Credit Schemes of State

Bank of Pakistan (SBP)

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 Credit Schemes
 The Credit Schemes offered by SBP are as
follows:
 Export Refinance Scheme (ER);

 Long Term Financing of Export Oriented

Projects (LTF-EOP); and,
 Locally Manufactured Machinery (LMM)
Scheme.

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 Export Refinance Scheme (ERS)
 Objective of the Scheme is to encourage export
of value-added products (by use of Negative List)
by provision of concessionary financing facility
 Scheme is operated in two parts:
 Part-I
 Part-II
 Financing rate is determined on the basis of
weighted average yield of 6 months T-bill.
 Currently, this is 8.3%. The SBP provide
refinance to the banks at 7.5% which entails a
subsidy of 0.8%. The spread allowed is 1.5%.
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 Export Refinance: Part I
 It is given on pre- as well as post-shipment basis
to finance the eligible commodities.
 It covers to the extent of 100% of the L/C.
 Available for Direct Exporters (180 days)
Indirect Exporters (120 days)
 Requisites: shipment / delivery of eligible goods
by DE /IDE.
 Exports on consignment sale basis do not qualify
for concessionary finance facility.

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Contd….Export Refinance: Part I
 Scheme is available for:
 Value added commodities except those
mentioned in “Negative List”;
 Direct Exporters (DE)

 Indirect Exporters (IDE);

 Small, Medium and Emerging Exporters (who

reports exported upto equivalent of US $ 2.5
Million in preceding year);
 Trading Companies;

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 Documents Required
 Direct Exporters:
 Application /Undertaking
 Demand Promissory Note

 Copy of Export Order/LC

 Indirect Exporters:
 Application/Undertaking
 Inland Letter of Credit / Standardized Purchase Order
showing the supply of inputs and the amount involved
by the Indirect Exporter to execute the export order.
 Demand Promissory Note
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 Bank Procedure
 This is not complicated. For Part-I, the exporter presents
the irrevocable L/C to his bank and finance is sanctioned
within days.
 For Part-II, the exporter has already a SBP verified export
performance (this is done within a week, if not verified).
Finance is sanctioned within days.
 However, The credit worthiness of client may be verified
by bank at discretion depending on the following factors:
Management Capability of the Relationship with other
borrower financial institutions
Market Reputation of the borrower. Security Analysis
Customers profitability Past Track Record.
Risk Analysis / Sensitivity Industry Trade Outlook.
Analysis.
Financial condition / health.
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 Export Refinance: Part II
 Under Part-II, an exporter may avail the export
finance limit, based on his last year’s export
performance in respect of eligible commodities.
The limit is available on revolving basis.
 Annual revolving limit based on half of the
previous year export performance in respect of
eligible commodities
 Available to Direct Exporters but not to Indirect
Exporters
 Monitoring of performance through EF-1
Statement
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 Requisite Documents
 Duplicate of EE-1, showing exports made in
previous year under both parts of eligible items
 Demand Promissory Note
 Undertaking

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 Procedure for EFS
 Interested exporter can apply to any scheduled
bank for the facility on prescribed form available
with banks.
 After the scrutiny of the documents bank can
grant the facility to the applicant .

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 Long Term Financing for the Export
Oriented Projects (LTF-EOP)
 Objective:
 The objective is to encourage technological
upgradation of Export Oriented Projects
(EOPs) by provision of finance for import of
machinery; and,
 Finance Export Oriented Projects (EOPs) for
incentives announced by the government
under in Trade Policy 2003-04:
 Under LTF, banks/DFIs to provide financing
facilities to the eligible borrowers / projects for
the import of plant, machinery, equipments and
accessories thereof (not manufactured locally).
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Contd….LTF-EOP
 Preference for provision of financing to SME
sector. At least 50% of the amount shall be
utilized for financing to borrowers under SME
sector .
 The borrower shall be required to deposit the
required equity before opening of L/C into an
“Escrow Account” with bank providing the
facility under the Scheme.
 The facility shall not be admissible in case of
machinery already imported as also for
commercial importers or trading houses etc. or for
establishment / BMR of new projects in spinning /
weaving sectors in the Textile Group.
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 Eligibility Criteria
 The projects/units which export at least 50% of
their annual production directly or indirectly.
 Borrowers having export overdue bills of more
than 365 days shall not be entitled for the scheme.
 New entities having no previous export, the
sponsoring directors/partners/sole proprietor
must have export related performance at their
credit either as an employee or partner or paid
director of any other existing exporting entity in
the relevant field.
 Financing bank / DFI shall have discretion to
evaluate and decide about the potential of the
borrowing entity to export.
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 Terms & Conditions
 The financing is available on C&F basis and is
considered by banks at a maximum debt/equity
ratio of 80:20. The financing bank can ask for
higher contribution of equity from the borrowers.
 Sponsor is required to contribute his equity share
in an Escrow Account as a subordinated loan to
the borrowing company, which shall remain
subordinated to the bank for the entire period for
the loan.
 The loan shall be repayable in a maximum period
of 7.5 years including a maximum grace period
of 1.5 year.
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Contd….Terms & Conditions
 The borrower shall be under obligation to make
repayment of the facilities in equal half yearly or
quarterly installments.

