate at 13.75 percent and inflation running well above, real interest rates in the economy have turned sharply negative. 

“The last monetary policy committee statement is proof that the State Bank of Pakistan is way behind the curve on anticipating inflation,” said Yousuf Nazar, an economist who writes for various publications and formerly with Citigroup. 

“Another hike would increase government debt servicing costs as well as hurt industries. 

It is not going to have much of an impact on exchange rate or overall demand,” he added. 

Most believed a hike was inevitable, given persistently high global energy prices, the abrupt ending of fuel subsidies as well as the need to control demand after SBP said in its last policy statement the economy had rebounded much more strongly than anticipated. 

“The overall policy mix is geared toward stabilization and demand management,” CEO of Macro Economic Insights Sakib Sherani said, adding that this will induce a sharp slowdown in the economy, possibly a recession, in the short run. 

But Fahad Rauf, head of research at Ismail Iqbal Securities, said he does not see the need to increase rates further. 

“The economy is already slowing down. The layoffs have started and are expected to increase further. 

Further cost pressures would only enhance the burden on industries and workers,” Rauf said. 

“The fiscal arm is working now, tough measures have been taken. SBP needs to wait for the results before further tightening,” he added. 

With Pakistan expecting a restart of the much-awaited bailout package from the International Monetary Fund after the country agreed on some tough economic policy adjustments to promote stability, the SBP’s decision is being closely watched. 


Dubai-bound Indian airline plane makes ‘emergency landing’ in Karachi

Updated 50 min 44 sec ago

Dubai-bound Indian airline plane makes ‘emergency landing’ in Karachi

  • India’s SpiceJet airline says plane diverted to Karachi due to indicator light malfunctioning
  • The B737 aircraft landed at Karachi airport at around 9am where it’s currently being repaired

ISLAMABAD: A Dubai-bound Indian airline plane on Tuesday made an “emergency landing” in the southern Pakistani city of Karachi, the Pakistan Civil Aviation Authority (PCAA) said. 

The B737 aircraft flew from New Delhi for Dubai this morning, according to the PCAA. The pilot requested Pakistani aviation authorities for an “emergency landing” because of a fuel leak. 

“An aircraft of SpiceJet going from Delhi to Dubai sought permission for emergency landing which was granted and the aircraft with 138 passengers on board landed at Karachi airport after 9am today,” PCAA spokesman Saifullah told Arab News. 

“The aircraft was diverted to Karachi airport for landing after fuel leakage.” 

SpiceJet, however, said the plane was diverted due to “indicator light malfunctioning.” 

“No emergency was declared and the aircraft made a normal landing. There was no earlier report of any malfunction with the aircraft,” the airline said in a series of tweets. 

“A replacement aircraft is being sent to Karachi that will take the passengers to Dubai.” 

 

 

The PCAA spokesman said all passengers had been moved to the transit longue of the airport, where they were provided food and refreshments. 

“The aircraft is currently being repaired,” Saifullah added.