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The government has decided to scale back the size and scope of the Kamyab Pakistan Programme (KPP) aimed at addressing “legitimate” concerns of the bureaucracy and the International Monetary Fund (IMF).
Sources told The Express Tribune that the government has now decided to begin a pilot project of the programme first instead of launching the initiative across the country.
In a bid to bring the skin of commercial banks in the game, it has also been decided to reduce cover of the sovereign guarantees against potential losses being sustained by the banks to 50%, they added. Earlier, the federal cabinet had approved to pick 100% losses.
A brainchild of Finance Minister Shaukat Tarin to financially empower the lowest income groups, the government had initially planned to give interest-free-to-subsidised loans to 30 million people across the country and disburse Rs1.6 trillion loans in three years.
Under the KPP, the government wants to give micro-loans to entrepreneurs, businessmen and farmers at 0% mark-up without collateral.
The key focus is to provide loans at the lowest strata. Now the number of beneficiaries and the size will be cut. The decision will also reduce the subsidies requirements which were earlier estimated at Rs256 billion, the sources added.
The internal steering committee of the project has decided that the government should first launch the pilot project of the KPP, the Ministry of Finance confirmed to The Express Tribune on Wednesday.
An official maintained that the pilot project would begin in a few poverty-stricken districts of Khyber-Pakhtunkhwa and Balochistan initially. Only after seeing its success, will a full-blown programme be launched.
The sources said the pilot project would likely continue for one year to see the appetite among the borrowers and mitigate the risks. They said it may take a few more weeks to finalise the modalities of the revised programme before a pilot project is launched.
Sources noted that the IMF had also objected to giving loans at a mass scale without the pilot project and more importantly it opposed providing 100% cover to bank losses.
The Fund was of the view that the government should not breach the limit of guarantees and also take care of its growing debt, as these indicators do not support a mass scale Rs1.6 trillion programme.
The finance ministry and other government departments had also advised the political leadership to exercise caution and conduct due diligence on the cost, service charges being paid to partner banks and microfinance institutions that would disburse these loans and the beneficiaries.
Read Tarin vows to protect IMF, KPP programmes
The finance ministry also confirmed that the decision has been taken to reduce the size of guarantees to the banks to 50%. A new summary will be sent to the federal cabinet to seek its approval to reduce the guarantees cover.
State Bank of Pakistan Governor Dr Reza Baqir was also against giving 100% guarantees but the federal cabinet had overruled him last time.
Special Assistant to the Prime Minister on Poverty Alleviation Dr Sania Nishtar had also raised the issue of transparency during the cabinet meeting.
Sources said in order to allay the concerns of Dr Sania, the finance ministry had contacted the Public Procurement Regulatory Authority (PPRA) for seeking its nod on the process to select partner banks and microfinance institutions.
The PPRA has not yet responded but it has been decided that the KPP will be PPRA-compliant, according to the finance ministry official. As per the design, the central bank would provide money to the commercial banks and banks then would give it to the microfinance banks.
On wholesale lending to the microfinance banks, the commercial banks would charge Karachi Interbank Offered Rate (Kibor) plus 0.5% rate that will be borne by the finance ministry. The microfinance banks would be paid 8% service charges and given guarantees to pick 10% of the losses. The 8% cost will also be borne by the finance ministry.
According to the original plan, the government wanted to disburse Rs315 billion in the first year. In the second year, the target was around Rs500 billion loans and in the third year, Rs785 billion were to be disbursed. All these targets would now drastically be revised downward in light of new decisions, said the sources.
The Express Tribune had requested the IMF to comment about its position on subsidies for KPP, the guarantees against losses to the banks and its proposal to first launch the pilot project and possibility of the 6th review completion.
“The IMF team remains engaged with our Pakistani counterparts on conducting technical and data discussions. We stand ready and looking forward to our continued discussions with the Pakistani authorities on the set of policies and reforms that could form the basis for the completion of the 6th review under the EFF,” said IMF Resident Representative Teresa Dabán Sanchez.
Teresa said these discussions would include talks on KPP, among many other things.