The government has launched a new initiative, one of the largest of its kind in the world, to provide small and interest-free loans to benefit the poorer classes. Under the Kamyab Pakistan Programme, the government aims to alleviate poverty, grow the economy and generate jobs. However, questions are being raised about its launch ahead of the next elections and whether the country could withstand its economic impact.
The plan has already faced many problems. The government had planned to provide Rs3.7tr loans to some 7m households, but it had to scale it down after strong objections by the International Monetary Fund (IMF) ahead of the upcoming talks for the resumption of its suspended $6b loan facility. The government will now provide Rs1.4tr loans to 3.7m households. Smallholders, small businesses and low-middle-income homebuyers will benefit from it. The programme will also cover health insurance for all and offer scholarships for skill training, as well as increase financial inclusion by connecting the unbanked to banks.
The future of the plan, though scaled down significantly, is still uncertain because it is yet to be seen how the IMF reacts to it as the international lender, whose support will be crucial for the government in the next few years for external-sector stability, may not like it. The plan involves significant government guarantees and subsidies. Though the government has also integrated some similar projects into the programme and stretched its countrywide rollout to early 2022 to reduce its impact on the national budget, yet experts fear it does not meet the standard of fiscal discipline demanded by the IMF under its bailout package. The plan may also worsen the balance-of-payments crisis created by rapidly growing domestic demand and expensive imports.
The programme was launched after the government believed the “trickle-down” approach had failed to transfer the benefits of economic growth to the common people. The new “bottom-up” attempt aims to lessen poverty by empowering the deprived segments and helping them transform their lives. Loans will be offered to families with a cumulative average monthly income of less than Rs50,000 with priority to be given to beneficiaries of the Ehsaas programme. The microloans will be disbursed under a wholesale arrangement between banks, development finance institutions, Pakistan Mortgage Refinance Company and microfinance banks and institutions, housing finance companies. Loans will also be provided to farmers with landholdings up to 12.5 acres. Microloans up to Rs150,000 per crop would be extended for procurement of agricultural inputs to boost productivity. Loans up to Rs200,000 would be given for machinery and equipment at zero markup.
Under the scheme, loans will also be provided for small businesses and start-ups at zero per cent markup in both rural and urban areas. The loan size is up to Rs500,000 and repayment will be in easy installments. Dairy, livestock, poultry and fisheries sectors are also included in the programmes. The third component of the project is the Naya Pakistan Low Cost Housing Scheme, for which loans of up to Rs2.7 million for Naya Pakistan Housing and Development Authority (NAPHDA) and Rs2 million (for non-NAPHDA) projects will be given at highly subsidised rates for a maximum of 20 years and a minimum of five years.
Launching the ambitious plan, Prime Minister Imran Khan rued the lack of opportunities available for the middle and poor classes in the country, saying the PTI government was making efforts to change the mindset and priorities in Pakistan. He also admitted the government’s earlier housing finance programme had failed because banks lacked infrastructure and training to provide loans to people from the professional and lower classes of society. “A lot of time was consumed in overcoming obstacles and even when we had passed the foreclosure law, our banks did not have infrastructure and training to give loans to people. We realised that by the time banks learn to give loans to poorer people, our five years will be over,” he said, adding that this was the reason the government had decided to make microfinance banks a part of the Kamyab Pakistan Programme.
Undoubtedly, the new plan will go a long way in empowering the downtrodden and link them with the mainstream economy. However, it is yet to be seen how the plan is implemented. Though it contains lucrative incentives and the government’s will to really empower the poor, all will depend on the stringent and fair implementation of the programme. Many such financing schemes were introduced in the past, but they benefited mostly undeserving people and led to enormous losses to the national exchequer.
The plan banks on changing the mindset and priorities by institutions, banks and individuals. It also needs to be saved from politics. Its launch ahead of the next election may not go well with the opposition parties. The government will have to ensure that it does not use the programme for political gains and receive votes in the next election. However, no plan will work for the government in the next election if it fails to bring down prices of food and daily-use items.