Circulars/Notifications - Banking Policy Department  
 BPD Circular No. 14 of 2004
May 18, 2004 

The Presidents / CEOs, All Banks/DFIs

Dear Sirs/Madam,


Scheme for Long Term Financing of Export Oriented Projects (LTF-EOP)

Banks are aware that in recent years Pakistani exporters have been striving to increase the value and quantity of their exports to existing markets in addition to looking for new markets. On an overall basis, banks have provided adequate funds to such entrepreneurs in different sub sectors of the textile sector. This is being done under “Textile Vision-2005’ for the import of machinery to meet growing production requirements. At the same time, financing facilities for projects relating to the Small and Medium Enterprises (SME) sector are less than adequate. This makes it difficult for such entrepreneurs to avail medium to long term financing facilities at competitive rates.

2. To augment the present efforts of banks, and to help exporters in import of machinery, up-grading existing technology and financing facilities availed at competitive rates, the State Bank of Pakistan has designed a new scheme. The new scheme, styled the “Scheme for Long Term Financing of Export Oriented Projects (LTF-EOP)” will allow eligible financial institutions to provide financing facilities to borrowers on attractive terms and conditions for import of machinery, plant, equipment and accessories thereof (not manufactured locally) by export-oriented units. Facilities under the Scheme shall not be admissible a) as a reimbursement in respect of the machinery already imported by the commercial importer or by the sponsors in respect of existing or ongoing project, b) commercial importers or trading houses involved in the commercial import of the machinery, equipment and accessories thereof c) for plant, machinery, equipment or accessories thereof for setting up of new projects or for BMR of the existing projects in the spinning and weaving sector of the Textile Group and d) for import of such machinery, otherwise eligible under the said Scheme, for which LC has already been established.

3. Financial institutions are aware that the Federal Government in its Trade Policy for 2003-04 had announced a number of incentives for the establishment of projects with a view to improve the competitiveness and efficiency of the industrial sector in Pakistan. Under these incentives, the Ministry of Commerce / Export Promotion Bureau was assigned the task of selecting certain projects for the provision of consultancy, up-gradation facilities etc., on a cost sharing basis. The linkage of the scheme, with the incentives announced under the current trade policy is another important feature, as this linkage is expected to bring synergy to the efforts of all stakeholders.

4. The State Bank shall provide finance to the banks on service charge basis depending upon the weighted average yields on 12 months T-Bills and 3 & 5 years PIBs. This would be keeping in view the period for which refinance shall be availed by them against disbursement made for equivalent tenures. The following rates have been fixed under the scheme for the period upto 28-02-2005:-

Tenor
Rate of refinancing to the banks/DFIs
For borrowers requiring financing upto 2 years.
2.0 % p.a.
For borrowers requiring financing over two years but upto 3 years.
3.8% p.a.
For borrowers requiring financing for period over three years and upto maximum period prescribed under the scheme i.e. upto 7-1/2 years
4.9% p.a.

The banks shall be entitled to earn a maximum spread of 3% on financing provided by them.

5. While the credit decision under the Scheme shall primarily be made by the banks/DFIs, they are expected to give preference for meeting the financing needs of the borrowers / projects availing different incentives announced by the government under the Trade Policy for 2003-04. This preference shall be to projects, so selected, that have shown more visible efforts at being implemented according to their feasibility. Requirements for machinery import would be specific and aligned to these projects, making it convenient for banks to appraise the project. Likewise, the banks/DFIs shall also ensure that financing needs of the borrowers from the SME sector are given preference as 50% of the funds that the State Bank shall allocate to each bank/DFI, shall be utilised for meeting the financing needs of borrowers from the SME sector. The Scheme is attached as Annexure to this circular.

6. Banks/DFIs desirous to provide financing facilities to their constituents are advised to please approach the undersigned for determining their eligibility for financing under the Scheme as well as the amount which they project to disburse during 2004-05 under the Scheme. Banks/DFIs are also advised to circulate the contents of this circular and the details of the Scheme to their field offices with the instructions to disseminate the information to the prospective borrowers. This Circular as well as details of the Scheme can also be downloaded from the website of the State Bank using the following link: -

http://www.sbp.org.pk/bpd/index.htm.

Please acknowledge receipt.

Yours faithfully,



(Muhammad Kamran Shehzad)
Director

Enclose: As above.

 

       
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