July 08, Colombo: Sri Lanka's Central Bank said its new credit guarantee scheme for pawning advances introduced on June 17 benefits borrowers.
Licensed Commercial Banks and Licensed Specialized Banks engaged in pawning activities can now provide enhanced level of credit to their customers by joining this newly introduced credit guarantee scheme, the Bank said.
According to the Central Bank, the credit guarantee scheme will support farmers, small business owners and small and medium entrepreneurs who use pawning advances for their economic and business activities.
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.
New scheme permits the borrowers to receive additional 15% of the current level of Loan to Value Ratio provided by the Banks. A cap on the rate of interest applicable to pawning advances has also been imposed to provide further relief to the borrowers.
The enhanced level of credit ensured by this scheme, will help borrowers of pawning advances to meet their financial requirements comfortably particularly in the agricultural and business activities, the Bank says.
The Central Bank introduced the new scheme to support the banks to increase their Loan to Value Ratio since credit obtained through pawning has significantly declined due to drop in the gold prices in the international market in the recent past.
Several banks have already signed the agreements with the Central Bank and the scheme is implemented and monitored by the Regional Development Department of the Central Bank.
The Central Bank expects the present level of credit under pawning to increase significantly due to the scheme.