State Bank of Pakistan (SBP) has rolled out guidelines for commercial banks to provide loans of up to Rs. 1.5 billion for companies having export-oriented projects with at least 50% of their sales constituting exports or annual exports equivalent to the value of US$ 5 million.
According to the central bank’s scheme named as Long Term Financing Facility (LTFF) for Imported and Locally Manufactured Plant & Machinery, the financing shall be available through banks / DFIs approved as participating financial institutions (PFIs). The facility will be provided by the conventional bank as the similar scheme for Islamic Banks was announced as Islamic Long Term Financing Facility (ILTFF) a couple of months ago by the central bank.
The maximum period for which the financing under the facility can be availed shall not be more than 10 years including a maximum grace period of 2 years. Where financing is provided for a period of upto 5 years, the grace period shall not be more than one year.
Banks shall be permitted to charge a maximum spread of 1.5%, 2.5% & 3% p.a. for financing upto 3, 5 & 10 years respectively from the borrowers, availing finance under the facility, where refinance has been provided by the State Bank of Pakistan.
The repayment of financing (principal amount of loan) availed under the facility shall be made by the borrowers in equal half yearly / quarterly instalments depending upon the tenure for which the facility is availed. Banks, however, shall not be permitted to require borrowers to pay markup/service charges at a frequency of less than three months except at the time of pre-payments/liquidation of loan
According to the scheme, banks will not disburse loans or make financing to the borrower directly; instead payments shall be made to the manufacturers/suppliers or foreign seller of the machinery through import letter of credit as per payment/delivery schedule agreed to between the manufacturer and the purchaser.
Likewise, payment for the locally manufactured machinery shall invariably be made through Inland Letter of Credit as per payment/delivery schedule agreed to between the manufacturer and the purchaser.
In case of financing for imported plant and machinery, each bank shall ensure that the foreign currency risk has been hedged to minimize cost escalation for the project due to adverse exchange rate fluctuations.
SBP will review the utilization of limits by individual bank on quarterly basis and may cancel the unutilized limit for reallocation to other banks. However, commercial banks and DFIs will have to ensure that they do not sanction and disburse a loan with a view to only utilizing the limit as the credit risk is ultimately assumed by them.
Banks shall undertake necessary due diligence process as per their lending policies before sanctioning of the loan under the facility. Further, in case of imported machinery, banks shall also obtain satisfactory credit reports on suppliers & manufacturers of Plant and Machinery etc,.
The guidelines can be read in detail here.
Eligible Sectors Of Long Term Financing Facility (LTFF) for Plant & Machinery Sectors
According to State Bank of Pakistan, only new plant, machinery & equipment to be used by the export-oriented projects in following sectors for producing exportable goods shall be eligible for financing under the facility:-
1. Textile & Garments
- Spinning and Ginning
- Made up
- Art silk & synthetic textiles
2. Rice Processing
3. Leather & Leather products
4. Sports goods
5. Carpets & Wools
6. Surgical Instruments
[Plant & machinery used for boat manufacturing / modifications including chilling Equipment].
2. Poultry & Meat
[Plant & machinery used for hatching purposes and equipment for preservation / packing / canning chicken & meat].
3. Fruits/Vegetable & Processing, Cereals.
[Plant & machinery used for setting up of units for the purpose of preservations/ packaging / canning of fruits / vegetables & producing cereals as well as plant & machinery required for producing material exclusively used in packaging / preservation of food items].
4. I.T. – Software & Services
[Hardware & equipments for IT & Services sector exports].
5. Marble & Granite
[Plant & equipments used for cutting and polishing of Marble & Granite products for export and manufacturing of handicrafts thereof].
6. Gems & Jewellery
[Plant & equipments used for cutting and polishing of Gems and machinery for making Jewellery].
7. Engineering goods
[Plant & machinery required for producing engineering products / goods].
8. Generators / Captive Power Plants
[Import of generators / captive power plants to meet in-house energy requirements of the export oriented projects in eligible sectors].
[Plant, machinery & equipment used by the export oriented projects for producing Ethanol].
10. Furniture and Pharmaceutical
[Plant, machinery & equipment used in Furniture and Pharmaceutical Sectors for producing exportable goods].
11. Regeneration of textile waste
[Plant, machinery & equipment used for regeneration of textile waste into usable fiber for
producing value added exportable products. Refinance eligible up-to 50% of financing provided by banks/DFIs].
12. Glass Sector
[Plant, machinery & equipment to be used by the export oriented projects in Glass Sector for producing exportable goods].
13. Dairy Sector
[Plant, machinery & equipment used for storage, chilling, processing and packaging of Dairy Products including machinery used in the conversion / preservation of milk into powdered form].
14. Soda Ash
[Plant, machinery & equipment to be used by the Export Oriented Projects for producing Soda Ash].