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State Bank of Pakistan’s Rozgar scheme helps both capital and labor

COLUMN-ENG-19-06-2020

For the private security services, the Covid-19 pandemic posed multiple problems. The closing down of businesses and industries meant loss of revenues for them, reducing overheads meant drastically decreasing the number of guards. Because of the lockdown and partial closure of a number of branches, the Cash-in-Transit (CIT) business came down by about 35%.We estimated that overall, about 1500 of our several thousand guards would have to be laid off by May 31.  

Faced with this horrendous situation, we took our employees into confidence and requested their suggestions. The guards requested not to lay off any of their colleagues. The consensus was to make a collective sacrifice by reversing the increments given on July 01, 2019thus effectively saving about 6.0%. Fuel prices going down made a further saving of another 1.5%. Still short of about 8-9% in our cash flow, we reduced other expenses. But financially we still remain under tremendous pressure.

An extraordinary situation requires extraordinary measures. Never before has a pandemic of global dimensions endangered the lives of millions of people and force-multiplied the meltdown of the world economy. Given that almost half of our population lives on or below the poverty line even before the pandemic hit us, bread and food prices have been not only a political issue but a human one, of shortage and starvation. Misjudging and mishandling of the situation will not only harm the global population but will spread anarchy in the country as the masses face shortages of essential food items.

To quote my article “On Our National Day Stop Protecting Fatcats!” on March 23, 2020: “Having enunciated an excellent monetary policy, the State Bank of Pakistan (SBP) now has a responsibility to take bold steps by reducing interest rates significantly and instead of looking at the interests of the stock market fat cats and banks’ profit margins”, unquote.  Fortunately for us, the situation was already under active consideration by our financial planners. 

The Governor of the SBP, Dr Reza Baqir and his team subsequently initiated numerous wide-ranging measures to help the economy survive under the present conditions. The economic sustainability of the State required out-of-the-box solutions and the SBP took a number of measures to sustain the continued employment of workers.

Vide Circular 6 of April 10, 2020. The SBP initiated a temporary refinance scheme for businesses “for Payment of Wages and Salaries to the Workers and Employees”, with the core objective of incentivizing businesses and not to lay off their workers because of loss of business and revenues during the COVID-19 pandemic.

The nature of their work makes it justifiable for SBP to keep their working confidential. In contrast, the success of this whole exercise required transparency and good access to the SBP. The focal point of the Reference Scheme, was Executive Director SBP Samar Husnai, assisted by “point personnel teams” consisting of SBP-BSC Chief Managers and senior officials of all the banks in all the 15 cities where SBP (BSC) offices are located. They were primarily responsible for addressing issues faced by businesses in availing financing under the SBP Rozgar scheme. The Chambers of Commerce and other trade bodies were invited to give suggestions and direct queries or complaints to them to resolve issues. 

Every scheme has teething problems, particularly when executed in a hurry. While processing applications for loans is justifiably a deliberate procedure, for banks to push through a totally new policy in such trying circumstances when not fully staffed was always going to be a challenge.

Not only was this scheme timely but was implemented and executed with speed covering all types of employees, permanent, contractual, daily wages as well as outsourced workers. The loans were disbursed by the banks after due processing. Implementation was ensured by Samar Husnain and his SBP team by a constant daily follow up on Zoom covering entire Pakistan. 

The scheme provides for financing of those businesses which do not layoff their employees from April to June 2020.To prevent layoffs, banks have so far received applications for Rs. 137.31 billion from 2,227 companies for 1,328,793 employees. Till 12th June 20, banks had approved Rs. 107.49 billion for 1,503 companies for their 1,044,082 employees.

SBP’s Monetary Policy Committee eased off 525 basis points in the discount rate in the two months since the beginning of the crisis. Other measures included extending principal repayments, providing payroll financing, and other measures to support liquidity. Together with the government's pro-active fiscal stimulus-including targeted support packages for low-income households, SMEs, and construction-as well as assistance from the international community, these actions should provide ample cushion to growth and employment, while also maintaining financial stability. This coordinated and broad-based policy response provided relief and stability to business and industry recovery. 

