ISLAMABAD, Aug 30: The government is expected soon to start restructuring SME Bank with technical and financial assistance of the Asian Development Bank.

A four-member ADB mission will be in Islamabad next week to study the government plan for the bank’s restructuring which is expected to be initiated with its bifurcation into two companies.

SME Bank was created through the amalgamation of Regional Development Finance Corporation (RDFC) and Small Business Finance Corporation (SBFC) on January 1, 2002. Now it is proposed to be bifurcated within 20 months into two entities — SME Bank with 10 branches and one Recovery Company. The Recovery Company would have a life span of 36 months and it would stand dissolved automatically at the end of this period.

The government has sought $200 million from the Asian Development Bank for restructuring SME Bank and for paying golden handshake benefits to those of its 1,100 employees who would opt for the GHS.

Sources said the restructuring of SME Bank would entail reduction in its branches from 62 to 10 to make it lean and more dynamic with a core staff of only about 150 contractual employees with very high salaries commensurate with the market price.

Salaries for these employees are expected to be in the range of Rs80,000 to Rs230,000, besides fringe benefits like lifetime club memberships, medical and other facilities such as free telephone, conveyance, free petrol and loans up to Rs3,000,000 repayable in 12 years, although their employment contracts are envisaged for only two-three years.

SME Bank president Mansoor Ali Khan confirmed that a plan of restructuring and its bifurcation into two was under consideration of the government, but said an agreement between the ADB and the government had not yet been signed.

He also confirmed that under the existing scheme, the bank branches where account-holders reach 500 were to be merged with the nearest bigger branch and that there was nothing new in this regard in the new restructuring plan. He denied that rightsizing of the bank was on the anvil.

The RDFC was established in 1985 with the prime objective of promoting industrial activity exclusively in the less developed areas of the country to restrict large scale migration of people from rural to urban areas through provision of small business and employment opportunities in the rural areas. The sources said the SME Bank that was required to start commercial operations in January 2002 could not obtain a licence from the State Bank because of the inefficient team at the helm of affairs who now wanted to restructure the bank to cover up their failure to deliver results.

These sources said one reason behind SME Bank’s failure to secure a commercial banking licence was the presence of chief executives of four commercial banks, three of them in the private sector, all competitors of SME Bank, on its board of governors.

They said it was impossible that more than 20 million SMEs now in operation throughout the country could be catered for by 10 branches of SME Bank and its 150 employees. The restructuring plan is against the spirit of amalgamation ordinance, public interest, employments of individuals and self-employment all over the country and negates the government’s own agenda for promotion of SME sector, they said.

Under the new plan, Balochistan which was a focus of RDFC in the past will have only one branch. During the year 2002, SME Bank could disburse only three per cent of the total bank financing. The SME officials are at a loss as to why SBFC and RDFC were amalgamated a year back when it was to be bifurcated into two within such a short time.

The sources alleged that a party which has strong links in the Ministry of Finance had been tipped to take over the bank after its restructuring through sale and hence there would be no future for the SME sector.

A similar plan to restructure the Small and Medium Enterprise Development Authority (Smeda) has been turned down by the Ministry of Industries and Production despite its very limited resources. SME Bank has in its balance over Rs7 billion recovered from the former SBFC and RDFC which has not been disbursed.