STRENGTHENING THE COTTON-VALUE ADDITION LINK

FINANCIAL ASSISTANCES TO GINNERS ARE A STEP IN RIGHT DIRECTION

AMANULLAH BASHAR
Sep
 07 - 13, 2009

It is probably for the first time that the central bank has diagnosed the weakest link between cotton and value addition in the textile sector and has evolved a meaningful scheme for modernizing the ginning technology in Pakistan.

The step is expected to produce quality cotton imperative for upgrading our textile products.

With a view to encourage cotton ginners to modernize their factories and to produce quality ginned cotton for the textile value chain as well as to meet the shortage of electricity, it has been decided to provide financing facilities on the following terms & conditions.

ELIGIBILITY CRITERIA

i) Financing shall be available only for Balancing, Modernization and Replacement (BMR) of Cotton Ginning Factories.

ii) Cotton seeds crushing machinery installed in the premises of ginning factories shall also be eligible to avail financing facilities under the Scheme.

iii) Financing shall be available for purchase of only new locally manufactured plant, machinery & equipment.

iv) Financing for purchase of new generators up-to a maximum capacity of 500 KVA shall also be eligible. The capacity of generator shall, however, not be in excess of the ginning factory's in-house energy requirements or upto 500 KVA whichever is less.

v) Only SME borrowers, as defined in Prudential Regulations for SMEs, shall be eligible to avail financing facilities under the Scheme.

vi) This Scheme shall be effective from the date of issuance of this circular and shall remain valid only up to December 31, 2010 on first come first served basis and subject to availability of funds under the Scheme.

PERIOD OF FINANCING AND GRACE PERIOD

Financing under the Scheme shall be available for a maximum period of seven years including a maximum grace period of six months.

RATES OF MARK UP

i) The rates of mark-up under the Scheme shall be as under:

TENOR RATE OF REFINANCE BANKS' SPREAD END USERS' RATE
Up-to 3 years 6.00% 2.00% 8.00%
Over 3 years and up-to 5 years 6.50% 2.50% 9.00%
Over 5 years and up-to 7 years 7.00% 3.00% 10.00%

ii) Financing rates shall be revised on annual basis effective from July each year.

iii) The rate of mark-up once fixed shall remain locked-in for the entire duration of the loan, provided the borrowers continue to repay all scheduled installments by the respective due dates. Similarly, in cases where the loan amount is not disbursed in full during the validity of an applicable rate, the un-disbursed amount shall attract the new rate of finance/refinance applicable on the date of its disbursement by the bank/DFI.

PARTICIPANTS

Financing facilities under the Scheme shall be provided through all commercial banks and Development Finance Institutions (DFIs).

AVAILABILITY OF FUNDS

Financing under the Scheme shall be provided by the banks/DFIs on first come first served basis within the overall amount earmarked for the purpose. While adequate funds have been earmarked for the Scheme under reference, the banks/DFIs shall, however, be required to approach SME Finance Department, State Bank of Pakistan, before release of finances to the borrowers for confirming the availability of funds. State Bank will respond to the concerned bank/DFI within three working days in this regard with a copy to the concerned office of the SBP BSC (Bank) from where it will avail refinance.

GRANT OF REFINANCE

i) The State Bank shall provide refinance to each bank/DFI on service charge (mark-up) basis in terms of Section 17 (2) (d) read with section 22 of State Bank of Pakistan Act 1956.

ii) Refinance shall be allowed to the Banks/DFIs by the concerned office(s) of SBP BSC (Bank) on submission of documents as may be required by State Bank.

REPAYMENT OF THE LOANS

Principal amount of loans shall be repayable in equal quarterly/half yearly installments after prescribed grace period, if any. However, if a borrower repays the loan amount or its installment, in part or in full, before the due date(s), the banks/DFIs shall be under obligation to repay the amount(s) so received within three working days to the concerned office of SBP-BSC (Bank) failing which fine for late adjustment of loan will be recovered from the concerned bank/DFI, at the rate specified by the State Bank.

ii) The refinance granted by SBP-BSC offices to the Banks/DFIs shall be recovered on the due dates as reported in the original repayment schedule from the account of the banks/DFIs maintained with the respective office of the SBP BSC (Bank). In case the borrowers fail to make repayment of the amount of installment as per the original repayment schedule, the bank/DFI will be entitled to charge normal rate of mark up on such overdue principal amount besides taking other actions to recover the same as are incidental to such defaults. In no case the liability of banks/DFIs to pay/repay to SBP BSC the principal amount of refinance, or mark up or any other charges or penalty thereon shall be dependent upon the recovery from the borrower nor shall such liability be affected by any default on the part of the borrower, while mark-up shall be paid on quarterly basis.