Refinance Scheme Unit RSU

SBP-BSC

Refinance Scheme Unit RSU
2014
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State Bank of Pakistan SBP-BSC

Report on Refinance Scheme Unit (RSU)



Submitted To: Mr. Nadeem Ahmad (Unit incharge)

Submitted By: HiraFayyaz& Muhammad Ihsan




Refinance Scheme Unit RSU


SBP-BSC

Refinance Scheme Unit RSU
2014
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Introduction of this unit:
Refinance department works underBSC (Banking Services Corporation). It was introduced in
1973 to fulfill the emerging requirements for promoting the exports. Refinance department
provide funds at low interest. Certain terms and conditions are applied on the commercial banks
and the exporters by the department of refinance for sanctioning the loan E.g. EE limits and
credit limits. Refinance department provide loan only to those export products which are
approved by the Ministry of Finance. In short the major reasons for developing the refinance unit
are as follows:
1) Boosting the exports of value added items
2) Financing on the subsidized interest rates
3) Short-term financing
4) Manufacturing of the value added goods
5) Maximize the foreign exchange
Refinance scheme deals with:
Department of refinance deals with the four types of the functions which are discussed as follows
1. Granting loans
2. Repayment and refund
3. Fines charging
4. Onsite verification



Refinance Scheme Unit RSU


SBP-BSC

Refinance Scheme Unit RSU
2014
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Granting loans
Exports refinance schemes:
In fact these are the different ways under which this department provide loan to the export
business
These are categorized into two parts.
1) Shipment based refinance scheme (also called transaction based)
It is further divided into two parts
i) Pre-shipment based refinance schemes
ii) Post-shipment based refinance schemes
2) Performance based refinance schemes
Part 1 Shipment based refinance schemes:
It relates to the sanctioning of the loan before or after the shipment of the products involved into
the exports. Firstly we shalltake a look at pre-shipment based loans
Pre-shipment based refinancing:
Requirements
1) DP note
2) Form D
3) Certification (between exporter and the commercial bank)
4) Overdue certificate
Firstly we shall take a look at DP note.

Refinance Scheme Unit RSU


SBP-BSC

Refinance Scheme Unit RSU
2014
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DP note:
DP note stands for Demand Promissory Note. It shows the total amount of loan and the date and
100 worth post tickets are used as legal requirement that may vary from province to province. It
is dually signed by all the parties.
Form D:
Form D contains the export information both the details of exporter and niceties of the product to
be exported.
In the detail of exporter following things are included
Name of the exporter,
Address of the exporter,
National tax number etc.
In the product details it is checked that the product which is going to be exported are from the
eligible. Type of product and its 8 digit harmonized code (HS code) which refers to the ministry
of finance issued code.
It also involve the details relating to the nature of contract of the exporter fixed rate on the loan
or the spot rate which is determined and the maturity period of the loan,those are 180 days. And
after 180 days refinance department debit the account of the bank weather it provides the
authority letter or not. The risk is associated with the commercial bank involved in this process.
Overdue certificate:
Overdue certificate showsthe unrealized payment of the exports. This is used for the
calculation of the credit limit. The process of determining the credit limit is as follows.
Firstly calculate the total amount of loan issued to the exporter then multiply it with 2 that will
provide the total Export Earnings. Credit limit is the 5 % of the EE that a party can outstand the 5
Refinance Scheme Unit RSU


