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030417

STATE BANK OF PAKISTAN FOREIGN EXCHANGE DEPARTMENT KARACHI

F.E. Circular No. 7
April 17, 2003

The Head Offices/Principal Offices of  
Authorized Dealers in Foreign Exchange.
Dear Sirs, 

Foreign Currency Export Finance (FCEF) Facility – Modifications for 
Enhanced Access of Credit lines to banks

Please refer to the instructions issued vide F. E. Circular No.04 dated 28th March 2001 on the above subject.

In view of the recent changes in the market environment and the low utilization of the FCEF (“the Facility”) the Asian Development Bank and the State Bank have revisited the Facility and have agreed to modify its provisions to enhance utilization by the banks and exporters.

The SBP, Banking Policy Department (Apex Unit) will henceforth allocate funds under the Facility in the form of credit lines to eligible banks. The funds will be allocated on the banks’ request supported by documents and expected financing of exports to eligible exporters.

Banks wishing to avail credit lines under the Facility are advised to specify their actual requirement for the current quarter and projections for the next quarter in their request. The credit lines will be given in accordance with the criteria agreed between SBP and the ADB as specified in the attached circular.

The modifications are enclosed herewith for the information of all Authorized Dealers in foreign exchange. This Circular supersedes FE Circular No. 04 dated 28th March 2001.

Please bring the above change to the notice of your constituents.
 
Yours faithfully,

(M. R. Mehkari)
Director

Encl. (1)
Form A
Form B
Form C
Form D

(Enclosure to F.E Circular No. 07 /2003)
FOREIGN CURRENCY EXPORT FINANCE FACILITY (FCEF)
MODIFICATIONS TO ENHANCE THE UTILIZATION

1. The Facility

1.1 Credit lines to banks for export refinance. The Foreign Currency Export Finance Facility (the Facility), a self-liquidating facility, will be made available by ADB to the State Bank of Pakistan (SBP) through a US dollar loan to finance production of eligible exports. SBP onlends the loan funds to eligible participating banks (PCBs) in the form of credit lines. PCBs relend funds to eligible exporters in the form of sub-loans.

1.2 Terms of the sub-loan. The maximum size of a sub-loan is US$ 500,000. The maximum tenor of a sub-loan is 180 days. Exporters may avail of more than one sub-loan if this is supported by export orders.

1.3 Pricing of the credit lines to PCBs. PCBs will avail of the facility from SBP at a mark up rate of the 6 month LIBOR plus 75 basis points, covering the cost of funds to the Government and SBP. This rate shall be adjusted biannually i.e. at 15th March and 15th September each year. SBP will periodically notify the changes in mark-up rates through its circulars. At present, the mark up charged to PCBs is 1.93% per annum.

1.4 Pricing of sub-loans to exporters - Use of credit enhancements as collateral substitute. The PCBs will be free to determine lending rates to be charged to eligible exporters keeping in view the cost of funds, credit risk, and administration. PCB’s are encouraged to utilize credit enhancements such as guarantee cover provided by the Pakistan Export Finance Guarantee Agency (PEFGA) to exporters and PCBs for pre- shipment and post- shipment as collateral substitute and hence may adjust pricing of the sub-loans.

1.5 Reporting on an ex-post basis. PCB will report utilization monthly on an ex-post basis to SBP, Banking Policy Department, based on documentation provided by exporters to satisfy the eligibility criteria as specified in point 3.7 below.

2. Eligibility

A. Eligible Exporters

2.1. The Facility will be available to Exporters meeting the following criteria:

a) Exporters which report annual earnings up to the equivalent of US$ 2,500,000 from direct or indirect exports during the enterprise's preceding fiscal year.

b) The exporter has no outstanding non-performing loans to financial institutions.

c) The exporter has not received funding for the goods or services to be acquired with the proceeds of the Facility, from the EFS, or any other Government or SBP scheme or any other financing scheme of bank(s).

d) The exporter is in compliance with the current environmental and labor laws and regulations in Pakistan

e) The exporter can document the export transaction as specified in point 3.3 below

B. Eligible Exports and Inputs

2.2 Direct Exports. Exports documented through export orders, export letters of credit, export certificates or a guarantee instrument issued by the Pakistan Export Finance Guarantee Agency (PEFGA), may be financed under the facility for pre-shipment and post-shipment purposes:

a) Pre-shipment financing will normally be available up to a maximum of 80% of the value of the export. In case the export order is guaranteed by PEFGA, financing may be up to 100% of the guarantee value, whichever is higher.
b) Post-shipment financing will normally be available to the extent of shipments made up to 80% of the value of the export order. In case the export order is insured through credit insurance or payment is by irrevocable letter of credit, financing may be up to 100% of the value of the insured export order or the relevant letter of credit.

