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Export Finance
The Export Finance Scheme envisages the provision of concessionary financing
facility to the exporters by the Scheduled Banks. The Banks are granted
annual refinance limits by State Bank of Pakistan for providing finance
to their clients (exporters). Banks provide export finance to the exporters
both at pre-shipment as well as post-shipment stages at a concessionary
rate of mark-up not exceeding 8%. Commercial Banks can obtain refinance
from State Bank to the extent of 100% of their lending to their clients.
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Refinance to Banks
The banks have to first provide finance to the exporters and thereafter
they avail refinance from the State Bank, at their option. It is obligatory
for the banks that financing to the exporters is at the concessionary
rate whether or not refinance from State Bank of Pakistan is obtained.
Refinance provided by the State Bank to the commercial banks is subject
to the terms and conditions of the Scheme for a maximum period not exceeding
180 days. All advances given by the banks under the Scheme are exempt
from the constraints of per party credit ceiling.
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Product Coverage
All commodities qualify for concessionary export finance except those specified
in the Negative List of commodities (App: 5.1). State Bank of Pakistan
has clarified that export of computer software is admissible for concessionary
export finance.
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Operation of the Scheme
For a fuller appreciation and better understanding of the Export Finance
Scheme, the salient features of the scheme, as in operation until its revision
in December 1998, are given here followed by the main distinguishing features
of the revised scheme. The scheme operates in two parts, Part-1 and Part-II,
each quite distinct in operation. The exporter can avail the facility under
both parts of the scheme such that the finance availed under one part is
not in duplication of the facility under the other part. To ensure proper
utilization of the funds, fines for various defaults are prescribed. Banks
apply normal collateral requirements.
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Export Finance under Part-I
Under Part-I of the Scheme, the commercial banks provide concessionary finance
to the exporters for financing the exports of eligible commodities on case-by-case
basis against individual Firm Export Order or Irrevocable Letter of Credit.
Firm Export Order includes contract of sale, confirmation order for sale,
purchase order, proforma invoice and similar other documents evidencing
purchase of goods by foreign buyers. Contract/order information should
give: (i) name and address of exporter/importer, (ii) name of commodity,
(iii) quantity/ rate/amount, (iv) period of shipment, (v) terms of payment
and signature of exporter who must verify the signature of the buyer. In
the case of L/C, it should indicate the name of commodity and the amount
besides other standard particulars.
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Period of Credit
The maximum period of concessionary export credit under Part-I is 180
days. Export finance can be availed both on pre-shipment and post-shipment
stage provided the total period of finance does not exceed 180 days. To
avail the credit facility exclusively at post-shipment stage, the facility
is admissible for maximum 180 days from the date of shipment or upto the
date of realization of export proceeds, whichever is earlier.
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Evidence of Shipment
The exporter must submit the relative proof of shipment within 21 working
days of expiry of loan/final repayment failing which the case is treated
as that of non-shipment and the prescribed fine is charged. If shipping
documents are submitted later, the fine already recovered for non-shipment
is refunded after retaining fine at the prescribed rate for the period of
delay in submission of the prescribed documents.
The shipping documents must be in conformity with the relevant Contract/L.C.
Changes in rate/specifications/ style/terms of payment or new buyer should
be covered by necessary amendments in Contract/L.C. In case both buyer
and commodity are changed, it would be a case of substitution which has
to be applied for.
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Consignment Sale
Exports on consignment sale basis do not qualify for concessionary finance
facility. The exports on collection basis against Firm Contracts are, however,
eligible for concessionary finance subject to Exchange Control Regulations.
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Substitution of Firm Order/Letter of Credit
In case an exporter is unable to export goods against a firm contract/letter
of credit against which export finance was obtained, he may utilize the
concessionary finance for export of the same or any other eligible commodity
to the same buyer or a different buyer against another firm contract/letter
of credit or a transferred portion thereof against which no export finance
in either part has been availed or will be availed of. The exporter’s bank
can allow the substitution of the firm contract/ letter of credit without
reference to the State Bank within the validity of export finance loan.
