Billions Lent to Businesses under TERF

Karachi: Under the Temporary Economic Refinance Facility (TERF), more than 600+ businesses have received loans to either extend their existing business portfolio or start new business. The loan amount totaled up to PKR 435.7 billion. 

The Temporary Economic Refinance Facility was introduced in early 2020, by the State Bank of Pakistan for a year to keep the industry afloat during the pandemic. The scheme expired on the 31^st of March, 2021.

As mentioned above, the grounds for introducing such a scheme was to help businesses carry on as per the schedule, instead of halting or slowing down their processes due to the pandemic. During a speech at the Pakistan Stock Exchange (PSX), the Governor of the State Bank of Pakistan, Reza Baqir stated, “Temporary Economic Refinancing Facility (TERF) remained a highly successful scheme; this will push the economic development and growth”.

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Mr. Baqir further added that the businesses have received loans at a markup rate of 3% – 5% through the scheme. The scheme has allowed investment in machinery, equipment and plants for industrialisation. The banks were given limits for financing targets and liquidity, but were not limited while making credit allocation decisions.

Banks had the power to accept or reject the business ideas to give loans to, based on feasibility, workability of the idea as well as the potential of the company, to earn profit and pay their dues. However, the banks would have been held liable if the business idea resulted in a loss. 

The scheme has proved to be a historic investment scheme, enabling business to flourish and expand in the expected fall-out of the economy at the beginning of the pandemic. The Governor in his speech mentioned that the financing involved in expansion of businesses was equal to 1% of the country’s Gross Domestic Product (GDP).

Along with the Temporary Economic Refinancing Facility (TERF), the State Bank introduced a few similar schemes, in order to keep up the economy, such as cheaper loans for hospitals, etc. “Total liquidity injected (through such schemes) over the last year through a combination of all monetary measures, comes to around 5% of GDP, which amounts to over Rs. 2 trillion”, he said. 

The banks were also advised to defer loans and markup payments for a year. 

The scheme provided relief to all the sectors contributing to the economy except for the power sector, as such refinance facilities for renewable energy already existed in the sector. The maximum financing of the scheme was Rs. 5 billion for each project. it was a long term project , in which borrowers could return the loan on either a quarterly or half-yearly basis for 10-12 years.

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The CEO of the Pakistan Business Council (PBC) Mr. Ehsan Malik said that TERF would create jobs, enhance exports and increase production in the country, helping the ‘Make in Pakistan’ strategy. 

While the bank is not considering extending the scheme, they are, however, looking to introduce similar schemes, to help the country’s economy grow at a faster rate.

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