2.3 Indirect Exports. Domestic sale of goods to an established direct exporter registered with the Export Promotion Bureau for the past 3 years, or a domestic sale guaranteed by PEFGA, may be financed up to 80% of the value of the supply contract or 100% of the value of the PEFGA guarantee, whichever is higher.

2.4 Admissible inputs. The facility may be used for financing of imported and locally procured goods and services. Any imports to be financed under the facility shall be made from ADB member countries.

2.5 Ineligible products. The following items are not eligible for financing under the Facility
(a) Arms, ammunition and other military material,

(b) Radioactive and associated material,

(c) Nuclear reactors or parts thereof, fuel (cartridges), non-irradiated nuclear reactors.

(d) Luxury goods and consumer goods (i.e. electrical appliances, engineering and electronic goods) that are primarily for domestic consumption and not re-exported are not admissible for import financing

C. Eligible PCBs

2.6 All scheduled banks which have met, and continue to meet, the SBP's prudential banking regulations, minimum paid-up capital requirement, the income recognition and provisioning standards, and minimum capital adequacy ratios, are eligible PCBs.

2.7 A list of eligible PCBs and credit line allocation will be posted on the SBP website and updated from time to time, under the hyperlink i.e. “Incentive for Exporter” to our main web page.

3. Application, Liquidation and Reporting

A. Applications and processing

3.1 Request by PCBs for FCEF allocation. Interested PCBs shall submit a request to (Apex Unit) Banking Policy Department, SBP. A request for allocations by PCBs may be made by PCBs any time and shall be received by SBP at least 15 days prior to the end of each quarter, and specify the PCB’s commitments to eligible exporters in the preceding quarter, an estimate of the expected demand by eligible exporters for the forthcoming quarter and request an amount under the Facility. Apex Unit will examine the requests and thereafter allocate funds under the Facility in favor of the eligible PCB for on-lending to eligible SME exporters in line with availability and demand. {An Application form is attached as Form ’A’}

3.2 Adjustment of FCEF allocations. The SBP shall revise and if required re-allocate credit-lines to PCBs on a quarterly basis, [upon execution of the financing agreement as prescribed on Form B and D. P. Note on “Form - C" in favor of State Bank of Pakistan BSC (Bank), Karachi]. Any re-allocation will take into account actual utilization by the PCBs, financing requests by the PCBs, and cost of sub-loans given, with preference given in allocation to PCBs extending sub-loans at a lower cost. SBP will announce any re-allocations 5 days prior to the end of each quarter, and PCBs that find their allocation reduced are required to repay any unutilized amounts to SBP above the new limits by the end of the quarter.

3.3 Documentation requirements for processing of sub-loans. The PCB will collect and maintain separate files with the following information on exporters who obtain sub-loans under the Facility: (I) For Direct Exporters:

(a) Declaration of the exporter that exporter has not received financing for the requested transaction under the Export Finance Scheme and will not request such financing if export is being financed under the Facility or any other such as mentioned in para 2.1 (c).
(b) Customary legal documentation and records, including relevant Export Order / Letter of Credit, or export certificates, or guarantee instruments issued by PEFGA, or shipping documents that are adequate to record the use of the Facility and the realization of the export proceeds under the Facility.

(c) Declaration of the exporter that the exporter’s enterprise is in compliance with the current environmental and labor laws in Pakistan.  (d) Declaration of the exporter that exporter has no non-performing loans outstanding to any financial institution.

(e) Decla ration of the exporter that exporter will use the Facility to finance imported raw materials or goods or services from ADB member countries.

(f) Declaration that exports volume in the preceding year has not exceeded US$ 2,500,000.