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Export Finance under Part-II
Under Part-II of the Scheme, an exporter may avail of concessionary export
finance limit in a financial year equal to half of the export performance,
through export of eligible commodities, in the preceding financial year
(July – June). The limit is available to the exporter on a revolving basis
like a cash credit account.
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Monitoring
Against the limit obtained under Part-II, the exporter has to repatriate
export proceeds from eligible commodities equal to at least 2.0 times of
his daily average finance during the relevant monitoring period. The export
performance of the exporter is monitored to ensure realization of required
export receipts from eligible commodities, excluding receipts from exports
against such contracts/LCs against which finance is obtained under Part-I
of the Scheme. However, According to BPRD Circular No.11 dt 23rd May 2000,
it has been provided that, monitoring of the performance shall be based
on specific ‘E’ Form numbers, instead of on the basis of contracts/export
orders/LCs. This means that if any export shipment(s) under a contract/LC
is reported as utilized in Part 1 of the Scheme, any subsequent shipments,
under the same contract/LC, not reported in Part I, can be reported in Part
II against specific ‘E’ Form numbers.
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Financing where no office of SBP exists
For grant of export finance to the exporters at places where there is no
office of State Bank of Pakistan, the exporters make application with complete
documents to their bankers, who will provide finance to exporter and send
telegraphic advice to Link branch stating particulars of export finance
provided. Link branch submits application to the State Bank of Pakistan
alongwith their D. P. Note and undertaking to the effect that the bank will
submit complete documents of loan to State Bank of Pakistan within 7 days
of refinance.
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Fines under the Scheme
Exporters/banks who fail to meet their obligations under the Scheme
are liable to pay a fine to the State Bank. The nature of defaults and
the scales of fine applicable are as follows:-
- Under Part-I of the Scheme, non-shipment or short-shipment is fined
at the rate of paisas 37 per day per Rs.1000/- or part thereof, of
the finance.
- Under Part I, for delayed shipment, after expiry of loan, the fine
is only for the period of delay in shipment at the rate of paisas
37 per day for Rs.1000/- or par thereof, of the finance.
- Under Part-II of the Scheme, failure to match export obligation
attracts a fine of paisas 37 per day per Rs.1000/- or part thereof,
of the shortfall in the total daily product of export obligation.
- If an exporter who has obtained finance for export of goods for
sale/display in an international exhibition/fair, fails to repatriate
the export proceeds in respect of goods sold at the exhibition/fair
within 30 days of the close of the exhibition/fair or within the permissible
period of a ailment of the finance, whichever is earlier, he is subjected
to a fine at the rate of Rs.110/- per Rs.1000/- or part thereof of
the finance.
- In case an exporter/bank fails to inform the State Bank regarding
substitution of a Contract/L.C. within the validity of loan period,
they shall be liable to pay fine @ Rs.2000/- for the first day of
default and Rs.100/- for each day of default thereafter.
- In case an exporter/bank fails to submit shipping documents within
21 working days of final repayment/adjustment of loan or the last
date of shipment whichever is earlier, they shall be liable to pay
fine @ Rs.2000/- for the first day of default and Rs.100/- for each
day of default thereafter.
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Refund of Fine
In the case of finance obtained under Part I of the Scheme, the State Bank
may, at its absolute discretion, waive/refund the entire fine or part thereof
recovered on account of non-shipment or delay in shipment due to reasons
beyond the control of the borrowers.
