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Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. a. b. c. d. 10. a. b. c. d. e. 11. Introduction .......................................................................................................................................... 3 Common Features Of Export Finance Scheme (Part I & II) ................................................................... 4 Mark up Rate......................................................................................................................................... 6 Eligible Exporter, Goods & Services ...................................................................................................... 7 Credit Risk ............................................................................................................................................. 8 Implementation and Enforcement Mechanism of the Scheme............................................................ 9 Pre-shipment Finance ......................................................................................................................... 10 Post-shipment Finance........................................................................................................................ 11 Export Finance Scheme (EFS) Part I ................................................................................................. 12 Operations of the Scheme under Part I .......................................................................................... 15 Submission of required Documents................................................................................................ 17 Substitution of Export LC/Contract ................................................................................................. 19 Extension in Loan Period and Enhanced Performance Requirements ........................................... 20 EXPORT FINANCE SCHEME PART II ................................................................................................. 21 Pre-requisites and procedure of Entitlement of Limit .................................................................... 22 Monitoring of Export Performance................................................................................................. 24 Performance Based Mark-up Rate .................................................................................................. 25 Rollover Facility ............................................................................................................................... 26 Extension in Period of Borrowing Limit .......................................................................................... 27 Other Schemes by SBP .................................................................................................................... 28
1. Introduction
The Export Finance Scheme (EFS) is in operation since 1973 with the objective to boost exports of the country. Under the scheme short term financing facilities are provided to exporters through Banks for exports of all manufacturing goods especially value added products with the exception of basic & primary commodities/raw materials as mentioned in negative list. The Export Finance Scheme is a crucial instrument for the facilitation of exports in Pakistan. The State Bank of Pakistan provides this financing facility to the exporting community, which principally aims at boosting and enhancing exports in Pakistan. This scheme is primarily for both direct and indirect exporters. Financial institutions provide export finance to the exporters at both pre/post shipment stages. This scheme operates in two parts, Part II and I. The Export Finance Scheme is available at a substantially lower rate than other commercial financing, this is due to the governments continued commitment to promote and shelter export oriented businesses. Under part I of the scheme, export financing is provided to an exporter against either an export order or an irrevocable letter of credit. Both direct and indirect exporters may benefit from this scheme. However, this scheme may only be availed by first time exporters or manufacturers for exporting, i.e. direct and indirect exporters. However, under part II of the scheme, the financing is provided on the basis of previous years performance and may therefore only be availed by experienced exporters. The financing limit is 50% of the last years export performance, which is available on a revolving basis like a cash credit account. The exporter has to realise a 2.0 times of daily average finance availed during the current year otherwise a penalty is imposed on exporters. The most prominent differentiation between the two types i.e, Part I & II financing is their mode of operation. Part I facility is basically allowed on transaction basis whereas Part II facility is a revolving credit. However, both finances are at concessional rates.
g. Exporters may avail the exchange rate prevailing on the date of realisation of export proceeds. h. Exporters showing growth in exports by 10 % may retain up to 50% of the additional export earnings in foreign currency accounts. This amount may be utilised for import of machinery/ equipment and raw materials and for meeting expenditure on export business promotion. 4
i.
Exporters in the Services' Sector including IT-enabled services to retain up to 35% of export earnings. In order to promote exports and to ensure that Small & Medium, Emerging Direct, Direct and Indirect Exporters have access to the credit facilities, the Government has set up a Pre-shipment Export Finance Guarantee (PEFG) agency. The agency has already become operational and many exporters have applied for benefiting from this scheme. The cover obtained by the exporters from the PEFG agency substitutes for the collateral requirements of banks and hedges against the financing risks of commercial banks against manufacturing, non-performance, non-delivery risk and non-payment by the exporters.
j.
k. To promote the financing for the Indirect Exporters, the Government is setting up an Export Product Upgrading Matching Grants Fund. The Export Promotion Bureau has been handed over the responsibility of management of this fund. The purpose of establishment of this new fund is to provide incentive to Direct Exporters establishing Inland Letter of Credit/issuing Standardised Purchase Order and for Indirect Exporters receiving it. l. Exporters may now submit complaints regarding the Export Finance Scheme before a complaint cell "Export Cell" working in the Banking Supervision Department. Export Cell is composed of epresentatives from Exporters' Associations, Chambers and Export Promotion Bureau and meetings are carried out on quarterly basis to review the progress of the scheme and address collective problems of exporters. Commercial banks have also been advised to establish Export Cells for exclusive handling of the cases/documentation relating to the Export Finance Scheme.
3. Mark up Rate
Currently, markup rate under EFS for the borrower stands at 9.4 % (banks get refinance from SBP at 8.4% and are permitted a maximum spread of 1%). The markup rate has been linked with the weighted average yields on six months TBills w.e.f. 2001. To further incentivize the financing under EFS (PartII) the rates under EFS PartII has been linked with export performance. Exporters giving higher performance under EFS PartII can avail mark up rate rebate ranging from 0.51.5 percentage points depending upon the level of performance achieved.