(g) Declaration of the exporter that exporter will negotiate and handle the export documents including repayment of the sub-loan out of the export proceeds through the same PCB from which it has availed the sub-loan under the Facility.

(II) For Indirect Exporters:

(a) Declaration of the indirect exporter that indirect exporter has not received financing for the requested transaction under the Export Finance Scheme and will not request such financing if the purchase order is being financed under the Facility.

(b) Customary legal documentation and records, including firm purchase order from a direct exporter registered with the EPB for the past 3 years, or guarantee instruments issued by PEFGA.

(c) Declaration of the exporter that the exporter’s enterprise is in compliance with the current environmental and labor laws in Pakistan.

(d) Declaration of the exporter that exporter has no non-performing loans outstanding to financial institutions.

(e) Declaration that sales volume to direct exporters in the preceding year has not exceeded US$2,500,000.

B. Liquidation, remittances and payments

3.4 Liquidation of inward remittances. Sub-loans will be repaid by exporters through settlement of negotiation of the export letter of credit, or payment under export order to be repatriated to Pakistan and encashed with the PCB. [Such inward remittances will be reported on form "R" Schedule "J" with code number 9711. ]

3.5 Exports to Asian Clearing Union (ACU) member countries. In case of export to ACU member countries, where export proceeds are not realized in convertible currencies, Authorized Dealers have the general permission as per Foreign Exchange Regulations to make remittances of the amount of principal / markup less taxes at the current exchange rate.

3.6 Payment of mark-up and repayment of FCEF allocations by PCBs. When the facility is repaid, the entry for repayment of the facility & markup thereon would be reported as an outward remittance under code No."1951- Principal" and "1211 – markup" respectively on schedule E-4.

C. Reporting

3.7 The PCBs shall submit to the (Apex Unit) Banking Policy Department SBP monthly status updates about the individual export contracts refinanced through the credit lines specifying amount, tenor, mark up rate, type of import, and client. {The reporting format is attached as Form ‘D’}.

3.8 PCBs will report utilization of foreign exchange proceeds of the export as “purchase” on Schedule A-1 for remitting the amount in the Special Account.

3.9 For the purpose of Balance of Payment statistics, the payment for the import would be reported on Form ‘I’ as a cash transaction and facility disbursed by theSBP would be reported as finances for import of goods utilized in the manufacturing of goods exported under its relevant code of commodities list - visible  eceipts/payments and sale / purchase from SBP on schedule D.

D. Audits and Misdeclarations

3.10 The PCB shall allow access to the SBP staff or designated representatives to inspect relevant records and documents at prior notice.

3.11 PCBs or exporters found to be misstating information or submitting false eligibility declarations will be excluded from further utilization of the facility. PCBs will be informed of ineligible exporters from time to time as the case may arise.

4. Others

4.1. FCEF Accounts. The Banking Policy Department will grant limit under FCEF to PCB, whereas SBP BSC (Bank) Karachi will maintain FCEF Account of the concerned PCB routed by their Head / Principal / Country Offices at Karachi by crediting their Nostro Accounts at the beginning of each quarter.

4.2. Foreign exchange conversion and cover. An eligible exporter, drawing on the Facility may convert the dollar facility, on the spot market, into Pak rupees in the inter-bank market. The PCB or PEFGA, as the case may be, shall ensure that the foreign exchange exposure is adequately covered by the exporter to limit risk exposure. In particular for indirect exporters who do not expect US$ receipts, PCB may arrange for forward cover as appropriate.

4.3. Compliance with other schemes. Opening of letters of credit for imports would be subject to all other existing regulations, including the Import Trade Control Regulations.

Form ‘A’
(Para 3.1)

APPLICATION OF LIMIT FROM PCB*

Name of the PCB:……………….

Address:………………………….

Date:……………………………..

The Director,
Banking Policy Department,
SBP, Karachi.

Dear Sir,

We hereby request for the sanctioning of below mentioned amount under the FCEF Scheme. We are liable to pay ------rate of markup on quarterly basis. We further undertake that the requested credit line will only be used in the light of the principles set under F.E. Circular No. 07 dated 17th April 2003 and subsequent circulars issued from time to time by SBP, in this regard.

