‘SME Asaan Finance’: New scheme introduced to enable SMEs to get loans without collateral

The State Bank of Pakistan (SBP) has introduced a unique scheme for Small & Medium Enterprises (SMEs), enabling them to receive loans without collateral.

The scheme, titled as ‘SME Asaan Finance’ or SAAF, has been introduced to help SMEs in financial terms that cannot offer security or collateral to banks.

Under the scheme, the authorities are expected to provide risk coverage to selected banks of around 40%-60% against losses.

According to the SBP, most SMEs in the informal sector usually borrow cash at a minimum interest rate of 25% due to several reasons.

These include higher loan losses, high-cost bank finance models, a lack of appropriate technology for SME finance, and a lack of acceptable security.

Nevertheless, the new collateral-free loans are expected to facilitate thousands of SMEs to get their financing done right.

Previously, the SMEs were entitled to get only ₨. 100,000 loan on the provision of security or collateral. 

However, under the new collateral-free loan scheme, this has been increased to ₨. 1 million.

The Shariah-compliant versions of the scheme, along with conventional modes of finance, are soon to become available by the end of September 2021.

It is pertinent to note that SMEs play an essential role in Pakistan’s economy and contribute 40% to GDP and 25% to export earnings.

However, SMEs have always faced trouble when accessing formal bank finance as the total SME finance stood at only 6.6% of the total private sector credit.

This has always led the SMEs to turn towards exorbitantly expensive informal credit, hurting growth and negatively affecting Pakistan’s GDP and overall exports.

Nevertheless, this new SBP scheme, specifically aimed at uplifting the SME sector, is destined to bring positive changes.

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