The House Financing and Auto Financing, which
responded overwhelmingly, the banking and financial sector will be
extending financing facilities to the Locally Manufactured Machinery (LMM)
at the mark up rates determined by the market forces.
The policy of opening the doors for the automobile
and housing and construction industries have already proved a great
success and the two sectors have registered an unprecedented growth rate
last financial 2003-04.
The decision to extended financing facility to the
local manufacturers of the machinery would certainly help economic
growth in multi-dimensions besides paving way for downstream engineering
shots and create tremendous jobs opportunities.
The banking Policy Department of the State Bank of
Pakistan (SBP) has announced that under the revised scheme for financing
LMM, the banks and financial institutions will get refinance from the
SBP at the weighted average yield on 6-month treasury bills against
their financing to manufacturers of LMM for up to six months.
Against their financing to the manufacturers of LMM
for more than six months but up to two years, they will get refinance
from the State Bank at the weighted average yield of last two auctions
of one-year Treasury Bills.
Where banks and other financial institutions provide
financing to purchasers of LMM the rate of refinance will be average of
weighted average yields of last two auctions of the five-year Pakistan
Investment Bonds. This rate will be determined on annual basis on July 1
According to policy, the banks and development
financial institutions will be free to charge a maximum spread of two
per cent on the refinance while pricing their loans to the manufacturers
or purchasers of LMM. It may be mentioned that earlier to this policy,
the banks were charging a maximum spread of 1.5 per cent.
The repayment period under the revamped scheme has
been kept flexible ranging from 6 months to two years for the
manufacturers and up to a maximum period of seven and half year for the
purchasers of locally manufactured machinery.
The rate of refinance for financing up to six months
is two per cent and for financing exceeding six months but up to two
years is 2.5 percent for the current financial year.
This leads to calculate that the banks and other
financial institutions may charge up to 4 per cent markup on financing
up to 6 months and 4.5 per cent on financing for two years.
For the borrowers requiring financing for two to
seven and half year they can charge a maximum mark up of seven per cent.
The State Bank will be providing refinance against it at five per cent.
More importantly, the rates of finance/refinance on
the outstanding amount once disbursed/availed will remain fixed for the
entire period of financing provided the borrowers continue to pay the
mark up and principal on due dates.
There will be no maximum limit for borrowing under
the scheme. But the State Bank suggests that if the borrowing demands
exceed Rs300 million it would be prudent for banks and other financial
institutions to provide consortium financing to diversify risks.
The banks and other financial institutions would,
however, enjoy discretionary powers to decide whether to approve or
disapprove the request of the borrowers within two months of the
submission of the requests for such a loan facility.
The participating financial institutions in this
scheme will be leasing companies, investment banks and modarabas besides
the banks and financial institutions. Their approval as a participation
financial institution will be linked with their equity base and the
rating assigned to them by the rating agencies on approved panel of the
The participating financing institutions will be
allowed to provide financing facilities for all items of locally
manufactured machinery, equipment and accessories used in the approved
list of industries. The eligible under this scheme are fisheries/dairy
and livestock products, light engineering, marble and granite, gems and
jewellery, leather garments, boat manufacturing, local vendors
manufacturing parts of automobile, powerlooms/auto/airjet for units to
be set up in the power loom clusters being established in different
parts of Pakistan, units to be set up in the ceramic clusters being
established in different parts of the country, equipments used for
cutting and polishing of marble and granite and manufacturing of
handicrafts thereof. Financing can be available for setting up units for
preservations/packaging of fruits and vegetables, wooden furniture,
handicrafts made from wood and other metals.