In order to promote the exports of Services Sector, the State Bank of Pakistan has decided to introduce a new Long Term Financing Facility for the Services Sector. The new Facility will provide necessary finance to the exporters of services sector for adoption of new technologies and enhance their capacities to perform better services in line with the international competitive environment. The salient features of this new facility are as under:

1.     Scope and Eligibility:

    a) Under this facility, banks/DFIs may provide long term local currency finance for the new imported and locally manufactured capital goods (excluding land & building) to be used in following Export Oriented Services Sectors:

              i. Transportation
              ii. Computer & Information Technology
              Other Services Sectors as and when included in above list will be circulated separately.

    b) Capital Goods: For the purpose of availing financing under this Facility, capital goods will be only those goods which will be used to produce goods & services and which have economic life for more than one year. However, land & building will not be eligible for availing financing under this Facility.

    c) The facility will be available to the export oriented units / enterprises with at least 50% of their sales constituting exports or if their annual exports are equivalent to US$ 5 million, whichever is lower.

    d) Only those export oriented units / enterprises will be eligible for financing under the Facility which have satisfactory credit track record.

   e) Financing facilities shall be available through banks/DFIs which are already approved as Participating Financial Institutions (PFIs) under SBP’s Long Term Financing Facility (LTFF) for Plant & Machinery.

   f) No separate limits shall be sanctioned under the Facility and refinance will be provided against the Overall Limits sanctioned to banks/DFIs under Long Term Financing Facility (LTFF) for Plant & Machinery. Accordingly, existing PFIs may apply for enhancement of limits after utilization of their existing LTFF Limits. However, PFIs shall at all times remain within the limits allocated to them for disbursements under the facility in a given financial year. Facilities should not be sanctioned in favour of borrowers in anticipation of sanction of limits by the SBP.

   g) Financing under the facility shall be available to the extent of the C&F value of the imported / ex-factory/showroom price of the locally manufactured of new capital goods (excluding land & building) to be acquired by the eligible units / enterprises.

   h) Export oriented SME borrowers (as defined in Prudential Regulations for SMEs), may purchase imported capital goods from the commercial importers or authorized dealers of the foreign manufacturers in Pakistan and authorized suppliers in case of locally manufactured capital goods. While providing facilities under the Facility to SME borrowers the banks/DFIs, however, will ensure that financing under the facility, when taken together with other borrowings, does not exceed the borrowing ceiling fixed for SMEs under the SMEs Prudential Regulations.

2.     Tenor and Size of Loan:

    a) The maximum period for which the financing under the Facility can be availed shall not be more than 10 years including a maximum grace period of 2 years. Where financing is provided for a period of up-to 5 years the grace period shall not be more than one year.

    b) Maximum financing limit to a single unit / enterprise will be Rs 5 billion subject to compliance with per party limits prescribed in respective Prudential Regulations and availability of credit limit from Ministry of Finance, Government of Pakistan in case of Public Sector Enterprises.

3.     Rate of Financing:

    a) Financing to the Export Oriented Units / Enterprises of Services Sector will be available at the rates applicable under SBP’s Long Term Financing Facility (LTFF) for Plant & Machinery.

    b) Financing rates under the Facility prevailing on the date of disbursement of refinance by SBP will be applied.

    c) Current rates of SBP’s Long Term Financing Facility (LTFF) for Plant & Machinery are as under:

Period of financing	Rate of Refinance	Banks/DFIs' Spread	End User's Rate
Up-to 3 years	8.80%	1.50%	10.30%
Over 3 years and upto 5 years	8.40%	2.50%	10.90%
Over 5 years and upto 10 years	8.40%	3.00%	11.40%

4.     Grant of Refinance:

    a) After disbursements of the loan under the facility, the banks/DFIs may approach the concerned offices of SBP-BSC for availing refinance. The State Bank shall provide refinance to each bank/DFI on service charge (mark-up) basis in terms of Section 17 (2) (d) read with section 22 of State Bank of Pakistan Act 1956.

    b) Refinance shall be allowed to the Banks / DFIs by the concerned offices of SBP BSC (Bank) on submission of documents as may be required by State Bank. The documents initially required are attached herewith.

5.     Repayment of the loans:

    a) Principal amount of loans shall be repayable in equal quarterly / half yearly installments after prescribed grace period, if any. However, if a borrower will repay the loan amount or its installment, in part or in full, before the due date(s), the banks/DFIs shall be under obligation to repay the amount(s) so received within three working days to the concerned office of SBP-BSC (Bank) failing which fine for late adjustment of loan will be recovered from the concerned bank/DFI, at the rate specified by the State Bank.

    b) The refinance granted by SBP-BSC offices to the Banks/DFIs shall be recovered on the due dates as reported in the original repayment schedule from the account of the banks/DFIs maintained with the respective office of the SBP BSC (Bank). In case the borrower(s) fails to make repayment of the amount of installment as per the original repayment schedule, the bank/DFI shall be entitled to charge normal rate of mark up on such overdue principal amount besides taking other actions to recover the same as are incidental to such defaults. In no case the liability of banks/DFIs to pay/repay to SBP BSC the principal amount of refinance, or mark up or any other charges or penalty thereon shall be dependent upon the recovery from the borrower nor shall such liability be affected by any default on the part of the borrower.

    c) Mark-up shall be paid on quarterly basis.

