Karachi: In a major move to invigorate the small and medium enterprise (SME) sector, the government, in collaboration with the State Bank of Pakistan (SBP), has introduced a Rs 1.1 trillion financing scheme aimed at doubling SME financing and spurring job creation.

According to Union of Small and Medium Enterprises, the scheme was announced through a circular issued by the SBP, detailing that the initiative seeks to expand access to financial resources for SMEs over the next five years. The move comes as part of broader efforts to combat the slowdown in economic growth and the subsequent impact on employment witnessed in the recent fiscal years.

The newly launched 'Risk Coverage Scheme' is designed to secure banks' new financial exposures to SMEs, offering loans of up to Rs 25 million for small enterprises and up to Rs 200 million for medium enterprises, with a tenure of up to five years. This comprehensive scheme includes both working capital loans and long-term financing options.

Furthermore, the government has committed to absorbing the credit loss on the principal portion of these loans, providing 20% first loss coverage for small enterprises and 10% for medium enterprises. This financial backstop is intended to alleviate the risks associated with lending to SMEs, encouraging banks to increase their loan portfolios in this vital sector.

All commercial and Islamic banks are set to participate in this scheme, which represents a significant step towards enhancing economic growth and reducing unemployment in Karachi and beyond.