1 SBP Export Finance Scheme Refinance Scheme Unit

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SBP Export Finance Scheme Refinance Scheme Unit. SBP Banking Services Corporation Faisalabad. Prepared By, Muhammad Maqsood Sr. Officer

Introduction & Transitional Overview • The scheme was launched in March 1973 known as “Refinance Scheme for Non Traditional and Newly Emerging Exports” with a view to provide adequate bank credit for exports of non traditional and newly emerging commodities on attractive terms. • This was 90 days (Pre-shipment) facility with a 90 days Rollover Option. • May 1976 the scheme was renewed as “Refinance Scheme for Exports” to include all exports of manufactured goods other than raw cotton, rice wool and hides and skins for concessionary finance. • October, 1977 the scope of scheme was further enhanced to introduce a new feature of performance based finance under Part-II of the scheme that was re-named as “Export Finance Scheme (EFS)”.

Introduction & Transitional Overview • 1998, Refinance facility was also extended to Indirect Exporters subject to fulfillment of requirements. • The Export Finance Scheme has gone into major modifications in the years 1985, 1998, and 2001. • 2001, as a part of liberalization of banking sector and to address the issue of excessive documentation, processing of Part-I cases was entrusted to banks. • July 2007, financing/ refinancing was introduced on a ratio as: Bank : SBP 30: 70 • November 2008, 100% refinancing by SBP. • February 2009, extension of 90 days was provided under Part-I. subject to showing performance 117% of borrowed amount.

SBP Export Refinance Scheme Legal Framework • SBP ACT-1956 Section 17(2 a) and 17(4 c) authorize SBP to carry on and transact the several kinds of business including purchase, sale & rediscount of bills of exchange and promissory notes maturing within 180 days as well as advances or loans to commercial banks. • The extension of advances to commercial banks under the scheme is made out of the “Export Credit Fund” established under section 17 C(2 a) of SBP ACT 1956. • Section 17(6 B) also authorizes SBP to provide refinance to commercial banks and financial institutions for agricultural or industrial purposes on other such terms and conditions as the Central Board of SBP may decide from time to time. 5

Objectives of EFS Scope & Objective of EFS • • • Short term Financing Facility to Exporters Uplift of exports of Pakistan Concessionary finance to encourage/motivate exporters Diversification of Exports Value added & finished products Manufactured goods Expansion & spreading out new markets Growth of economy- Rise in GDP Inflow of FOREX-International trade Development Finance Support Department 6

Negative List Rationale of Negative List • • • Raw Cotton Crude Vegetable Materials Hides & Skins All metals/ ores Jewelry exported under entrustment Scheme Works of Arts & Antique Wood in rough & squared Wool & Animal hair Stone, sand & gravels Petroleum Products All Grains including Grain Floor • • • Cotton Yarn all types Crude Animal Materials Leather wet blue Fertilizer Crude Mutton and Beef other than frozen & preserved Fur Skins Bleach & Un-bleach cloth Live Animals Waste & Scrape of all kinds Crude vegetable materials Crude Minerals Development Finance Support Department 7

Salient Features of EFS Categorization of EFS: A. EFS- Part-I Transactions Oriented B. EFS Part-II Performance Oriented 8

Operational Mechanism EFS- Part-I ( Transactions oriented) 1. Pre-Shipment 2. Post Shipment Development Finance Support Department 9

Operational Mechanism Pre-shipment – Process Pre-Shipment: § Exporter having received the Firm Export Order / Letter of Credit approaches the commercial bank. § Commercial bank, if satisfied with the documents, provides pre-shipment finance to the exporter to manufacture the order. § Bank then approaches SBP BSC for the Refinance. Development Finance Support Department 10

Operational Mechanism Pre-shipment Pre-Shipment: Exporter after availing the finance has to: 1. Make the shipment within 180 days of obtaining the finance. 2. Get the export proceeds realized within 210 days of date of shipment Development Finance Support Department 11

Operational Mechanism Post-Shipment - Process Post Shipment: § Exporter having shipped the goods approaches commercial bank for short term finance against its shipment to bridge the gap between his immediate financial needs and export proceeds realization. § Commercial bank, if satisfied with the documents, provides Post-shipment finance to the exporter against the shipment already made. § Bank then approaches SBP BSC for the Refinance. Development Finance Support Department 12