6.     General Terms and Conditions:

    a) The cost of insurance, transit insurance, erection and commissioning charges and other incidentals (including transportation charges, in case of locally manufactured machinery) etc; shall not be financed under the facility.

    b) Second-hand capital goods shall not be eligible under the Facility.

    c) Financing shall be available only against Letter of Credits (L/Cs). All LCs (sight as also usance) to be retired after issuance of this Circular shall be eligible for financing.

    d) Banks/DFIs shall provide financing facilities to the prospective borrowers as per their lending policies duly approved by their Board of Directors. Further financing shall be subject to compliance with all rules and regulations including Prudential Regulations as prescribed by the State Bank from time to time.

    e) Banks / DFIs shall ensure that borrowers has fulfilled pre-disbursement formalities, through due diligence as per their own internal arrangements to avoid malpractices and mis-utilization of funds under the Facility.

    f) Disbursements by banks/DFIs should not be made to the borrower directly; instead payments shall be made to the manufacturers / suppliers or foreign seller of the capital goods through import letter of credit as per payment/delivery schedule agreed to between the manufacturer and the purchaser. Likewise payment for the locally manufactured capital goods shall invariably be made through Inland Letter of Credit as per payment/delivery schedule agreed to between the manufacturer and the purchaser.

    g) In case of financing requirements exceeding Rs 300 million, banks/DFIs are encouraged to provide finance under consortium arrangements..

    h) In case of consortium financing, the payment to the importer / supplier / manufacturer shall be made through the leader of the consortium, who shall therefore, be under obligation to certify the share of each member bank/DFI and the amount disbursed by it, to enable the consortium members to avail refinance from State Bank to the extent of their share subsequent to the actual payment made by the consortium leader.

    i) Banks /DFIs shall not take more than two months in evaluating an application for financing under the facility from the date of receipt of complete information from the borrower. Where the request is declined, the bank/DFI will explicitly apprise the reason for rejecting the application to the prospective borrower.

    j) Under the facility, advance payment to the extent of 20% of the C&F value / ex-factory /showroom price can be made in terms of related underlying agreement.

    k) Financing under the Facility shall be checked/verified by SBP’s Banking Inspection Department (BID) during inspection of the banks/DFIs to ensure that the same have been allowed as per the terms and conditions of the Facility .

    l) Facilities for New Units / Enterprises: Banks / DFIs may consider the financing requests of new units / enterprises on the basis of projected exports, keeping in view the parameters defined in Long Term Financing Facility (LTFF) for Plant & Machinery. In case such units /enterprises will not meet the targets of projected export sales fine will be applicable as per scales defined in LTFF in this regard.

    m) Where a bank/DFI considers the requests of their borrowers for rescheduling of loans granted under the Facility, the principal amount of refinance shall only be rescheduled in a way that total tenor of refinancing under the Facility does not exceed maximum period of 10 years from the date of 1st disbursement made by the banks/DFIs. Further, the borrower shall be liable to make payment of mark-up at the rate applicable on the date of such rescheduling, or the original rate whichever is higher.

7.     Fines for Default:

    a) In case of violation of the terms & conditions of the Facility, the SBP shall reserve the right to recover the entire amount of refinance granted to the bank/DFI along-with fine at the rate of Paisa 60 per day per Rs 1000/- or part thereof.

    b) In case, a borrower will make early repayment(s) of the amount of loan / installment(s) and bank/DFI fails to repay the same to concerned office of SBP-BSC within three working days as mentioned in clause 5(a) above, late adjustment fine will be charged from the concerned bank/DFI at the rate of Paisa 60 per day per Rs 1,000 or part thereof.

    c) It may be noted that fine shall be recovered through the bank/DFI who availed refinance under the Facility. Therefore, it will be the responsibility of the bank/DFI to secure its interest in this regard, however, in no case fine imposed on bank/DFI due to its negligence shall be passed on to the borrower. In case, they pass on the fine so recovered from them to the borrower, the bank/DFI shall be under obligation to justify the same to ensure that the fine is not passed on to the borrower merely on the strength of the action of SBP.

8.     The Facility shall be effective from the date of issuance of this Circular and shall remain valid up-to 30th June 2015. A further period of six months shall be given for full disbursement of entire loan for all loans sanctioned, under the Facility, and conveyed to the borrower before said date.

Encl: As above