Under the context of the COVID-19 pandemic, all around the globe central banks are using policy instruments to stimulate growth and reduce layoffs. In Pakistan, the State Bank of Pakistan (SBP), with the help of banks like JS Bank, has introduced an initiative dubbed as the Rozgar Refinance Scheme. The aim is to protect workers and employees from layoffs.
Commendable steps by SBP to stimulate activity during the pandemic
The refinance scheme aimed to provide concessional credit at 3% interest rate and generous repayment terms to any business that commits to not lay off workers for 3 months. The goal of the scheme was to provide an incentive for businesses to protect jobs.
This is in addition to a consistent decrease in the policy rate, aimed at stimulating economic activity, announced by the SBP a few weeks ago.
On May 06, 2020 SBP complemented this scheme with a 40% percent risk-sharing facility (RSF) on a first loss basis from the Government of Pakistan for utilization of this scheme for SMEs and small corporates (defined as a business with annual turnover not exceeding Rs. 2 billion).
As of June 12, 2020 there has been significant take-up in the scheme. Banks have approved loan applications worth Rs. 107.5 billion of which Rs. 23.5 billion is for SMEs and small corporates under the risk-sharing facility.
Out of the Rs107.5bn, Rs23.5bn has been lent to SMEshttps://t.co/6mPj7nBgkA
— Profit Magazine (@Profitpk) June 21, 2020
Amongst the banks, there is a considerable difference in the extent to which they have provided credit under the RSF. Some have been more active than others.
JS Bank takes the lead, yet again
A review of data indicates that five banks together constitute more than 61 percent share of overall approved financing amount under the Risk Sharing Facility (RSF) with JS Bank Limited at the top, followed by HBL and Bank Al‐Habib.
In order to support the business concerns for payment of salaries and wages during the current crisis of COVID-19, SBP introduced incentives for businesses under the refinance scheme for payment of wages and salaries to the workers and employees to prevent layoffs. Under the scheme, active taxpayers can get financing at a mark-up rate to 3 percent for payment of salaries.
It may be mentioned here that the federal government had also allocated Rs30 billion under a credit risk-sharing facility for the banks spread over four years to share the burden of losses due to any bad loans in future in this scheme.
— World News Observer (@wnobserver) June 20, 2020
Under this risk-sharing arrangement, the federal government will bear 40 percent first loss on the principal portion of the disbursed loan portfolio of the banks.
JS Banks steps up to serve the nation during the pandemic
JS Bank is also a responsible corporate citizen and has been at the forefront of relief activities during the current pandemic. Playing its role in facilitating the nation and its institutions to fight the coronavirus pandemic, JS Bank has introduced financing of up to Rs 200 million to hospitals and medical centres for the purchase of equipment to detect, contain and treat patients infected by COVID-19.
Under this State Bank-designed scheme, all medical centres registered with federal or provincial health governing bodies, engaged in the control and eradication of COVID-19, will be eligible to avail the credit line at a minimal mark-up rate of only 3% per annum for a duration of five years.
Additionally, as a response to COVID-19, JS bank again took the lead as a responsible corporate citizen and deployed a fund with Rs 110 million to combat the pandemic. The three-tiered strategy revolved primarily on providing immediate relief, pandemic control, and future response capacity building.
Prudent policy measures by the SBP, coupled with efficient execution by commercial banks like JS Bank, will go a great way in alleviating the economic woes the current pandemic brought with it.