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 Availability of Funds
 The financing is provided on first-come-first
served basis within limits allocated by SBP.
 The cost of Insurance, transit insurance and other
import incidentals etc shall be borne by the
borrower.
 There will be no maximum limit for
borrowing by the prospective entrepreneurs
under this Scheme.
 In case of large financing requirements i.e. over
Rs. 300 million, it would be prudent for banks /
DFIs to provide the facilities under consortium
arrangements to diversify risk 16
 Sanction of Loan
 This is preceded by verification of credit reports
on suppliers of machinery/plant etc as is also
required.
 This process also includes appraisal of the
manufacturer/supplier prepared by the technical
staff of the Banks/DFIs on the basis of the
information available from the existing users
of the machinery supplied by the same
manufacturers/suppliers.
 Sanction is linked to risk profile of borrower.
 The Bank/DFI shall not, take more than two
months to evaluate the request of the borrower.
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 Disbursement of Loan
 Disbursement is released by financing bank / DFI
against LC after ensuring that all formalities have
been completed in accordance with the terms of
agreement between the supplier and the
purchaser of the machinery (borrowers).

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Repayment of Finance / Refinance
 Where financing is availed for a maximum period
of 7.5 years the repayment of loan is to be made
in 12 equal half yearly or 24 equal quarterly
installments, commencing after a grace period
of 1.5 years;
 If the financing is availed for a maximum period
of 5 years, the repayment is to be made in 8 equal
half yearly installments or 16 equal quarterly
installments, commencing after a grace period of
1 year.
 For financing availed for 3 years, repayment
shall be made in 5 equal half yearly installments
or 10 equal quarterly installments, commencing
after a grace period of 6 months. 19
Contd….Repayment of Finance / Refinance
 For financing is availed for 2 years, repayment is
to be made in 4 equal half yearly or 8 equal
quarterly installments without any grace period.
 The banks/DFIs shall not take more than two
months to examine the feasibility of any project
where finance is required.
 Bank Procedure
 This is not complicated. For Part-I, the exporter presents
the irrevocable L/C to his bank and finance is sanctioned
within days.
 For Part-II, the exporter has already a SBP verified
export performance (this is done within a week, if not
verified). Finance is sanctioned within days.
 However, The credit worthiness of client may be verified
by bank at discretion depending on the following factors:
Management Capability of the Relationship with other
borrower financial institutions
Market Reputation of the borrower. Security Analysis
Customers profitability Past Track Record.
Risk Analysis / Sensitivity Industry Trade Outlook.
Analysis.
Financial condition / health.
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 LMM Scheme
 Finances are made available for purchase of the
locally manufactured machinery to the investors /
industry for their projects by the approved DFIs
and commercial banks.
 While the facility is sanctioned to the purchaser,
responsible to repay funds so disbursed, the
finance is provided to manufacturer.
 It is ensured that appropriate debt equity ratio and
other Prudential Regulations are observed in all
cases.
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 LMM Scheme: Procedure
 Finances are made available for purchase of the
locally manufactured machinery to the investors /
industry for their projects by the approved DFIs
and commercial banks.
 Competitive Prices: Selection of machinery is
done on competitive price basis by obtaining 3
quotations/bids from manufacturers.
 Approval of quotations: The quotations/bids are to
be approved on price competitiveness.
 In case of acceptance of quotations other than
lowest one, Banks should exercise special care.
Justifications and specific reasons should be
recorded
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Contd….LMM Scheme: Procedure
 Inspection Report: Banks have to ensure that
manufacturer has the capability of manufacturing
the machinery. For this, Inspection Report on the
manufacturer has to be prepared by the Bank after
conducting inspection facilities of manufacturers.
 The reports contain information on manufacturing
capability of machinery involved, adequacy of
technical personnel, their know-how, design
facilities and the manufacturers' previous
experience.
 There is no maximum limit for borrowing. If the
borrowing demands exceed Rs. 300 million it is
provided through consortium financing.
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Contd….LMM Scheme: Procedure
 The facility is be available only to the local content
of machinery. Where this value falls below 20%, it
shall not qualify for the financing facilities.
 Banks have to ensure that the machinery being
manufactured is supported with a valid contract for
supply and the buyer has the capability to install,
operate and produce desired results.
 The repayment period ranges from six months to
two years for the manufacturers and up to a
maximum of seven-and-a-half years for the
purchasers of LMM.
 Financing facilities under the scheme are not
available for trading purposes.
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 Reimbursement by the SBP
 SBP will reimburse the amount disbursed by
banks. It will sanction a refinance limit to
individual banks.
 The banks can receive refinance upto 100% of
the finance which it provides for purchase of
machinery.
 Application for this is submitted to the Chief
Manager, State Bank of Pakistan, Islamabad.
 Banks deposit the recoveries realized by them
with the SBP within 3 days.
 The banks are not allowed to take more than
one month to examine the feasibility of any
project seeking financial facilities.
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Contd….Reimbursement by the SBP
 The bank has to decide about approval or
disapproval of the borrowers’ request within 60
days.

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 Eligible Industries
 The list of eligible industries includes:
Fisheries /dairy and livestock products; light
engineering; marble and granite; gems &
jewellery; leather manufacturers & garments;
boat manufacturing; local vendors manufacturing
parts of automobile; powerlooms/auto/ airjet for
powerloom clusters in different parts of Pakistan;
units to be set up in the ceramic clusters being
established in the country; equipments for cutting
and polishing marble & granite and
manufacturing of handicrafts.

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Contd….Eligible Industries
 Financing under the scheme can also be availed
of for setting up of units for preservations /
packaging of fruits and vegetables; wooden
furniture & handicrafts; machinery for knitwear
and hosiery industries; machinery/equipments
used in the thermal/hydro power projects;
machinery for setting up of flour mills (for SMEs
only); machinery for rice husking units (only in
the SME sector); agriculture equipments
including water sprinklers; transport equipments
excluding cars but including commercial vehicles
for business use, manufactured/assembled in
Pakistan with at least 50% deletion; and
machinery for manufacturing of the pulp board.
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