Partnership with banks: USAID to underwrite loans for small businesses

Minister for Commerce Khurram Dastagir addressing the Pak-US Business Opportunities Conference. PHOTO: PID

ISLAMABAD: The United States Agency for International Development (USAID) has entered into a partnership with four Pakistani banks to partially underwrite the losses that these entities may face as a result of giving loans to small and medium enterprises (SME).

The USAID assistance will significantly help address one of the main challenges that the country’s small and medium-sized businesses are encountering due to the reluctance of banks to take risks.

USAID announced the partnership during the last day of the third Pak-US Business Opportunities Conference here on Wednesday.

The development comes at a time when the government’s focus has totally shifted from the critical SME sector despite it being the backbone of the economy. In its 21 months in office, the government has given priority to large industries in terms of offering loans and providing utilities like electricity and gas.

“The access to credit programme will partially guarantee the loans so banks could take a little bit more risk in the SME sector,” said Gregory Gottlieb, USAID Mission Director for Pakistan. Initially, the US will provide $10 million that will back $60 million worth of loans.

USAID has entered into agreement with Bank Alfalah, JS Bank, Khushhali Bank and First Microfinance Bank.

“The ultimate beneficiaries of the partnership will be the people of Pakistan,” said Khalid Imran, President of JS Bank.

USAID wanted to give $20 million in guarantees – $5 million to each of the four banks. But the financial institutions took a calculated risk as USAID wanted them to move into the areas of education and women entrepreneurship.

Bank Alfalah and USAID entered into partnership for $2 million worth of guarantees, said Javed Iqbal, the bank’s Head of SME.

Of the 3.2 million businesses in Pakistan, nearly three million are small and medium sized, according to statistics

compiled by USAID.

Its press release stated that small and medium-sized businesses produced more than 30% of the country’s gross domestic product and one-fourth of the nation’s exports. The sector is estimated to be absorbing three-fourth of the industrial workforce.

Banks consider the sector too risky and are reluctant to lend money to such businesses. USAID said its funded programmes had helped create 23,000 jobs in the last three years and provided business development services to more than 85,000 small and medium enterprises.

During the two-day business opportunities conference, Pakistani officials kept encouraging US investors to invest in the country as it faced hurdles in the way of attracting foreign investment.

Board of Investment Chairman Miftah Ismail urged the investors to pump capital into liquefied natural gas-fired power plants that the government was planning to set up.

He pointed out that there was 17% guaranteed rate of return on investment in the power sector, which was very lucrative compared to investments in US Treasury papers.

Privatisation Commission Chairman Mohammad Zubair asked US investors to take part in the privatisation process and offer bids for the power distribution and generation companies that the government was selling on a priority basis.

Speaking at the concluding session, US Ambassador Richard Olson termed the event a beginning of a new business relationship, professional collaboration and investment by both the countries.

Reaffirming the US commitment, Olson said Washington was advancing shared goals in support of peace, prosperity and stability of Pakistan, the US and this entire region.

He noted that the presence of US Commerce Secretary Pritzker in the conference indicated the seriousness of US commitment to building a stronger economic relationship with Pakistan. More than 300 people attended the conference.

Published in The Express Tribune, March 12 th. 2015.

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Source: tribune.com.pk

Category: Credit

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