37907-014: PAK: SME SECTOR DEVELOPMENT PROGRAM:SME GUARANTEE FACILITY COMPONENT

Project Data Sheet (PDS): Details


Description

Pakistan's SMEs absorb more than 80% of non-farm employment. However, SMEs have yet to realize their growth potential. Currently, the small-scale industrial sector accounted for only 17.8% of the industrial sector output and 4.2% of gross domestic product. To create an enabling environment for SMEs and to realize their growth potential, the Government of Pakistan and ADB agreed to prepare the SME SDP, which is included in the 2003 Country Strategy and Program, which aims at enhancing SME competitiveness, on a sustainable basis to support income generation, employment creation, and poverty reduction. It will be the anchor program loan for the proposed PCG Facility and possibly a number of other private and public sector investments supporting SMEs. Channel financing is a mechanism that builds on a bank's network with large corporate clients to extend credit, mostly for working capital purposes, to SME suppliers and buyers of these corporate entities. The mechanism improves the creditworthiness of SMEs that are referred or endorsed by large corporations who are willing to share risks with or provide first loss back up guarantee to banks in case of the default by their SME suppliers or buyers. The proposed PCG will permit the banks to go into riskier SME markets without exceeding their current exposure limits.

Objectives and Scope

A revolving local currency partial credit guarantee facility (PCG Facility) of up to $60 million equivalent, whereby individual PCGs will be issued to Standard Chartered Bank (SCB) and Citibank which were selected during due diligence to cover up to 50% of the commercial and political risks associated with their portfolios of credits to small and medium-sized enterprises (SMEs) as defined by the State Bank of Pakistan. Under the PCG Facility, uncommitted sub-limits will be given to the two participating banks, which have proven ability and willingness to extend financing credit to SMEs targeted under the PAK: Sector Development Program for SMEs (SME SDP which is being processed by SAGF) and follow prudent credit evaluation and due diligence guidelines acceptable to ADB. This PCG Facility will be anchored by the public sector program loan of the ensuing SME SDP.

Status of Development Objectives

As of 1Q2009, outstanding exposure stood at PKR112.1 million ($1.4 million) covering 27 accounts. Portfolio will not increase any further as the facility's availability period has ended in Dec08. Final maturity of the exposure is expected by November 2009.

Material Changes

None.

Safeguard Categories

Environment: FI
Involuntary Resettlement:
Indigenous Peoples:

Stakeholder Participation and Consultation

Already done.



Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

Project Data Sheets (PDS)

Timetable

Concept Clearance
12 Mar 2003

Fact-finding
16 Jun 2003 to 20 Jun 2003

Private Sector Credit Committee Meeting
07 Nov 2003

Board Approval
18 Dec 2003

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