Govt. to introduce new refinance scheme as ‘Saubhagya’ set to expire

• New scheme allocates rupee loans equivalent to US$ 100mn at 6% or less  
• To be funded by ADB; Govt. and ADB set to complete negotiations
• To provide permanent working capital to MSMEs up to Rs.10mn
• Loans will be granted via 10 identified banks, which will be partnered for the scheme 

As the Central Bank-launched loan refinance scheme ‘Saubhagya’ nears expiration by the end of August, the Finance Ministry is gearing to introduce another refinance scheme targeted at the micro, small and medium-sized enterprises (MSMEs) starting from September in a sign that authorities stand ready to support the economy beset by the COVID-19 pandemic.

To this end, the Department of Development Finance under the Finance Ministry is set to complete negotiations with the Asian Development Bank (ADB) to take receipt US$ 100 million and awaits the new Cabinet’s approval to proceed with the new funding line aimed at assisting small businesses. 

The new refinance scheme titled, ‘Emergency Response Facility,’ which comes in response to the economic damage caused by the pandemic, is expected to provide permanent working capital loans up to a maximum of Rs.10 million for eligible enterprises. 

The loans under this scheme will be given at the concessionary rate of 6 percent or less and will have a three-year tenor with a grace period of six months. The banks are expected to borrow at 3 percent via the new scheme to be lent at 6 percent, subject to changes until the new

scheme is finalised.  Small businesses which fail to apply for loans under the Saubhagya refinance scheme can now apply for loans under the new refinance scheme. 

The Central Bank initially introduced the Rs.50 billion re-finance scheme in March to overcome working capital issues faced by small businesses and the self-employed caused by the disruptions to their incomes from lockdowns. 

But later in June the Central Bank topped it up by another Rs.100 billion and later introduced an interest subsidy scheme while undertaking to underwrite loans up to 80 percent of their value. 

But the scheme is set to expire on August 31. 

Under the new Emergency Response Facility, loans will be granted via 10 identified banks, which will be partnered for the scheme. 

Currently there is already a refinance scheme assisted by the ADB for SMEs titled, ‘Small and Medium-Sized Enterprises Line of Credit Project,’ for which the Manila-based development lender has assigned US$ 175 million and the fund utilisation is nearing completion.