Exim Bank selects adviser for Islamic trade finance products

KARACHI: Export-Import (Exim) Bank of Pakistan has selected a local leading Islamic bank as consultant to advise it on developing shariah-compliant trade finance, insurance products and services as the bank gears up to launch operation, sources with knowledge of the matter said.

The adviser will help to develop and customise insurance, known as Takaful, and guarantee products and services, capacity building of personnel, underwriting process and shariah-compliant risk management.

“The EXIM Bank approached a few banks for acquiring consulting services for its operationalisation under the project being funded by the Islamic Development Bank,” a source said. “Now a large shariah-compliant lender has been selected for working on the project.”

This development, along with the approval of the enactment of Export-Import Bank of Pakistan Bill 2020 by the federal cabinet, would indicate that the government is moving forward with the operationalisation of the Exim Bank, which is still pending for the last five years.

Pakistan needs to promote foreign trade and boost exports, improving its competitiveness in the international market place.

The objective of the Exim Bank is to provide trade financing, trade credit insurance, equity participation and trade services, according to the EXIM Bank Act. The bank will act as the official export credit agency of the country, it said.

The bank will also be responsible for facilitating exporters with providing facilities such as export credit guarantees, financing for working capital and capital goods, project financing together with bid bonds, etc.

Bankers said the bank would wait at least six months to get started as the act has not been passed by the parliament so far.

“The government has recently appointed the board of directors of Exim Bank and president / chief executive. Further, the Exim Bank of Pakistan Act is under approval process with the Federal government,” the State Bank of Pakistan said in an email reply to The News.

“Once this Act is approved / promulgated by the parliament, the bank will apply to SBP for commencement of business after fulfilling all regulatory requirements.”

Ehsan Malik, CEO of the Pakistan Business council said what Pakistan needs is an institution that provides a combination of export credit guarantees and export credit funding especially to SMEs.

Traditionally the Export funds of more developed countries provide both. However, they are mainly focused on promoting export of plant and machinery whereas Pakistan needs both plant and materials, he noted.

“The export credit role is important as Pakistan needs to diversify export destinations. As you know over 50 percent of our exports go the relatively credit-secure USA and Europe. Whereas we export hardly much to Africa where there is high credit risk. SMEs especially are unable to take this risk. A challenge in the past has been to allow a bank to offer insurance,” Malik said.

“Hopefully the Exim Bank of Pakistan can do both. Commercial banks are already providing subsidized credit under SBP schemes but this is mostly to larger exporters. The Exim Bank should have a role in extending credit to SMEs.”

The Exim Bank was set up in 2015 with aim to promote expansion and diversification of the export base of the country by providing short term export credit facilities and long term financing facilities for setting up export oriented projects. But it’s still not operational.

The Islamic Development Bank approved a technical assistance grant of $277,200 to support the operationalisation of the Exim Bank last year. The Asian Development Bank also approved grant of $500,000 for the bank in 2018.