5. Credit Risk
Banks take the credit risk under the scheme, and SBP takes exposure on banks. The refinance extended by SBPBSC offices to the banks is recovered on the due dates as per repayment schedule from the account of the banks/DFIs. In case the borrower fails to make repayment of the loan on the due date, the bank is entitled to charge normal rate of mark up on such overdue principal amounts besides taking other actions to recover the same. Therefore, the repayment of EFS loans to SBP is not dependent upon the recovery of loan from the borrower. In this way, ultimate credit risk under the Scheme is borne by the lending banks.
7. Pre-shipment Finance
Pre-shipment finance is working capital finance provided by commercial banks to the exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is called pre-shipment finance or packing credit. DEFINITION: Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is known as pre-shipment credit. Such finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:
To purchase raw material, and other inputs to manufacture goods. To assemble the goods in the case of merchant exporters. To store the goods in suitable warehouses till the goods are shipped. To pay for packing, marking and labelling of goods. To pay for pre-shipment inspection charges. To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods. To pay for consultancy services. To pay for export documentation expenses.
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8. Post-shipment Finance
Post shipment finance is provided to meet working capital requirements after the actual shipment of goods. It bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof. Whereas the finance provided after shipment of goods is called post-shipment finance. DEFINITION: Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is called Post-shipment Credit. IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE: To pay to agents/distributors and others for their services. To pay for publicity and advertising in the over seas markets. To pay for port authorities, customs and shipping agents charges. To pay towards export duty or tax, if any. To pay towards ECGC premium. To pay for freight and other shipping expenses. To pay towards marine insurance premium, under CIF contracts. To meet expenses in respect of after sale service. To pay towards such expenses regarding participation in exhibitions and trade fairs in India and abroad. To pay for representatives abroad in connection with their stay board.
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Direct Exporter - Firm Export Order / Contract / Letter of Credit. - Application/undertaking as per Form B. - D.P. Note - Firm Export Order / Contract / Letter of Credit along with acceptance from buyer in case of discrepant documents. - Application/undertaking as per Form B. - D.P Note - Original duplicate copy of Form E - Bill of Lading /Airway bill. - Invoice
Indirect Exporter - Inland Letter of Credit / Standardized Purchase Order. - Application / Undertaking as per Form C.
Postshipment
No facility.
Commercial banks, after providing finance to the Direct / Indirect Exporters shall become eligible to avail refinance from the SBP. The concerned office of the SBP BSC will grant refinance against financial facilities provided by the bank for pre/post shipment stage, to the banker of the Direct Exporter or Indirect Exporter, as the case may be, and release the amount accordingly within 48 hours on receipt of the refinance claim as per Form D complete in all respects and D.P Note executed by the exporter concerned. The scrutiny of documents to be submitted by exporter will be done by the bank concerned. The onsite verification team of SBP BSC and inspectors of Banking Inspection Department or any other authorized officer of the State Bank of Pakistan, while making a regular or special inspection of a bank, shall examine the cases of finances of the bank under the Scheme.
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Postshipment
NA
exports) from the date of shipment of an export bill, or within 30 days of expiry of the period prescribed by our Exchange Policy Department.
The documents required to be submitted by the bank to the concerned office of SBP BSC as evidence of shipments are as under: a) Annexure D (to be submitted within 7 days from the expiry of period as mentioned in Para 2.1 and 2.2 above) as the case may be. b) E.P.R.C. to be submitted within 210 days (270 days for carpet exports) from the date of shipment of an export bill, or within 30 days of expiry of the period prescribed by our Exchange Policy Department for realization of the export proceeds, failing which cases of non realization will be reported by the bank to the concerned office of State Bank for appropriate action under the Foreign Exchange Regulations.
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10.
It is a performance based facility, where entitlement of exporter for revolving export finance limit is equal to 50% of the export proceeds realized through export of eligible commodities in the preceding financial year. Export performance of an exporter is matched annually against total loan availed during the financial year on daily product basis. The exporter has to realize export receipts from the export of eligible commodities, excluding any exports for which finance is obtained under PartI of the Scheme during the relevant period. The maximum tenor of the loan under PartII of the scheme is also 180 days which could be rolled over for another 180 days subject to showing at least 70% shipment of loan availed in initial 180 days. To fix fresh limits based on previous years export performance for exporters having outstanding finance under the Scheme after 30th June, total borrowing availed under the scheme is required to be adjusted on 31st August each year. Export performance of an exporter is matched annually against total loan availed during the financial year on daily product basis.