(Authorized Signature)
              PCB

Form ‘B’
(Para 3.2)

FORM OF THE AGREEMENT TO BE OBTAINED FROM THE
CONCERNED/MAIN BRANCH OF THE PARTICIPATING COMMERCIAL
BANK (TO BE STAMPED AS AN AGREEMENT IN ACCORDANCE WITH THE
LAW IN FORCE IN EACH PROVINCE)

_________________ (Place)
_________________ (Date)

To,
The SBP, BSC(Bank)
(Name of SBP Office),
_______________________

Dear Sir,

In consideration of your agreeing to our request, to make available credit line under the Foreign Currency Export Finance (FCEF) facility in accordance with the  FCEF Regulations issued by you (FCEF Scheme) at your discretion to us against our request under Section 21(1) of the State Bank of Pakistan Act, 1956, not exceeding US $_________ (excluding mark up) against foreign currency provided by us for which amount we have delivered to you a demand promissory note in your favour carrying mark up at a rate mentioned hereinafter we agree as follows: -

(1) It’s hereby confirmed that the utilization of the above line of credit will be made in compliance with the principle of the FCEF Scheme and input, if imported, will be from the member countries of ADB and to be procured in accordance with normal commercial procurement standard, or inputs imported, under Duty draw back scheme, Duty and Tax Remission for Exports Rules 2001 and Common Bonded Warehouse Scheme, are meant to be used to produce export and it is understood that the aforesaid accommodation will be made and continued to be made on the faith of the truth and correctness of such certificates.

(2) We shall not extend finance in terms of this agreement unless we are satisfied that all parties liable thereon are financially sound and credit worthy and have a firm export order in the case of a direct exporter or an inland Letter of Credit / Standardized Purchase Order in terms of BPRD Circular No. 24 of 1999 or a firm supply order which is linked to an export order, in the case of an Indirect Exporter, do not have non performing loans towards financial institutions and are in compliance with the prevalent environment and labor laws, and that by such delivery we certify the genuineness of signature as well as the authority of all persons thereon. We undertake to advise you promptly of any change in the position of any exporter / borrower which can reasonably be considered to affect the security of the bill of exchange / demand / usance promissory note hereunder.

(3) The rate of mark up to be paid to you by us, shall be _______%. Mark up shall be payable by us to you on quarterly basis i.e. for quarter ended at 30th June, 30th September, 31st December, & 31st March each year. It shall be upon you to reimburse yourselves with the amount of mark up by charging the same to our current account with you.

(4) Without prejudice to your right to obtain repayment of the amount of advance outstanding at any time on demand, we undertake that the advance taken by us will be repaid by us within 3 working days after the closure of the respective quarter.

(5) Without prejudice to your right as creditors against us for the realization of any bill of exchange / demand / usance promissory note at maturity, we agree, if you so desire, to take at our expense, all steps as may be necessary to realize the money from our debtors and forthwith pay the same to you, to the extent we are required to pay our obligations in the manner as provided in Para 4 above and pending such payment, shall hold the same for and on your behalf.

(6) We agree that the fact of your not taking steps to enforce payment of such bills of exchange / promissory notes or any of them against the signatory or signatories thereon shall in no way release us from liability thereon and we further agree that it shall be unnecessary for you to give any notice of dishonor.

(7) We agree that in default of repayment by us on any bill of exchange / demand / usance promissory note or under the terms of clause 4 and 5 above, you have our authority not only to debit without further reference to us our Nostro accounts now held or which may be held here-after with you for the amount financed by you to us under any such bill of exchange / demand / usance promissory notes or under clause 4 or 5 above but also to adjust or set off such amount against any amount which may be due from you to us or come into your possession. We undertake not to question the correctness or propriety of such debits or set off on any ground whatsoever.

(8) The PCB shall maintain separate legal documentation and records, including relevant Export Order / Letter of Credit or export certificate, etc, adequate to record and monitor the use of the facility and realization of the export proceeds under the FCEF facility executed with their borrowers as the case may be, to ensure compliance by them with the stipulations contained in the Regulations and Guidelines of this facility, in accordance with the standard / prudent lending principles of Pakistan. The PCB shall allow access to the State Banks inspectors or to any other representative authorized by the SBP to inspect the relevant records and documents at any point of time during the currency of the Scheme.