Operational Mechanism Post-shipment: § Exporter has already shipped the goods § Exporter has to get the proceeds realized within 210 days of date of shipment Development Finance Support Department 13

Operational Mechanism Processing at SBPBSC: § Step I: - Bank will disburse financing to the eligible exporter against in order requisite documents. Bank will approach the concerned SBP BSC Office to obtain refinance. § Step II: - The bank will submit Form D and DP Note (executed by the exporter concerned) to SBP BSC (Bank) to claim refinance. § Step III: - If documents are in order, SBP BSC will provide refinance within 48 hours. Development Finance Support Department 14

Operational Mechanism Repayment of Finance: § § On Maturity of Loan. Earlier, if export proceeds are realized before the expiry of the tenor of the loan. ü ü Banks have to repay refinance within 3 working days of the negotiation / realization of export proceeds, failing which punitive action will be taken as per rules. If on maturity of the loan, borrower does not pay to the bank, bank will settle SBP BSC Bank refinance loan on due date in any case. Development Finance Support Department 15

Operational Mechanism EFS Part-II: Performance oriented 16

Operational Mechanism Limit Allocation: § A revolving finance limit equivalent to 50% of export proceeds realized during the previous year is fixed on annual basis. § Maximum period of loan is 180 days § Export performance is matched annually against total loan availed during the year on daily product basis 17

Operational Mechanism Procedure of Entitlement: § The bank shall allow a limit to the exporter on the above basis and send all copies of Form EE‐ 1 in respect of each case to Foreign Exchange Operations Department (FEOD) of the respective office of SBP BSC for verification of realization of proceeds. § After verifying EE-1 , the concerned FEOD shall return the original and duplicate copies to the concerned bank and retain the third. § Exporter may obtain finance limit from more than one bank to the extent of 50% of exports realized through each bank. 18

Operational Mechanism Monitoring of Export Performance: § Performance of the exporter shall be watched by the bank concerned by obtaining Form EF‐ 1 from concerned exporter. § Form EF‐ 1 is submitted in triplicate to FEOD for verification after close of financial year. § After verification of these Forms by FEOD, the original and duplicate copies shall be returned to the bank concerned, the third copy retained by FEOD. § The duplicate copy shall be submitted by the bank to the respective office of SBP BSC by 31 st August. 19

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Fines under Part-I of EFS Nature of Irregularity Rate of Fine Non Shipment. Paisa 37 per day per Rs. 1000/- Short/ Delayed Shipment. Paisa 28 per day per Rs. 1000/- Late adjustment of funds Paisa 42 per day per Rs. 1000/- Delayed submission of shipping documents by the exporters. Rs. 2000/- for default and Rs. 100/- for each day of default. Fine for wrong/ incorrect reporting/ entry Rs. 100/- per such wrong/ incorrect reported entry. Fine for non submission of EPRC. Rs. 20, 000/-, 25% of which i. e. , Rs. 5000/- would be non refundable even on late submission of EPRC. Fine for irregular availment of pre-shipment /post-shipment export finance facility by the exporter. In all pre-shipment/post-shipment loans cases where it has been noticed that shipment(s) was made before/after (in case of post-shipment) disbursement of finance , the shipment has to be treated as in order subject to recovery of fine @ Rs. 2000/- and Rs. 100/per day for the period for which the refinance loan remains outstanding on the part of bank or up to the date of factual position conveyed to concerned SBP BSC Office, whichever is earlier.

• LTFF 23

Introduction & Transitional Overview Long Term Financing Facility (LTFF) For Plant Machinery • The scheme was launched in December, 2007 for long term financing facility to promote export led industrial grow the country. The facility will provide necessary finance to exporters for adoption of new technologies and modernizing plant and machinery in line with the international competitive environment.