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Revised Procedure of Export Finance
The Export Finance Scheme was revised from 17th December 1998, under
State Bank’s BPRD Circular No: 44 dated 17th December 1998 incorporated
in the State Bank of Pakistan Booklet of Instructions with all relevant
Forms as well as the clarifications issued subsequently by the State
Bank. It retains the main features of the Scheme as set out in the
preceding paragraphs with addition of new provisions set out in the
succeeding paragraphs. These new provisions are designed basically
to provide impetus to exports by the Small and Medium Exporters, Emerging
Exporters and Indirect Exporters as defined below:-
- Small or Medium Enterprise (SME) is a direct or indirect exporter
which exports upto equivalent of US$ 2,500,000 of direct or indirect
exports during the preceding fiscal year.
- Emerging Direct Exporter (EDE) means a new exporter who has not
previously exported any products.
- Indirect Exporter (IDE) means a manufacturer or supplier of goods
or materials which are to be used as inputs for exports.
- Direct Exporter (DE) includes a commercial exporter/trading company.
- Financing facilities under the Scheme continue to be available for
exporters with export performance in excess of the upper limit prescribed
for the Small & Medium Exporters.
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Operation of Revised Scheme
The Scheme will continue to operate in two parts as before. The exporter
can avail the facility under both parts of the Scheme provided that the
facility availed under one Part is not in duplication of the facility availed
under the other Part of the Scheme.
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IDEs, SMEs and EDEs
The revised procedure lays stress on the provision of finance / refinance
to the Indirect Exporters, Small and Medium Exporters (SMEs) and Emerging
Direct Exporters (EDEs), besides the Direct Exporters (DEs). Under Part-II,
the borrowing entitlements as also the performance requirements continue
to remain applicable in respect of the Direct Exporter. The financing facility
to the Indirect Exporter is provided on specific order basis, against establishment
of Inland Letter of Credit (ILC) by DEs in favour of IDEs. Payment through
cheques to IDEs is also available against a Standard Purchase Order
(SPO). The financing facilities for all eligible commodities will remain
available for DEs. However, if an input required by a DE from an IDE is
a commodity not eligible for concessionary finance, e.g. sugarcane in case
of sugar and raw cotton in case of cotton yarn, the IDE will not be entitled
to concessionary finance even where an ILC is opened or SPO is issued in
his favour by the DE. Banks will ensure that the aggregate period of financing
provided to both Direct and Indirect Exporters does not exceed 180 days
under both Parts of the Scheme.
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Export Finance Guarantee Scheme
The Government intends to introduce a Pre-shipment Export Finance Guarantee
Scheme (PEFG) to be administered through a new corporate entity. The cover
obtained by the exporters under PEFG, particularly the SMEs and EDEs, would
substitute for the collateral requirements of the banks against non-performance
and non-delivery risks and non-payment by exporters. Detailed instructions
will be issued later.
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Foreign Currency Import Finance
The State Bank of Pakistan will also introduce the Foreign Currency Import
Finance Scheme (FCIF) to provide foreign currency financing for import of
inputs for export production, both to DEs and to IDEs for supplies to DEs.
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Export Finance Under Part–I
Under Part – 1 of the Scheme, the commercial banks provide finance to both
the Direct Exporters (DE), against firm Export Order (FEO)/Export Letter
of Credit (ELC), and to the Indirect Exporters (IDE) who supply eligible
inputs to the Direct Exporters against Inland Letters of Credit or against
SPOs in favour of the IDEs.
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ILLUSTRATION
A Direct Exporter (DE) of garments receives a Firm Export Order or
Letter of Credit for export of shirts valued at Rs 1,000,000/= Assuming
that he needs inputs of fabric, sewing thread and buttons of the value
of Rs 500,000/=, Rs 5,000/= and Rs 2,000/= respectively, he will open
three separate ILCs for Rs.500,000/=, Rs 5,000/= and Rs 2,000/= in favour
of his IDEs (suppliers of fabrics, sewing thread and buttons respectively),
who would be eligible for concessionary finance under this Scheme. He
may, as an alternative purchase these inputs from the loan account through
cheques drawn by his banker in favour of the IDEs against SPOs.