In the first instance, 100% financing was available up to a wage bill of Rs.200 million only, vide circular 10 on 11 May 2020. The SBP further facilitated middle and large businesses by enhancing finance up to 100% of wages and salaries of businesses with average a 3- month wage bill of up to Rs500 million. For April, May and June, 2020, initially 75% financing was available up to a maximum of Rs. 375 million and 50% up to a maximum of Rs500 million. For businesses with a 3-month wage bill exceeding Rs. 500 million, the SBP increased finance up to 75% with a maximum financing of Rs.1 billion. Businesses that had earlier availed lower financing due to applicable limits can now avail additional financing on the basis of revised criteria.

“We faced a serious situation in a service industry where proprietors would be forced to lay off at least 15% (1500) of several thousand blue collar workers. We approached our regular bankers, Habib Metropolitan Bank Limited (HMBL) and First Women Bank Limited (FWBL) for availing the refinancing for two of our two companies. Bankers are normally loath to taking risks and that also quickly, tending to be deliberative in their outlook and approach. Despite issues that needed to be sorted out, both these financial institutions responded quickly and positively.” 

Complicated by Ramazan and demand of early salaries on the occasion of Eid, their response was commendable. In saving the livelihood of several thousand of our employees, one has no hesitation in extending praise to the entire Habib Metropolitan Bank Limited Management for honoring our request for the refinance of employees’ salaries of SMS in a very speedy and timely manner. 

What really struck me was the accessibility of senior banking officials from the President HMBL Mohsin Ali Nathani down the line.  Their timely reaction gave us the needed relief. One must mention here Ali Abbas, Farooq Shaikh, Zia Hussain and Iqbal Karim who went to extraordinary lengths to provide support for this facility. Gathering together a great team of banking professionals, Mohsin Nathani has indeed inculcated a great work ethic.

First Women Bank (FWBL) led by President Ms. Naushaba Shahzad and coordinated by Ali Raza, also responded positively despite the handicap of the lockdown and the resultant shortages of staff. The FWB team comprising Shahida Memon, Rana Habib, Samina Qazi and Seema Moulvi worked diligently to fulfill their commitment to providing the facility as soon as possible. This was clearly new territory for the bank and one which required speed.

Every new scheme requires careful implementation. For this FWBL must be commended. The positive support by the two banks allowed us to cancel the reversing of the increments and thus restore employees’ original “take home” salary. Having our banks on our side during this crisis is a great business comfort. SBP’s ROZGAR initiative and the banks response across the board have been outstanding.

SBP must keep on with out-of-the-box solutions facilitating the borrowers, reducing margin requirements further on the existing collateral and consider widening the range of their acceptable collateral. In order to ensure speedy disbursement, the bank may allow this refinance facility as a sub-limit of an existing facility with the consent of the borrower. Sanction of loans through sub-limits of an existing facility is important to expedite the approval process and avoid pre/post disbursement requirements. This will ensure speedy disbursement in this challenging environment.

Presently, the SBP Circular only covers the payroll from April to June 2020, however assessing the state of affairs with respect to the economic implications of the COVID-19 spread is increasing manifold, it will peak somewhere in July/August. Moreover, Eid will fall around 31 July/01 August requiring early payment of salaries. Therefore the SBP should enhance this scheme for a further three months for salaries coverage for the period from July to September 2020 as well. 

The process of charge creation and other certifications for SECP should also be eased to help the borrowers, particularly old clients of the bank with a good track record. The turnaround time of 15-days must be ensured. Not prolonging this process will deprive many borrowers this facility for payment of wages at a critical time. 

Barring some individuals appointed specifically to dance to their political master’s tune, the SBP has mostly been fortunate to have good Governors. In this lot Dr Reza Baqir stands out as an exception, full of fresh ideas in keeping with the changing economic circumstances of the world. The pandemic has made this change drastic. Well knowing he cannot do everything himself, he has enthused the exceptional SBP rank and file to perform around the clock as a cohesive team in an outstanding manner. During every crisis those with substance stand out. 

With Dr Reza Baqir breathing new life into the SBP, the bank has instilled hope for a beleaguered economy. Destiny made them perform for their country when their country needs them the most!

Having benefitted from SBP’s out-of-the-box policies – and its swift implementation, one has no hesitation in saying, thank you SBP, you have saved the livelihood of hundreds and hundreds of thousands by acting sensibly, competently, efficiently and with the speed necessary in very adverse circumstances. One only wishes other state institutions would similarly make us similarly proud.

 

(The writer is a defense and security analyst).