Salient Features of LTFF A. Scope: Exporters (including SMEs) can avail financing under the facility through participating financing institutions (PFIs) for new imported and locally manufactured plant and machinery. The Facility will be available to the export oriented projects with at least 50% of their sales constituting exports or if their annual exports are equivalent to US$ 5 million, which ever is lower. Financing shall be available to the extent of the C&F value of the imported new plant and machinery and ex-factory/showroom price of the new locally manufactured machinery. B. Eligible Financial Institutions: The commercial banks including Islamic Banks and DFIs approved as PFIs will provide LTFF. 25

Salient Features of LTFF C. Period of Financing: The loans availed under the facility shall be repayable within a maximum period of 10 years including a maximum grace period of 2 years from availment date. However, where financing facilities have been provided for period of upto 5 years maximum grace period shall not exceed one year. The repayment of financing (principal amount of loan) shall be made by the borrowers in equal half yearly / quarterly installments depending upon the tenure for which the facility is availed. Mark. Up / service charges shall be made quarterly.

Salient Features of LTFF D. Provision of refinance: (i) SBP shall allocate an overall yearly limit under the facility which shall be sanctioned to individual PFIs on first come first serve basis in line with the international criteria developed by the State Bank. (ii) Refinance under the limit shall be provided to the PFIs on service charge basis which shall be announced on yearly basis effective from 1 st July each year. 27

Salient Features of LTFF E. Disbursement of Refinance: : SBP BSC shall provide refinance within two working days from the date of receipt of request on submission of duly filled in prescribe documents. F. Fines for Default: (i) In case of violation of the terms & conditions laid down in the facility the State Bank shall reserve right to recover the amount of refinance granted alongwith fine at the rate of paisa 60 per day per Rs 1, 000/-. (ii) Late adjustment fine paisa 60 per day per Rs 1, 000/-. 28

Sectors eligible for financing under the Facility (LTFF) Core Categories: 1. Textile Garments i. e. Fabrics, Garments, Made up, Towels and Art silk & synthetic textiles. 2. Rice Processing 3. Leather & leather products 4. Sports goods 5. Carpets & Wools 6. Surgical Instruments 29

Sectors eligible for financing under the Facility (LTFF) Developmental Categories: 1. Fishiries 2. Poultry & Meat 3. Fruits/Vegetable & processing, cereal. 4. I. T. –Software & Services. 5. Marble & Granite 6. Gems & jewlllery 7. Engineering goods. 30

Sectors eligible for financing under the Facility (LTFF) Subsequently eligible Categories: 1. Import of generators / captive power plants. 2. Ethanol 3. Imported second hand machinery not more than three years old will qualify in March, 2009. 4. Glass sector 5. Dairy sector 6. Preservations of food items. 7. Service Sector (LTFF-SS) i-Transportation ii- Computer & information Technology. 31

Salient Features of LTFF Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 3 years 6. 00 % 1. 50 % 7. 50 % Over 3 years and up to 5 years 5. 00 % 2. 50 % 7. 50 % Over 5 years and up to 10 years 4. 50 % 3. 00 % 7. 50 % 32

• FFSAP 33

Introduction & Transitional Overview Financing Facility for Storage of Agricultureal Produce (FFSAP) • The scheme was launched in June, 2010 in order to develop the agricultural produce marketing and enhance storage capacity. SBP has decided to float a Scheme (FFSAP) to encourage Private Sector to establish Silos, Warehouses and Cold Storages.

Salient Features of FFSAP A. Scope: i- Financing shall be available on long term basis for establishment, expansion and balancing, modernization & replacement (BMR) of steal/metal/concrete Silos, Warehouses & Cold Storage facilities for storing agricultural produce. ii- Financing shall be available for: a- Purchase of new imported & locally manufactured plant & machinery, equipment and accessories thereof, to be used in steal/metal/concrete Silos, Warehouses & Cold Storages. b- Purchase of new generators. c- Upto 65% cost of entire civil works. 35

Salient Features of FFSAP B. Tenor and size of Loans: i Financing shall be available for a maximum period of seven years including a maximum grace period of six months. ii In case financing is provided on staggered basis, maximum period of financing shall start from the date of disbursement of 1 st installment. iii Maximum financing of banks/ DFIs to a single project shall not exceed Rs. 500 million. 36

Salient Features of FFSAP C. The repayment of financing (principal amount of loan) shall be made by the borrowers in equal half yearly / quarterly installments depending upon the tenure for which the facility is availed. Mark. Up / service charges shall be made quarterly. D. Fines for Default: (i) In case of violation of the terms & conditions laid down in the facility the State Bank shall reserve right to recover the amount of refinance granted alongwith fine at the rate of paisa 60 per day per Rs 1, 000/-. (ii) Late adjustment fine paisa 60 per day per Rs 1, 000/-. 37

