The Head/Principal Offices of all

Authorized Dealers in Foreign Exchange

Dear Sirs / Madam,

Special FCY Borrowing by Micro Finance Banks/Institutions(MFB/Is)

In order to facilitate Micro Finance Banks/Institutions (MFB/Is), it has been decided to allow MFB/Is to raise foreign currency (FCY) loans from International Financial Institutions/Donor Agencies or Specialized banks/Institutions. For this purpose, MFB/Is (not being Authorized Dealers) may apply to the Director, Exchange Policy Department, State Bank of Pakistan (SBP) for obtaining approval in-principle. While negotiating such borrowing, MFB/Is are required to ensure the following terms and conditions:

1. The purpose of loan must only be to finance the loan portfolio of MFB/Is.
2. Borrowing may be raised in major four currencies namely USD, EUR, GBP and JPY.
3. Minimum Tenor of the FCY borrowing should not be less than 2 years.
4. The loan pricing will be based on a reference rate such as LIBOR. Interest rate may be decided on best possible terms, and must be competitive to other options available locally.
5. The disbursed FCY funds will immediately be converted into PKR and credited to borrowing MFB/I’s PKR account maintained with the concerned Authorized Dealer (bank). Under no circumstances MFB/Is will be allowed to retain such funds in foreign currency.
6. The borrowing MFB/Is will be allowed to make payment of the principal amount in bullet at maturity or may start repayment of principal in installments after six months through the Authorized Dealer receiving disbursement of loan. However, frequency of the interest payment may be made in accordance with the related repayment schedule.
7. Authorized Dealers may provide forward cover/hedging facility on the foreign currency loans to the MFB/Is from the inter-bank market in accordance with the prevailing foreign exchange regulations.
8. The MFB/Is will provide an undertaking that the loan deal is compliant with the provision of legal and regulatory framework applicable to the lender and the borrower.
9. Draft Term Sheet agreed between the lender and borrowing MFB/Is should be submitted to SBP while approaching for in-principle approval. However, for formal approval, MFB/Is will approach SBP through Authorized Dealer (bank).
10. MFB/Is will ensure that internationally acceptable ‘Know Your Customer’ (KYC) standards for the Lending institutions/lenders are complied. Funding should only be obtained from quality lenders which comply with KYC standards.
11. Any change/deviation in the terms and conditions after obtaining formal approval from SBP will require prior clearance from SBP.