Export Refinance - Rate Has been changed ! Thrice ... And still more to come !

In order to support export business in the economy SBP has provided a facility to the exporters that they can can packaging credit on a significantly low rates, that finance is called FAPC (Finance Against Packaging Credit).

SBP has recently changed the rate on these loans, infact they have increased the rates from 6.5% to 8% which is the base rate.

Actually commercial banks give such loans to the exporters and then gets the reimbursement/refinance from SBP. They add a spread upto 1% for the services they charged so the rate charged from the exporters becomes Base Rate+1%.

There are actually two types of EFS, Part-I & Part-II

Part-I. Financing under Part I of the Scheme is a transaction-based facility. The finance is granted by the bank to the exporter on the basis of a Firm Export Order / Export Letter of Credit, for a maximum period of 180 days. The financing facility can be availed at pre-shipment stage for procuring inputs and manufacturing the goods to be exported. Financing at Post Shipment stage is also granted against goods already shipped to the importer abroad, for the period up-to realization of export proceeds or 180 days, whichever is earlier.

Part-II: Under Part-II of the Scheme, a revolving finance limit is sanctioned to the exporter equivalent to 50% of his export performance during the previous year on July - June basis. Exporters can avail this financing facility for a period of 180 days. Facility once availed needs to be repaid in totality. Exporters having availed Part-II facilities have to export / ship eligible goods and realize export proceeds and submit the evidence of performance on the prescribed statement within two months from close of each financial year.

For more detailed info of ERF visit these links

http://www.sbp.org.pk/sbp_bsc/apr/per-03/Chapter-3.pdf

http://www.sbp.org.pk/incentives/efs.htm

Now the concerning thing is that the State Bank of Pakistan intends to increase the export refinance rate from nine per cent and bring it at par with six months Treasury Bills rates that currently stand at 12.35 percent, SBP, Deputy Governor, Kamran Shahzad, told a meeting on Thursday March 30, 2010.

But points to ponder are how could our local industry survive and compete internationally if such facilities would not be available any more? or available but on the same cost as other loans? However, on the other hand Govt. borrowing are increasing regularly putting burden on the ordinary borrower for which availability of finance reduces when Govt. borrowings increases.