The Presidents/Chief Executives,
All Banks/DFIs,

Dear Sirs / Madam,

APPROPRIATE UTILIZATION OF LOAN PROCEEDS

Misuse of loan proceeds especially their usage for speculative activities enhances the level of risk in such loans and consequently may result in loss for the lending bank. The banks/DFIs are, therefore, advised to ensure that loans are utilized for the purpose for which they were acquired. In this respect, the banks/DFIs should be especially mindful of the risks of diversion of loans to real estate and capital markets for speculative purposes. Moreover, loans obtained for Export Finance should be closely monitored to ensure that they are not diverted to other than the stated purpose.

2. Accordingly, the banks/DFIs are directed to take suitable steps to check the misuse of loans including the following:
   
   Other instructions on the subject will remain unchanged.
• At the time of approval of a financing facility (fund based or non fund based), the banks/DFIs shall obtain a written confirmation from the client, that the funds will be used for the stated purpose only.
• The banks/DFIs should develop an effective internal system to monitor utilization of the loan facilities to prevent any diversion of funds.
3. Any violation or circumvention of the above instructions by the banks/DFIs will attract penal action under the Banking Companies Ordinance, 1962.
4. Please acknowledge receipt.