The Presidents/Chief Executives
All Banks/DFIs/Leasing Companies/Investment Banks/Modarabas

Dear Sirs/Madam,

FINANCING TO NBFCs UNDER LMM SCHEME

Please refer to BPD Circular No. 25 of July 24, 2004, and subsequent instructions issued from time to time regarding the captioned subject.

2. In terms of Para 3 of the Annexure to BPD Circular No. 25 of July 24, 2004, NBFCs have been allowed to become Participating Financial Institutions (PFIs) under the LMM Scheme. As a measure of streamlining the provision of refinance under LMM Scheme to NBFCs, following criteria/procedure for NBFCs has been instituted:

a. NBFCs having Credit Rating from "AAA" to "AA-" or equivalent and percentage of NPLs to Advances/Loans up-to 5% could avail funds directly from SBP up-to 25% of their equity under LMM Scheme.

b. NBFCs having Credit Rating from "A+" to "BBB" or equivalent are not eligible for availing the LMM Limit directly from SBP; however, such NBFCs can avail financing under LMM Scheme in the following manner:

i. NBFCs having credit rating from “A+” to “BBB” and percentage of NPLs to Advances/Loan up-to 5% shall negotiate with Bank/DFI (PFI) for institutional arrangements for availing funds under LMM Scheme up-to 25% of equity of NBFC. The lending Bank/DFI (PFI) can secure its exposure on NBFC through a Bank Guarantee or any other form of acceptable security.

ii. For the purpose of financing to NBFCs under the LMM Scheme through Banks/DFIs (PFIs), the lending Bank/DFI (PFI) shall avail financing from SBP, in addition to its own assigned LMM Limit, for subsequent disbursement to NBFCs up-to the assigned limits of NBFC under LMM Scheme. The recourse of SBP will be on the lending Bank/DFI (PFI) and not that on the NBFC.

iii. Under the arrangements, the rate of mark-up will be in accordance with the announcement of SBP, with a maximum spread of 2% on financing provided by PFIs to their borrowers under the scheme. However, under the arrangements, Bank/DFI (PFI) and NBFC will be free to decide amongst themselves about their respective share in the maximum spread of 2%, but for the end users the applicable rate will be the LMM Rate announced by SBP.
iv. The NBFCs, before availing finance under LMM from the lending Bank/DFI (PFI) in accordance with 2(b)(i, ii & iii) above, are required to apply for PFI status to SBP, through SECP, prior to availing LMM facility from any approved PFI (Bank/DFI) as per the criteria laid down at Para 3 of the Annexure to BPD Circular No. 25 of July 24, 2004.
c. NBFCs having Credit Rating less than investment grade (i.e. BBB) or equivalent shall not be eligible financing under the LMM Scheme.