Salient Features of FFSAP Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 3 years 5. 00 % 2. 50 % 7. 50 % Over 3 years and up to 5 years 4. 75 % 2. 75 % 7. 50 % Over 5 years and up to 7 years 4. 00 % 3. 50 % 7. 50 % 38

• Scheme for Financing Power Plants Using Renewable Energy 39

Introduction & Transitional Overview Scheme for Financing Power Plants Using Renewable Energy • The scheme was launched in December, 2009 in order to meet the growing electricity demand to promote renewable energy projects in the country.

Salient Features of Scheme A. Eligibility Criteria: Scope: i- Financing shall be available to the prospective sponsors desirous of setting up of Power Projects with a capacity of up to 20 MW, who have completed prescribed requirements of Alternative Energy Development Board (AEDP). ii- Financing shall be available only for establishing new power plants of up to 20 MW installed capacity using alternative / renewable energy sources (wind, hydel, biogas, biofuels, bagasse cogeneration, solar power and geothermal as fuel) iii- For purchase of new imported and locally manufactured plant, machinery and equipment. iv- Against LCs established from the date of issuance of 41 this circular and up to June 30, 2016.

Salient Features of Scheme B. Tenor and size of Loans: i Financing shall be available for a maximum period of ten years including a maximum grace period of 2 years. ii In case financing is provided on staggered basis, maximum period of financing shall start from the date of disbursement of 1 st installment. iii Maximum financing of banks/ DFIs to a single project shall not exceed Rs. 3 billion. 42

Salient Features of Scheme C. The repayment of financing (principal amount of loan) shall be made by the borrowers in equal half yearly / quarterly installments depending upon the tenure for which the facility is availed. Mark. Up / service charges shall be made quarterly. D. Fines for Default: (i) In case of violation of the terms & conditions laid down in the facility the State Bank shall reserve right to recover the amount of refinance granted alongwith fine at the rate of paisa 60 per day per Rs 1, 000/-. (ii) Late adjustment fine paisa 60 per day per Rs 1, 000/-. 43

Salient Features of Scheme Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 5 years 5. 00 % 2. 50 % 7. 50 % Over 5 years and up to 10 years 4. 50 % 3. 00 % 7. 50 % 44

• Refinance Facility for Modernization of Small and Medium Enterprises (SMEs) 45

Introduction & Transitional Overview Refinance Facility for Modernization of Small and Medium Enterprises (SMEs) • The scheme was launched in November, 2009.

Salient Features of Modernization of SMEs A. Scope and Eligibility Criteria: i- Financing shall be available only for Balancing, Modernization and Replacement (BMR) of existing units / projects. ii- Only SME borrowers, as defined in Prudential Regulations for SMEs, shall be eligible to avail financing facilities under the scheme. iii- For import / purchase of new Rice Husking Machines, Paddy Driers and Parboiling Plants. 47

Salient Features of Modernization of SMEs B. Period of Financing and Grace Period: Financing shall be available for a maximum period of seven years including a maximum grace period of six months. C. Participants: Financing facilities shall be provided through all commercial banks and DFIs. 48

Salient Features of Modernization of SMEseme D. The repayment of financing (principal amount of loan) shall be made by the borrowers in equal half yearly / quarterly installments depending upon the tenure for which the facility is availed. Mark. Up / service charges shall be made quarterly. E. Fines for Default: (i) In case of violation of the terms & conditions laid down in the facility the State Bank shall reserve right to recover the amount of refinance granted alongwith fine at the rate of paisa 60 per day per Rs 1, 000/-. (ii) Late adjustment fine paisa 60 per day per Rs 1, 000/-. 49

Salient Features of Modernization of SMEseme Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 3 years 5. 00 % 2. 00 % 7. 50 % Over 3 years and up to 5 years 4. 75 % 2. 75 % 7. 50 % Over 5 years and up to 7 years 4. 50 % 3. 00 % 7. 50 % 50

• Refinance Scheme for Revival of SMEs & Agricultural Activities in Flood Affected Areas of 2014. 51

Introduction & Transitional Overview Refinance Scheme for Revival of SMEs & Agri. Activities In Flood Affected Areas of 2014. • The scheme was launched in October, 2014. in order to revive agricultural activities and facilitate the flow of fresh credit in the Flood Affected Areas, State Bank of Pakistan is introducing a concessional financing scheme through banks for agri. Production/working capital finance to farmers and SMEs in districts affected by flood of 2014, as reported by National Disaster Management Authority. • Under the scheme financing will be provided at affordable/concessional mark-up rates through banks/DFIs for which Rs. 10 billion has been allocated.