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Upon submission of application on Form "IDE2" by the IDE, the banker of the DE or IDE, as the case may be shall provide finance to the extent of the amount of the ILC (s) to the IDE concerned upon roduction of the requisite documents on the basis of which financing facility under Part I is available to the IDE. The refinancing to extent of the amount released by the financing bank of the direct exporter(s) to the indirect exporter(s), against ILC(s) shall be provided by the concerned office of the SBP to the banker of the indirect /direct exporter, upon submission of the following documents: Refinance application on the prescribed Form DE3 Certified copy the relevant ILC/SPO along with amendments thereto, if any. DP Note of the Indirect Exporter covering the amount of the ILC(s)/SPO(s), dully endorsed in favour of SBP Undertaking of the Indirect Exporter on the prescribed Form UTIDEII Schedule of deliveries. IDE(s) would be under obligation to supply the required inputs on a case by case basis in accordance with the terms of ILC/SPO, failing which he shall be liable for nonshipment fine as prescribed under PartI. Payment of such fines shall, however, not absolve IDE(s) from his/their liabilities to the DE. The loan granted to the indirect exporter(s) along with mark up thereon, shall be adjusted upon submission of the documents evidencing delivery of the inputs and negotiation of ILC(s)/SPO(s) involved. The Indirect Exporter(s) shall be under obligation to produce the following documents to the banker of the direct exporter, evidencing delivery/acceptance of the inputs by him to the direct exporter. Invoice in favour of Direct Exporter. Goods Receipt Notes/Delivery Challan duly signed by the Direct Exporter, showing date and quantity delivered to the direct exporter as per terms of the delivery. On production of documents mentioned in Para above, evidencing deliveries of the inputs, the amount(s) of the loan(s) earlier granted in favour of Indirect Exporter(s) shall be transferred in the name of the Direct Exporter and all mark up charges from the date of said transfer shall be borne by the Direct Exporter. The refinance earlier availed by the bank of the Direct Exporter(s), against disbursement(s) released to Indirect Exporter(s) shall continue to remain outstanding till the monitoring period or up to maturity of loan whichever is earlier.
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d. Rollover Facility
Exporters availing financing facilities under PartII of the scheme shall continue to submit EF1 statement duly verified by the respective offices of FEOD, SBPBSC within months from the completion of the financial year, as at present. However, while applying for rollover of loans under Part II after completion of the initial 180 days or at an earlier date, exporters shall be required to submit a statement showing details of shipments of eligible goods *as per Form EP + to the extent of 70% of the refinance already availed against which roll over is being sought. SBPBSC shall not allow the rollover facility unless shipments to the extent of 70% of refinance availed is established. Banks will be required to forward duly authenticated copy of the said statement of shipments to the concerned Office of the SBPBSC alongwith the loan application for roll over. Compliance to this requirement shall invariably be checked by the verifying teams of the concerned office of the SBPBSC, which shall not substitute for the normal inspection by Banking Inspection Department of the State Bank.
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11.
State Bank of Pakistan (SBP) has been encouraging exports since 1973 through its various schemes, with the objective to make funds available to meet the short and long term financing needs of the export oriented industries. The schemes, other than the EFS, which are currently functional include: Islamic Export Refinance Scheme (IERS) The IERS is a refinance scheme that SBP has developed to cater to the requirements of the banks and exporters who wish to avail finances under Shariah compliant modes. Exporters can avail the scheme from participating Islamic Banks or Islamic Banking branches of Commercial banks, if the exporter fulfills the criteria stated in the scheme for Musharika Pool. Long Term Financing Facility (LTFF) Exporters can avail long-term financing facilities through banks for the export of eligible plants, machinery and engineering goods under this facility. The financing facilities shall be available both at pre-shipment and post-shipment stages for a maximum period of five years. Schemes for Modernization of Cotton Ginning Factories & Rice Husking Mills SBP has introduced refinancing schemes for modernization of Cotton Ginning and Rice Husking Factories with a view to enhancing quality of their outputs and value added chain. Financing under the schemes is available at concessional rates for import/local purchase of new plant and machinery for BMR purpose. Agri-loans Refinancing & Guarantee Scheme for KPK and FATA To facilitate farmers of war affected areas of KPK and FATA for obtaining fresh loans from banks to resume agricultural activities, the banks have been allowed to obtain refinance facility from SBP BSC offices against the production/ working capital loans provided to the farmers of war affected districts of KPK and FATA. Financing Scheme for Power Plants using Renewable Energy SBP has started a scheme for financing power plants using renewable energy with a capacity of 10 MW. The scheme is not only aimed to overcome the shortage of electricity but also to promote economic growth in less developed areas which are naturally endowed with channels & river flows. Financing Facility for Storage of Agricultural Produce The purpose of this scheme is to encourage private sector to develop the agricultural produce marketing and enhance storage capacity by establishing Silos, Warehouses and Cold Storages. The facility is available through banks/ DFIs on long term basis for establishment, expansion and balancing, modernization & replacement (BMR) of storage and allied facilities. 28
The operations of these schemes are managed by SBP Banking Services Corporation through the Development Finance Support Department (DFSD) at head office and its field units across BSC offices. Various export oriented businesses are facilitated by these schemes which include textile, leather, rice processing, carpets, sports goods, surgical items etc.
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