(9) We agree that this Agreement, the bill of exchange / demand / usance promissory note executed by us and tendered to you in terms of clause 1 above for US $ ________________ (notice of dishonor of which promissory note is waived under Section 98 of Negotiable Instrument Act, 1881), and the securities / security documents mentioned in clause 15, shall operate of a continuing security for the said facility alongwith mark up accruing thereon and all costs, charges or expenses which you may be entitled to recover under law notwithstanding the existence of a credit balance at any time or any partial payments or fluctuations in accounts or withdrawal of any part of the security.

(10) If the borrower fails to utilize the loan exclusively for purposes specified in clause 1 and in accordance with the FCEF Scheme or use them for exports or effectthe shipment /  supply on or before the due date as mentioned in the export order or letter of credit or standardized purchase order or inland letter of credit, {except where such failure is in your reasonable opinion due to reasons beyond the control of the borrower}, we undertake that we shall report the name of such exporter as an ineligible exporter so as to exclude it’s name from FCEF.

(11) Any demand to be made by you under the agreement shall be sufficiently made if it is made in writing and addressed and sent by post or otherwise to our Head Office or our branch tendering the document mentioned in clause I above.

(12) We expressly understand that you are entitled to cancel this facility or to recall the advances at any time for any reason whatsoever or howsoever, without any prior notice to us and that you are entitled not to make any advance anytime under the aforesaid scheme and that we have acquired no right or claim for demanding advances from you by grant of your commitment of availability of credit under FCEF Scheme or by the execution of demand promissory note in your favour or by deposit of demand / usance promissory notes in question or by making a loan or advance to any borrower on the faith of this agreement or the continuing of the Scheme.

(13) We shall always remain liable as a principal debtor to you for the due repayment of the advances given to us under this Agreement.

(14) We agree that notwithstanding anything contained elsewhere in this agreement the amount of this loan alongwith the mark up prescribed will become due and payable by us if we commit breach of any of the terms and conditions of this agreement. We agree that you have our authority to decide whether we have committed breach of any of the terms and conditions of this agreement and that we shall not question such decision on any ground whatsoever.

(15) We agree to hold the securities / security documents now held or which may be held by us as security for the advances given to our borrower upon trust for you so long as any refinance in respect of these advances remain outstanding from us and by way of security for due repayment thereof with mark up and we undertake to deal with the same as you may direct. We further agree that if and when we realize these securities or any part of itwe shall pay over to you all such realizations, to the extent required to pay our obligation and pending such payment, shall hold the same for and on your behalf. We further, agree to assign / transfer to you, at your demand and at our expense, all such securities and security documents in your favour. We agree that despite such assignment / transfer, the provision of clause 5, 6 and 7 shall mutatis mutandis apply.

(16) Save as is otherwise provided in this agreement such contents of the Scheme as circulated vide FE Circular No. 07 dated the 17th April 2003 and any other Circularissued subsequently by SBP which are relevant to this Agreement shall be deemed to have been incorporated in this Agreement.

Yours faithfully,

For and on behalf of _____________________

-------------------------------------
(Name of the Scheduled Bank)

(Signature) ______________________

(Designation) ______________________

Form ‘C’
(Para 3.2)

Date:

Place:

DEMAND PROMISSORY NOTE

On demand, we _(name & address of the PCB)_ promise to pay to the State Bank of Pakistan BSC (Bank) ………… or order the sum of (Amount of Loan in figure and word) for the value received plus their share in the return to be derived by us as laid down in Foreign Currency Export Finance (FCEF) Facility obtaining on the date thereof.

(Authorized Signature of the PCB)

(Name & Seal)

(3.7)

FORM CONTAINING THE PARTICULARS OF FINANCING MADE UNDER FCEF BY PARTICIPATING COMMERCIAL
BANK(PCB) TO THE STATE BANK OF PAKISTAN ON MONTHLY BASIS FOR THE MONTH OF-------------------------------------.

Name of the PCB:……………….

Address:………………………….

Date...............................................

Date:……………………………..

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