Descending towards the next election cycle, the PTI government appears pitching popular moves with a flagship Rs1.6 trillion Kamyab Pakistan Programme (KPP).

It was initially launched for three years with a combination of a series of schemes, mostly targeting the lower middle income population. It involves about Rs253bn of direct subsidy from the budget in three years.

Although not all because of the government, these sections have so far been hit hard by the first three years of the current government. Steep energy tariff increases, historic exchange rate adjustments, record low economic growths, high inflation and deadly Covid-19 have literally played havoc with the living conditions of the people.

The recent budget, though considered expansionary — a shift from three years of stabilization — was targeted more towards the top, industry and businesses, and the bottom poorest of the poor. Therefore, the focus in the remaining less than two years of the constitutional tenure is on lowest income groups — the majority of the voting population.

KPP has been developed for promotion of SME, agri and low-cost housing finance in consultation with the Naya Pakistan Housing and Development Authority (NPHDA), the State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP), Pakistan Banks Association (PBA), Micro Finance Providers (MFPs), Housing Finance Companies, and other related stakeholders in the meetings of a working group and a steering committee notified for this purpose.

Finance Minister Shaukat Tarin has confirmed the IMF had raised some questions regarding capacity of the partner banks and the beneficiaries

The International Monetary Fund (IMF) has thus logical red flags towards populism while some quarters within the government have certain fiduciary concerns and want to be protected against regulatory actions or competitive bidding to induct lending partners for mark up. Finance Minister Shaukat Tarin has confirmed the IMF had raised some questions regarding capacity of the partner banks and the beneficiaries.

While the IMF’s concern over 100pc loan guarantee has now been addressed by reducing it to 50pc, Mr Tarin defends not only the programme against risk mitigation but also the partner banks. “I have been in this business for 46 years. I will not let it (KPP) explode. We will stop where loss goes beyond 10pc”.

He argues that people and organizations like Shoaib Sultan, Amjad Saqib, NRSP, Akhuwat and Kashf etc had delivered wonders by extending over Rs250bn loans with more than 99pc recovery rate. Then there are proper oversight mechanisms through regulators and audits.

The programme planned for launching last week was delayed due to non-availability of NSER data until mid-September. The government guarantee of loans for the programme from banks, development financial institutions, mortgage refinance companies would now be limited to 50pc.

Accordingly, the estimated budget requirement for providing markup subsidy to banks, additional subsidy for meeting operational cost of MFPs at the rate of 8pc and expected loan loss claim by MFPs is put at Rs21.067bn for first year, Rs74.021bn for second year and Rs157.763bn for third year.

In order to scale up the existing Prime Minister’s Kamyab Jawan Programme and government’s mark-up subsidy scheme for low-cost housing, it was decided to engage Micro Finance Institutions, Rural Support Programs, and Micro Finance Banks, and Housing Finance Companies because commercial banks are reluctant to extend small loans.

Kamyab Pakistan Program envisages provision of cheaper liquidity for large scale distribution of subsidised small business and agri loans to small enterprises, start-ups, and farmers, and to individuals for housing needs. Under the plan, commercial banks and Pakistan Mortgage Refinance Company would extend wholesale loans to microfinance providers for onward extension of small loans under the existing Kamyab Jawan Programme and Naya Pakistan low cost housing programme through the NAPHDA.

It will envisage micro loans by microfinance providers, branded as Kamyab Karobar and Kamyab Kissan, for entrepreneur loans, and agri-loans respectively. Such loans would be priced at zero percent per annum with a loan size of up to Rs500,000 and Rs150,000 (for agri loans) and/or Rs200,000 (farm machinery and equipment) respectively. Besides, the programme also envisages Naya Pakistan low-cost housing program through NAPHDA would be amended to include micro housing loans by the MFPs.

Moreover, KPP is also aimed to integrate with the government’s ongoing Skill Development Programme for educational and vocational training. Accordingly it is envisioned that these trained citizens would also have access to finance under the program. This collaboration shall be re-branded as Kamyab Hunarmand.

Official documents estimate that more than three million households shall benefit from this programme with cumulative disbursement of around Rs1.63 trillion over the next three years and create new jobs. The programme will initially be for seven years, which could be extended further but would not be rolled back before its maturity period. The MFPs are also expected to arrange for Group Life Insurance/Takaful to cover the default risk in the event of death, and the cost of such insurance/Takaful to be borne by the end-user.

The criteria for selection of borrower/beneficiary under the program shall be: “the borrower/beneficiary of KPP facility shall have cumulative average monthly family income of less than Rs50,000 with priority to be given to 4.5 million beneficiaries of Ehsaas”. However, this would not be mandatory for applicants of Tier-I housing loans verified by the NAPHDA through NADRA. Moreover, one loan under each Kamyab Pakistan loan category, i.e, Kamyab Karobar, Kamyab Kissan, and Housing, shall be permissible concurrently with the maximum exposure capped at Rs2.85 million put together per family as defined by Ehsaas NSER.

ON the demand of Pakistan Banks’ Association (PBA), the government would extend the bank’s Direct Debit Authority to the SBP for timely and seamless payment of mark-up subsidy and loss claims to banks and MFPs. Accordingly, secretary finance would facilitate this arrangement. A precedent already exists in respect of subsidy payment under Government Mark-up Subsidy Scheme (GMSS) for low-cost housing through direct debit authority.

The provision of direct debt authority is provided in rule 3(1)©, 3(2) and 3(3) of Cash Management and Treasury Single Account Rules 2020 which states that direct payment from federal consolidated fund should only be made where inevitable circumstances exist necessitating such payment.

Thus the exemption of rule 3(2) of Cash Management and Treasury Single Account Rules, 2020, for allowing direct debit authority to the SBP beyond inevitable circumstances has been granted by the ECC and endorsed by the Cabinet.

Published in Dawn, The Business and Finance Weekly, August 16th, 2021