Salient Features of Scheme 1. Agricultural Production Loans to Farmers. A. Scope and Eligibility Criteria: i- Agricultural credit shall mean “Farm Credit” and “Non. Farm Credit” for meeting production and working capital requirements, as defined under the Prudential Regulations for Agriculture Financing. ii- All categories of farmers (owners, owner-cum-tenants and tenants) of the specified areas will be eligible for agricultural loans under the scheme. 53

Salient Features of Scheme A. Scope and Eligibility Criteria: iii- Bank shall provide agri. loans to farmers as per their lending policy approved by their Board of Directors and SBP Rules & Regulations. iv- Banks are encouraged to arrange for insurance of the loans provided under the scheme and Mandatory Crop Loan Insurance for five major crops viz. wheat, rice, cotton, sugarcane and maize to avoid risk of losses due to natural calamities. 54

Salient Features of Scheme B. Tenor and Size of Loans. i- Tenor of the crop production loans and repayment of the principal amount will be bases on the cropping cycle up-to a maximum period of one year. ii- The borrowing limit of farmer shall be fixed by the bank keeping in view credit requirements, cash flows, repayment capacity, risk profile of the borrower, etc. 55

Salient Features of Scheme 1. Short Term Loans to the SMEs A. Scope and Eligibility Criteria: i- Banks may provide Short-Term Loans to SME borrowers, as defined under the Prudential Regulations for SMEs in Flood Affected Districts. ii- Bank shall provide financing facilities as per their lending policy approved by their Board of Directors and SBP Rules & Regulation 56

Salient Features of Scheme B. Tenor and Size of Loans. i- Bank shall provide short term loans for working capital requirements of SMEs for a maximum period of one year. ii- The borrowing limit of SMEs shall be fixed by the bank keeping in view credit requirements, cash flows, repayment capacity, risk profile of the borrower, etc. 57

Salient Features of Scheme D. Principal amount of loans under the scheme shall have to be repaid on agreed date between bank and the borrower within a maximum period of one year. Markup / service charges shall be made quarterly in case of financing to SMEs. However, mark up on agri. Loans shall be paid on half yearly basis. E. Fines for Default: (i) In case of violation of the terms & conditions laid down in the facility the State Bank shall reserve right to recover the amount of refinance granted alongwith fine at the rate of paisa 60 per day per Rs 1, 000/-. (ii) Late adjustment fine paisa 60 per day per Rs 1, 000/-. 58

Salient Features of Scheme Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 1 year 4. 50 % 3. 00 % 7. 50 % 59

• Export Finance Facility for Locally Manufactured Machinery (EFF-LMM) 60

Introduction & Transitional Overview Export Finance Facility for Locally Manufactured Machinery (EFFLMM) • The scheme was launched in January, 2013. With a view to promote the export of locally manufactured plant & machinery , The State Bank of Pakistan has decided to introduce the Export Finance Facility for locally manufactured machinery (EFF-LMM). The exporters can avail long term financing facilities through banks for export of eligible plant & machinery and engineering goods under the facility.

Introduction & Transitional Overview • Financing facilities shall be available both at pre-shipment and post-shipment stages. • Bank’s spread is being increased to encourage them to extend financing to the non-traditional exporters i. e. Engineering Goods.

Salient Features of Scheme Tenor and Size of Loans. i- Financing facilities shall be available for a maximum period of five years. 63

Salient Features of Scheme Rate of service charges / mark up Tenor Rate of Refinance Bank’s Spred End User’s Rate Up to 3 years 5. 50 % 2. 00 % 7. 50 % Over 3 years and up to 5 years 5. 00 % 2. 50 % 7. 50 % 64

Thank You! 65