Benefits to borrowers from new credit guarantee scheme for pawning advances

Thursday, 10 July 2014 00:00 - - {{hitsCtrl.values.hits}}

Licensed commercial banks and licensed specialised banks engaged in pawning activities can now provide an enhanced level of credit to their customers by joining the newly introduced credit guarantee scheme. This credit guarantee scheme will support farmers, small business owners and small and medium entrepreneurs who use pawning advances for their economic and business activities. The new scheme permits borrowers to receive an additional 15% of the current level of ‘Loans to Value Ratio’ provided by banks. A cap on the rate of interest applicable to pawning advances has also been imposed to provide further relief to borrowers.

The new credit guarantee scheme for pawning advances was introduced by Central Bank on 17 June. Credit obtained through pawning has significantly declined due to a drop in gold prices in the international market in the recent past. Hence, through this scheme, it is expected to support banks to increase their Loan to Value Ratios. Under this scheme, borrowers are eligible to obtain pawning advances up to Rs. 500,000 at an interest rate of 15% per annum which includes all fees and charges. The enhanced level of credit ensured by this scheme, will help borrowers of pawning advances to meet their financial requirements comfortably, particularly in agricultural and business activities. Several banks have already signed agreements with the Central Bank of Sri Lanka. The scheme is implemented and monitored by the Regional Development Department of the Central Bank of Sri Lanka and it is expected that the present level of credit under pawning would increase significantly due to the scheme.