KARACHI (January 02 2008): The State Bank of Pakistan (SBP) has introduced a new long-term financing facility (LTFF) to promote exports-led industrial growth in the country. The facility is effective from January 1, 2008 and will provide necessary finance to exporters for adoption of new technologies and modernising their plant and machinery in line with international competitive environment.

The facility will be available to export-oriented projects, with at least 50 percent of their sales constituting exports or, if their annual exports are equivalent to $5m, whichever is lower: About salient features of this facility, the SBP in its notification said that exporters (including SMEs) can avail financing under this facility through participating financing institutions (PFIs) for new imported and locally manufactured plant and machinery.

The facility will be available to export-oriented projects, with at least 50 percent of their sales constituting exports, or, an their annual exports equivalent of $5 million, whichever is lower.

Under this facility, financing will be available through commercial banks, including Islamic banks and DFIs approved as PFIs. Islamic banks will be eligible for offering LTFF subject to availability of Shariah-compliant compatible products under the facility, duly approved by the bank's and SBP's Shariah Advisor and cleared by SBP's Shariah Board.

SBP in FY 08 will refinance up to 70 percent of the facility sanctioned by banks while the remaining amount of 30 percent or more of LTFF will be financed by PFIs from their own resources to a borrower.

Regarding the period of financing, the SBP said that loans availed under the facility will be repayable within a maximum period of 10 years including a maximum grace period of 2 years from availing date. However, where financing facilities have been provided for a period of up to five years, maximum grace period shall not exceed one year.

REGARDING PROVISION OF REFINANCE:

(i) SBP shall allocate an overall yearly limit under the facility, which shall be sanctioned to individual PFIs on first-come-first-served basis in line with the internal criteria developed by the State Bank. For January-June 2008, this amount has been fixed at Rs 8 billion.

This allocation will be assigned to the individual PFIs by the State Bank. PFIs are instructed to submit their requests for allocation of sub limit within 15 days from issuance of this circular.

Subject to the above, there will be no maximum limit for borrowing by the prospective entrepreneurs under the facility subject to compliance of the relevant Prudential Regulations.

(ii) Refinance under the limit shall be provided to the PFIs on service charge basis, which shall be announced on yearly basis effective from July 1 each year and shall be applicable till end-June during the following year.

FOR THE FY 08 THE SERVICE CHARGES AND RATES FOR END-USERS HAVE BEEN FIXED AS FOLLOWS:

(iii) Funds provided by the PFIs from their own resources shall be eligible for deduction from the time and demand liabilities determined for the purpose of computation of both cash reserve requirements and statutory liquidity requirements.

Lending under the facility shall be subject to compliance with the Prudential Regulations as prescribed by the State Bank from time to time for different categories of borrowers. PFIs shall consider financing based on the debt equity ratio as prescribed in applicable Prudential Regulations for each type of the borrower. The financing PFI may, however, ask for higher contribution of equity from the borrowers keeping in view their individual risk profile.