- The financing facility under the Export Finance Scheme, as admissible,
will be sanctioned by the bank in favour of the Direct Exporter for
an amount not exceeding the value of the Export Order/LC on production
of the following documents:-
- Schedule of financial requirements and manufacturing, if applicable,
on Form DE-1, including particulars of finance required for IDEs
for domestic and imported inputs. As the opening of ILC is not compulsory,
where ILC is not involved, the Direct Exporter may insert the words
“Not-Applicable” in the relevant column of the application form.
- DP note of the Direct Exporter duly endorsed in favour of SBP.
- Undertaking by the Direct Exporter, in Form UT-DE-1.
- Copy of Export Order / Letter of Credit along with amendments thereto,
if any.
- The disbursements against the said sanctions, will be made on actual
need basis and released through cheques drawn in favour of IDEs or
through ILCs in their favour.
- The Direct Exporter is also allowed to avail the loan to the extent
of his own eligible material and value addition, within the amount
of export finance admissible.
- The combined period of financing against an export order to the
Direct Exporter, and the Indirect Exporter, should not exceed the
permissible period of 180 days from the date of first drawl / disbursement
from the loan account.
- While the export against Firm Export Order / Export Letter of Credit
remain the responsibility of the Direct Exporter, the Indirect Exporter
is under obligation to supply the required inputs in accordance with
the terms of the ILC/S.P.O., failing which he is liable for the prescribed
fines under the Scheme. Payment of such fines, however, does not absolve
him from his obligations to the Direct Exporter.
- On the basis of information contained in Form DE-1, the financing
bank may, at the request of the Direct Exporter, open an ILC or issue
a cheque in favour of the Indirect Exporter. The banker to the Indirect
Exporter may allow export finance to him at the concessionary rate
applicable under the Export Finance Scheme in the same manner as provided
in para 5.18.3 above.
- The financing facilities are provided by the financing bank to the
Indirect Exporter (IDE), upon submission of application on Form “IDE-1”
including the following documents to be provided by the Indirect Exporter:-
- Inland LC (ILC) alongwith amendments thereto, if any
- DP Note covering the amount of the ILC(s).
- Undertaking in the form UT-IDE-1.
The loan granted to the IDE, alongwith mark-up, is adjusted upon delivery
of the inputs and payment of documents drawn under the ILC or through
cheques against SPOs, or at the expiry of the period of 120 days, whichever
is earlier. The IDE is under obligation to produce the following documents,
to the banker of the DE, evidencing utilization of the loan for the
purpose of manufacturing the input, and also pass on certified copies
to the State Bank of Pakistan, through the banker of the IDE:-
- Invoice in the name of DE.
- Goods Receipt Note / Delivery Challan duly signed by the buyer,
showing date and quantity delivered to him as per terms of supply.
- On deliveries of the domestic inputs and receipt of payment by the
IDE, the amount(s) of the finance allowed to IDE is adjusted. The
payment against the ILC becomes a Loan disbursement in the name of
the Direct Exporter, who thereafter becomes responsible for repayment
of the loan & payment of mark-up, with fines as applicable.
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Export Finance Under Part – II
Under Part-II of the Scheme, as revised, the Direct Exporter is entitled
to concessionary export finance as before. He also has the option to authorize
his banker to open ILC or issue cheques in favour of IDEs for making supplies
as inputs within the prescribed finance limit that will apply for finance
both to the DE and the IDE taken together. Other terms and conditions for
export finance to Direct Exporters under Part-II remain the same as before,
including export obligation equal to 2.0 times of the export performance
during the preceding financial year. The liabilities of Indirect Exporters
for export finance and the various procedures therefore, remain the same
as described para x.18.3 for export finance to Indirect Exporters for Part
I of the revised Export Finance Scheme.
On receipt of an application from the DE, on Form “DE-3”, requesting financing
facilities to an IDE, for supply of domestic inputs, the financing bank
opens ILC(s) in favour of the IDE, under Part I or within the entitlement
of the DE under Part-II.
