State Bank expands scope of Covid refinancing facility

KARACHI: The central bank has expanded the scope of temporary economic refinance facility to provide concessionary loans to businesses for undertaking balancing, modernisation and replacement, it said on Friday.

“In addition to the new projects, existing projects/ businesses are being allowed to avail financing under these facilities for undertaking balancing, modernisation and replacement (BMR) and/or expansion of their projects/ businesses,” the State Bank of Pakistan (SBP) said in a statement.

In March, the SBP announced a temporary economic refinance facility and its shariah-compliant version to stimulate new investment in manufacturing. Under the scheme, the SBP would refinance banks to provide financing at a maximum end-user rate of 7 percent for 10 years for setting up of new industrial units. The total size of the scheme is Rs100 billion, with a maximum loan size per project of Rs5 billion.

The measure was taken to help businesses combat economic implications of the coronavirus lockdown.

The central bank said it expanded the scope of the refinancing facilities on the basis of feedback from stakeholders. Banks, development finance institutions and borrowers are required to ensure proper utilisation of the facilities.

“As per TERF’s/ITERF’s (Islamic / temporary economic refinance facility) eligibility criteria, financing for BMR/expansion will only be available for purchase of new imported and locally manufactured plant and machinery against foreign LC (letter of credit) and inland LC, respectively,” the SBP said. “Second-hand machinery, land or civil works are not covered under the facilities.”

Banks/DFIs will be required to make disbursements to their customers on the basis of certificates of their internal audit confirming that financing is within the terms and conditions laid down in the facilities. A copy of the internal audit certificate should be submitted to the concerned office of SBP at the time of availing refinance for the first time for a project/ business while copies of certificates in respect of subsequent disbursements may be submitted at the time of availing last refinance for the same project/ business.

In case of consortium finance the lead bank will be required to submit the certificate.

The borrowers concerned will be required to submit a report from Pakistan Banks’ Association approved surveyors (acceptable to bank/DFI concerned) with regard to confirmation that the newly purchased plant & machinery has been installed as per their initial request/proposal for BMR/expansion. In case of installation/fixation in part, this report will be required at first and final installation of the plant/equipment.