LAHORE, Pakistan, Jan. 6 (UPI Next) -- Pakistan’s new loan program to encourage young entrepreneurs to start small businesses has been greeted with mixed reactions.
Under the program, announced Dec. 7 by Prime Minister Nawaz Sharif, Pakistanis ages 21 to 45 are eligible for loans totaling $950 million, with half the money reserved for women. Applicants must be Pakistani, possess a national identity card and have a guarantor.
The program is to give out 100,000 loans ranging from about $5,000 to $19,000. Borrowers will pay 8 percent interest, whereas the lending institutions will charge about 15 percent. The government will pay the difference.
Some potential entrepreneurs, however, cite shortcomings with the program, particularly the requirement for a guarantor. Others, along with economists and political analysts, say the plan is a political ploy to win over young people without addressing their real issues, such as unemployment and poor education standards.
Javed Alvi, 37, of Multan told UPI Next he had been looking for ways to expand his small lubricants business, but no one would lend him the money.
"This loan package was a ray of hope for young people like me, but the additional clauses, such as the requirement for a guarantor, are making the loan package rigid and discouraging," he said.
"If they could have been able to provide a guarantor, why would they need this loan in the first place?" he asked.
Yousaf Cornelius, 39, who runs a small clothing store in Faisalabad, an industrial city, had looked forward to the plan but has told UPI Next he is discouraged.
"If the prime minister is really interested in helping the needy, this guarantor clause should be removed," Cornelius said.
However, Finance Secretary Waqar Masood defended the guarantor clause to reporters Dec. 16, saying the money being lent under the program belonged to banks and their depositors.
"You cannot expect banks to give out loans without proper safeguards for recovery," he said.
Some potential entrepreneurs, such as Imran Aslam, 27, of Lahore, said they were excited about the prospects.
"I am the only breadwinner in my home, and my family is dependent on me," Aslam, a stenographer who earns $143 a month, told UPI Next.
He said he cannot feed his family on his pay, "Therefore I want to grab this opportunity to start a small business that would increase my family income."
More than 47 percent of registered voters between 18 and 35 voted in the May elections, according to the Sustainable Development Policy Institute, an Islamabad think tank. Young voters went to the polls partly because all the political parties promised to end unemployment, especially among young people.
Natasha Ikram, 35, a clothing dealer in Sialkot, told UPI Next she saw the loan program as a great opportunity to boost her small enterprise.
"As 50 percent of the 100 billion rupee loan package has been allocated for women, I believe I stand a good chance to benefit from the package," she said.
She, too, however, expressed concern about the guarantor clause, saying she would not be able to arrange a guarantor.
Pakistan's Bureau of Statistics reported in its quarterly Labor Force Survey for July to September 2012 that half the country's workforce was unemployed, and the employment rate had increased from 46.8 percent to 50.4 percent in the last decade. Bureau economic indicators show the unemployment rate -- which it does not break down by age -- has further increased by 6.5 percentage points, to 56.9 percent.
"How can a leadership take the country out of its economic crises when it takes pride in borrowing money from the International Monetary Fund and tries to buy the youth by dishing out loans?" Behar Khan, a Peshawar University student, asked.
Mansoor Ali, who runs a Lahore grocery store, said he doubted the transparency of the loan system and thought the loans would mainly benefit those with close ties to political parties.
"Like previous packages of the last government, this program will also benefit the blue-eyed people of the ruling class, as the loans will be sanctioned only to people who are close to the PML-N government," he told UPI Next, referring to the Pakistan Muslim League -- Nawaz.
Salman Shah, an economist who was finance minister from 2002 to 2008 under then-military ruler Pervez Musharraf, told UPI Next it seemed the youth loan package could generate youth entrepreneurship and could jump-start financing small enterprises, but he added the package should not be used as a "political gimmick."
"The guarantor mechanism should be developed in such a manner that it identifies the potential entrepreneurs," Shah said.
Instead of providing loans through government banks, he suggested, the money should be lent through the private sector, as private banks are more vigilant in this regard.
Federal Information Minister Pervez Rashid told UPI Next the loan program was, in fact, a business proposal to young people and banks. On the government's involvement in the effort, Rashid said, "The government has zero percent administrative expense in connection with the program, as no offices and no staff have been hired and no cars have been bought for the purpose."
Rashid said transparency was not an issue because the program will be supervised by the State Bank of Pakistan, the country's central bank, and First Women Bank, a commercial bank and development financial institution for the empowerment of women. Private banks will join in later.
Hasan Askari, a political analyst and visiting professor at the University of Punjab in Lahore, called the loan program an attempt to attract youth to the PML-N.
"In such dire circumstances, any scheme that engages the youth in commerce and productive activities must be a step in the right direction," he told UPI Next. "However, the scheme appears to be flawed and ill-conceived. I am skeptical about the implementation of the program that it will address the unemployment issue to the benefit of our youth."
Askari said he was uncertain whether the package would become fully operational, given the criticism the loan conditions are attracting.
"The guarantor condition to get the loan may turn out to be the potential factor behind running this package into snags," he said.