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Finance for Consultancy/Construction Services
In terms of the State Bank BCD Circular No. 16 dt 25th July 1990, financing
facilities may also be provided under Part I of the Export Finance Scheme
to Pakistani Consultancy and Construction Firms which are awarded contracts
of consultancy/construction abroad. Such firms are eligible to avail the
export finance facility for the purpose of acquiring and exporting goods
from Pakistan for their own use in the country awarding the contract. Applications
with supporting documents are to be made to the banks who will obtain prior
approval from the State Bank of Pakistan. No financing is available for
consultancy services such as management expertise and human resources.
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Export Finance Under LMM Scheme
In terms of the State Bank ICD Circular No 1 dt 27th April 1987, concessionary
finance, at 8% mark-up, is also available for export sales of locally
manufactured machinery under the Scheme for Financing Locally Manufactured
Machinery (LMM Scheme). This Scheme covers financing the manufacture of
plant, equipment, transport equipment, cargo vessels, ships, fixtures,
fittings, accessories and consumer durables which are to be used for industrial
applications and which undergo processing in Pakistan for value addition.
The conditions for LMM finance for export sales are:-
- Individual machine/equipment using imported components upto 20%
(CIF) of the FOB export value, is eligible for 100% financing.
- For individual machine/equipment using imported components more
than 20%, but not more than 80%, concessionary finance is limited
to the difference between FOB export value of individual machine and
CIF cost of imported components used.
- Individual machine/equipment using more than 80% imported components
do not qualify for financing.
- The above conditions also apply to machinery/equipment manufactured
under authorised assembly-cum-progressive manufacture programmes.
- An exporter who enters into a contract with a foreign buyer for
export of locally manufactured machinery can avail concessionary finance
from approved development financing institutions (DFIs), as follows:-
- Pre-shipment finance, where no deferred payment is involved, can
be availed upto the amount of contract/LC, less down payment if any,
for a period not exceeding 360 days, on submission of original documents
and appropriate security.
- Where no deferred payment is involved, and pre-shipment finance
is needed for a period exceeding 360 days, the DFI concerned has to
obtain clearance of the State Bank of Pakistan for the period exceeding
360 days, as may be provided in the contract.
- Where deferred payment is involved, an exporter is eligible to avail
pre-shipment finance under the LMM Scheme, subject to prior clearance
of the State Bank of Pakistan to be obtained by the DFI.
- Pre-shipment export finance is also available for supplies of machinery
under the LMM Scheme against international tenders, subject to the
conditions mentioned above, and depending on the terms and conditions
in the contract between the Executing Agencies and the suppliers.
- Post-shipment finance is available also where a long deferred payment
period is involved, subject to prior approval of the Foreign Exchange
Department of the State Bank, unless already cleared with the Banking
Supervision Department (BSD). The head office of the DFI has to seek
approval of BSD which considers individual requests if the contract/LC
fulfills the following conditions:-
- Foreign buyer makes a down payment of atleast 10% of the value of
contract/LC.
- For export of a complete plant, valued at US$ 10 million or more,
payment should be made in not more than 20 equal half-yearly installments,
with a grace period not exceeding 2½ years, commencing from the date
of shipment of the goods.
- In other cases, involving exports valuing more than US$ 1 million,
payment should be made in equal half-yearly installments within 10
years and with no grace period.
- In other cases for smaller amounts, payment should be made in equal
half-yearly installments, within 5 years and with no grace period.
- The deferred payment should be guaranteed by the Government or Central
Bank of the country concerned or the head office of a reputed international
bank operating in that country. Alternatively, the Export Credit Guarantee
Scheme of the Pakistan Insurance Corporation should guarantee payment.
Basically, the DFI concerned has to satisfy itself in this behalf.
- A scale of fines is provided for various default by an exporter/supplier/DFI.
- Exporters would be well advised to seek guidance of their bankers/DFIs
for making applications for export finance under the LMM Scheme and
arranging the required documentation and securities.
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