LAHORE, July 28: The provincial government’s failure to issue the “guarantees” to the United Bank (UBL) on behalf of the Punjab Small Industries Corporation (PSIC) is delaying the release of a UBL loan of Rs600 million to the corporation.
“Any further delay in the release of the loan may prevent us from financing the sanctioned projects in the coming weeks and hold up our work,” PSIC officials told this reporter here on Monday.
The provincial government has approved in principle the PSIC plan to obtain the loan for financing the small sector in the province.
“The PSIC board of directors chaired by the provincial chief minister has also approved the plan about a month ago. Yet the guarantees are not being issued, blocking the release of the loan to the corporation,” claimed the officials.
The PSIC has negotiated the loan with the UBL at six per cent interest rate. It will, however, use the money to finance new small enterprises at an interest rate of seven per cent (for projects to be set up in the south Punjab) and eight per cent (for projects to be established in the central or upper Punjab). It will charge one per cent higher interest rate for financing the existing small projects for their expansion.
The PSIC has negotiated the loan under the provincial government’s decision to disburse Rs1.2 billion for the setting up of small enterprises through the corporation. The decision was announced by the previous government in the budget for the fiscal 2002-03 as part of its effort to uplift the small sector in the province and the amount was to be disbursed in two years.
“In the first year, we have been able to disburse only Rs150 million from out of our own savings,” the officials said. The PSIC directors have already sanctioned financing of Rs700 million for the small projects in different parts of the province.
“If the release of the UBL loan is further delayed due to the bureaucratic snags in the issuance of the government guarantees to the bank, we might not be in a position to finance the rest of the projects and may even have to hold back the funding for the schemes that have already been given part of the promised money,” the officials insisted.
They said they were exhausting their savings of Rs220 million out of which the corporation has already disbursed Rs150 million among the sanctioned projects. It is pertinent to note that international donors, including the Asian Development Bank (ADB), have raised objections against the “banking” functions of the PSIC and subsidy given on its loans. The central bank is also said to have expressed reservations on its lending functions and is reported to have told the corporation to leave the function of financing the small sector to the SME Bank.
However, the corporation believes that it still has a role to play and help the small investors access to credit for their businesses.