Published in Sep-Oct 2021
The Pakistan Tehreek-i-Insaf (PTI) Government’s 100 billion-rupee youth loan scheme – Kamyab Jawan National Youth Development Programme (KJNYDP) – seems to be taking off, albeit slowly. The participating banks have sped up loan approvals ever since the government guaranteed to cover potential portfolio losses, disbursing close to Rs 19 billion among 15,000 borrowers, including individuals as well as micro, small and medium businesses. The new momentum notwithstanding, the banks have so far approved loans to the tune of only Rs 26 billion for about 21,000 applicants out of the 1,211,602 applications they have received in the last two years.
According to Zafar Masud, CEO, Bank of Punjab, such schemes “take time to pick up momentum. You have to establish a strong, viable supply chain... Initially, the banks remained shy of participating in this initiative, due to risk aversion. Now that the government has provided them portfolio loss coverage, the banks, especially the smaller ones, are escalating the processing of loans under KJNYDP.”
Yet, questions remain on the success of the scheme. Will the government succeed in persuading the banks to disburse an additional amount of over Rs 80 billion – both for existing businesses and start-ups – in order to achieve the disbursement target before the 2023 elections? More importantly, will the scheme create enough employment opportunities (the primary goal of the scheme) given that it has generated just above 30,000 jobs or twice the number of borrowers who took advantage of the loans to date? Equally important are concerns about the scheme turning into another scam, similar to previous ventures launched by past governments to draw political mileage. The memory of the losses suffered by the banks in the yellow cab scheme is still fresh in the minds of people.
Broadly speaking, KJNYDP is a combination of two schemes. The Youth Entrepreneurship Scheme (YES) is designed to enable start-ups with financing worth Rs 100 billion and the Skills Scholarships Scheme or Hunarmand Pakistan (worth Rs 10 billion) is aimed at training and equipping young people with skills for employment in the domestic and international markets.
Ostensibly, KJNYDP is rolled out for the social and economic uplift of the young, who make up over 65% of Pakistan’s population through the creation of employment and business opportunities in the manufacturing, services and agriculture sectors. “Pakistan is one of the youngest countries in the world with 65% of its population under the age of 30 (approximately 27% are between 15 and 29). This ‘youth bulge’ provides unique opportunities for Pakistan’s social and economic uplift if their latent potential can be harnessed by providing them with openings for growth and personal development. Through the implementation of KJNYDP, the government is seeking to work with the excluded youth and provide them equal opportunities to participate in the nation’s social, political and economic development,” opines Masud.
KJNYDP offers subsidised financing from Rs 100,000 to 25 million, at a rate of interest of three to five percent to men and women in the 21 and 45 age bracket. For IT and e-commerce related businesses, the lower age limit is 18 years. Both start-ups and existing micro and small business enterprises are eligible for loans under this scheme. The start-ups are required to provide equity in the range of 10 to 20%, depending on the loan size. Individuals employed in the private sector can also take advantage of loans repayable in eight years. A minimum 25% share (on an aggregate basis) of all loans is retained for women to bridge the gender gap. However, the women’s share in the disbursed portfolio currently stands at 8.7% compared with the men’s share of 91.3%.
Geographically, the disbursements are skewed towards Punjab, with Rs 14.05 billion followed by Sindh with Rs 2.94 billion, Khyber Pakhtunkhwa with Rs 1.31 billion and Balochistan with Rs 113 million. Islamabad’s share stands at Rs 513 million while applicants from Gilgit-Baltistan have received financing worth Rs 128 million and Azad Kashmir Rs 84 million. In Sindh, the financing is mostly concentrated in Karachi with little flowing into rural Sindh. Likewise, the disbursements in Punjab are concentrated in the major cities with the southern region getting only a fraction of the credit distributed. The loan distribution under the scheme is also skewed towards the services sector, which has received 69% of the total disbursements followed by 19% for agriculture and 12% for manufacturing.
As the implementation of the programme gathers momentum, it will help enhance Pakistan’s industrial productivity, competitiveness and exports, as well as significantly boost the inflow of foreign remittances. “The Youth Entrepreneurship Scheme recognises the fact that entrepreneurship is the fastest route to job creation across the globe. Countries that have enabled their young people to become entrepreneurs have been and will be more successful than those that have not,” Usman Dar, the Prime Minister’s aide and focal personal on KJNYDP wrote in a newspaper article. He could not be contacted for an interview despite several attempts and twice cancelled zoom meetings scheduled by his staff at the eleventh hour.
According to details obtained from the KJNYDP secretariat, the second plank of the initiative – Hunarmand Pakistan or the Skills Scholarship Programme – is as important as financing for entrepreneurs since skill development has been largely ignored by both the public and private sectors. Launched with an initial investment of Rs 10 billion, it will be expanded as it moves forward to implement a broad-based and comprehensive reform agenda in the skills training sector. The programme supports 170,000 young men and women and there are plans to establish 100 high-tech skill centres.
The most important feature of the Hunarmand Pakistan project is the introduction of high-tech skills in subjects such as AI, cloud computing, robotics, cyber security, graphic design, 3D animation and industrial automation. “The mode of work is shifting from physical to digital, especially after Covid-19 and it is crucial to equip young people to transition to the digital economy if Pakistan is to compete with the world in technology. This project will enable a large number of Pakistanis to boost the export of IT services,” a senior official of the Punjab Technical Education and Vocational Training Authority (TEVTA-Punjab) told Aurora. “The establishment of high-tech centres under the programme will radically change skills training in Pakistan. We are expecting these centres to become operational in the current year.”
According to a senior banker, “the KJNYDP is primarily meant to generate economic activity through the provision of low-cost financing to entrepreneurs to start businesses or invest in existing ones for expansion. The government believes the programme will generate enormous economic activity. However, I have my doubts. I am afraid it will end up as a means to buy political loyalties in the next elections, similar to other programmes launched by different governments in the past.”
Nonetheless, a senior National Bank of Pakistan executive, speaking on the condition of anonymity, says he was “not worried about the misuse of the financing. The programme has been structured in a way to transparently disburse loans to minimise political interference. Credit risk and decision-making remain with the lending banks to ensure credit discipline and the financing offered is like any other loan. Only applicants who fulfil the criteria of the lending banks will be able to access KJNYDP loans. At the end of the day, we have to answer to the central bank about the quality of our credit decisions.”
Nasir Jamal is Bureau Chief, Dawn Lahore. firstname.lastname@example.org