State Bank of Pakistan Extends Current Limits on Finance Schemes
State Bank of Pakistan Extends Current Limits on Finance Schemes
On June 30th, 2012, the limits for three financial schemes were set to expire. The State Bank of Pakistan (SBP), however, has now decided to extend these limits to cover the 2012-13 financial year. The limits affect three schemes. These are the Export Finance Scheme or EFS, the Long Time Financing Facility or LTFF, and the Islamic Export Refinance Scheme or IERS. The State Bank of Pakistan is set to determine new limits for such schemes, but as of yet, has not done so.
The news came in the SBP’s I H & SMEFD newsletter (issue eight for those who would like to read a copy). Under existing rules exporters using the EFS or IERS schemes must complete the EE-1 statement for each fiscal year. The current statement covers the 2011-12 year. This form should be checked and verified by the Foreign Exchange Operations Department of the SBP. This should be done by the end of August at the latest.
For banks, the problem with the current set up and the expiration of the current financial scheme limits by the end of the month, is that they would not be able to work out the entitlements as required for Part-2 of the scheme, which should come into effect in the fiscal year 2012-13.
To get round this problem, the SBP has decided that the present limits will be extended until the end of August, 2012. This would allow exporters to continue receiving funding while also finalising their financial statements for the previous financial year. Such businesses will have until the 29th of June to submit requests for limits. Using this data the SBP will set the new limits for the 2012-13 financial year. Secondly, it is believed that the changes to the system will allow the exporters to make the necessary adjustments to their borrowings.
Long Term Financing Facility
The LTFF scheme was designed to help promote industrial growth within Pakistan. The overall aim of the funding was to give exporters the necessary money to purchase better technologies to help their businesses. These developments can help the manufacturing, exporting, developmental and administrative processes. The technology it buys with the funding can be either locally produced or imported for the express purpose of developing the company.
In order to qualify, the company needs to gain at least 50 percent of its revenues from exports. This means a company can continue to diversify its revenue streams so long as over half of its income comes from exporting goods out of Pakistan. This means the company can continue to sell domestically and to develop services to go alongside its products in the domestic market. The assurances provided by the LTFF scheme will help develop Pakistani export businesses and the economy as a whole. By ensuring a supply of credit, the long term finances of a well-run company improve and this makes the company more appealing on the stock market. As a result, online share dealing will look favourably on stable companies due to the SBP’s extended rules.
Export Finance Scheme
The Export Finance Scheme or EFS has been in effect since 1978. This ensures that banks pass on SBP financing to exporting companies. Unlike the LTFF, this includes indirect exporters as well as direct ones. Approvals of finance are subject to collateral requirements and are decided by the lending bank and not the SBP. Limits set by the SBP and the lending banks are determined by the company’s performance the previous year. This is why the extended limits on financing and financial year reports are so important. The financial rate of the scheme is determined by the company’s average 6 month yield and is revised on a month by month basis.
Islamic Export Refinance Scheme
The Islamic Export Refinance Scheme, shortened to IERS, became necessary after the rise of specialised Islamic banks in Pakistan. This scheme allows those exporters using a commercial Islamic bank rather than a traditional commercial bank, to make use of facilities and schemes run by the SBP. IERS financing has to be approved by the Islamic bank’s Sharia board and therefore must be compliant with Islamic Law. Credit is determined by the value and revenue of a company multiplied by a factor of 1.5. Credit rates are determined by the Sharia board, but cannot exceed those of the SBP.
Janine Arby is a finance writer from London who specialises in the Asian region for a number of UK finance journals. She became interested in the region when she saw the huge potential for growth and trade whilst travelling there in her early 20s.
