The Pakistani government shares the risk of loans with banks to save jobs in a pandemic | Instant News

By Syed Raza Hassan

KARACHI, Pakistan (Reuters) – Pakistan’s finance ministry will share part of the risks faced by banks in lending to small businesses, in an effort to protect jobs after a coronavirus pandemic, the central bank said on Wednesday.

The South Asian nation, which has reported more than 22,000 COVID-19 infections and 526 deaths, is looking to restart commercial activity to limit the rise in unemployment after national lockouts that have lasted more than a month.

“Under this risk sharing arrangement, the Federal Government will bear the first 40% of losses in the main portion of the loan portfolio distributed by banks,” the central bank said in a statement.

Last month the central bank itself launched a refinancing scheme aimed at curbing economic stagnation, with concessional loans being offered to businesses committed to not laying off workers in the next three months.

The bank said in its statement that the finance ministry acknowledged the difficulties faced by small and medium-sized businesses (SMEs) in managing collateral and risk avoidance of banks in lending to them.

“This facility will encourage banks to provide loans to collateral-deficient SMEs and small companies with a sales turnover of up to 2 billion Pakistani rupees ($ 12.7 million) to utilize (alone) financing with the central bank’s refinancing scheme,” the central bank said.

Last month, Pakistan received $ 1.39 billion from the International Monetary Fund in the form of a Fast Financing Instrument to address balance of payments problems related to a pandemic.

The federal government has allocated 30 billion rupees under credit risk sharing facilities to banks, which are spread over four years to share the burden of losses related to bad loans in the future.

Pakistan’s economy has been devastated by the pandemic, with the IMF forecasting a 1.5% contraction this financial year.

($ 1 = 158,1600 Pakistani rupees)

(Reporting by Syed Raza Hassan; Editing by Hugh Lawson)

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