SBP-BSC

Refinance Scheme Unit RSU
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% before taking the further loan.
Post-shipment Case:
It involves the taking loan after shipment. When the exporter makes shipment of the export
goods and realizes that there are not sufficient amount for further business than the exporter take
loan from bank.
Just like as pre-shipment case
The main difference between the pre-shipment and post-shipment is that in pre-shipment
exporter take loan first than shipments are made, but in post-shipment exporter make shipment
than take loan for other work.
Part 2 (performance based)
This section includes:
DP note
Form D
Request Letter
Execution Letter
Schedule to Form EB
Form DE (detail of exports)
Undertaking
Like part 1 all the transactions are same for granting loan. First of all DP note issued in which
amount of loan is written. Than Form D (name, address, NTN of exporter etc.) and then the
Request letter isissued by the exporter to bank for the request of loan. After that Execution
Letter issued in which the amount of loan is executed to the exporter, date of contract must be
within the financial year. In this letter Section 17 4(C) of SBP-BSC Act indicates all the terms in
which loans are granted.
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2014
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Schedule to Form EB stands for export borrower. Name of the exporter, amount of loan and
date of granting loan is same as written in DP note. Form DE includes the detail of exports
which shows the amount utilize and amount due.
Undertaking includes the following information:
Amount of finance and the rate charged that is 9.4 %
Mode of finance
Exporter promise that during or before the shipment he will not obtain loan from any
other bank.
Exporter tells that he is a direct exporter.
Exporter indicates that the commodities are eligible (under finance scheme)
Exporter indicates that the loan will be used for export or manufacturing purposes.
If the exporter does not pay the loan within the time limit than he will be liable to pay
fine which is imposed on non-payment or delay payment as the case may be.

REPAYMENTS & REFUNDS
After the expiry of loan the systems automatically debit the account of the particular bank to
deduct the amount of loan. These systems are automated. For this purpose Debit Authority is
necessary. The approval from the bank is necessary for the deductions of amount at maturity
date. If there is no sufficient amount than tell the particular bank to update their accounts.
In case of early payments :
If the bank repay the loan before the maturity date or 180 days than the interest rate is calculated
on the basics of actual days due.
In case of partial repayment:
If the bank repay loan in partial payments,some amount of loan is repay and some is due than the
interest rate charged on other payment only.
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2014
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Repayment rate is fixed at 8.4% (up to 1.5% spread of bank).
In ISLAMIC BANKING, monthly rate decided by Shariahthan intimate to banks
Refund Case
(Performance under refinance part 2)
Performance based Markup Refund
Refund Rate
Double performance no refund
Performance up to 3 times 0 %
Performance up to 4 times 0.5%
Performance up to 5 times 1 %
Performance above 5 times 1.5 %
How to Calculate Performance:
Borrowing product:
Amount of loan * no of days
Performance product:
Actual amount * no of days
Performance =(performance product/borrowing product)* 2
Answer in (Times)

Refinance Scheme Unit RSU


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Refinance Scheme Unit RSU
2014
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Loans for Boosting up Textile Industry:
This scheme starting from 2009-14 in which banks take loans especially for textile. In case of
purchasing machinery textile industry takes loan but not a refinance than bank provide them the
subsidiary of refund at 2.5%.
Fine charging:

Refinance department was developed for the purpose of promoting the exports business and the
loan is granted with certain terms and conditions that must be followed by the exporter and the
commercial banks both. State bank has a proper follow up to point out these problems. This
department has its own team who goes into the field and verifies all the information provided by
the client. Fine charging ratios can be shown as follows:
Access limit fine42p
Non shipment fine37p
Delayed shipment28p
Short shipment fine28p
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Late repayment fine42p
Misreporting fine 1 mistake =100 maximum 1000 each form
Default fine 2000 + number of days*100
Number of days refers to the days by which the shipment is delayed from the original time.
These fines are also refundable when the mistakes are removed. A certain time period is given to
the customer in which if he cover up that mistake for which it was charged fine and after that if
client is successful then by taking a specified amount and remaining amount is is returned.
Returning period criteria by the BSC is fixed up to three years. And no refund will be after that
time period. Each fine is charged per 1000 rupee.
On sight verification:
On sight verification is very necessary to avoid fraudulent activities by the clients. A special
team by the refinance department is given the task of on sight verification. On sight verification
is done on the basis of the following documents.
1) New contract or the old contract or letter of credit
2) E-form
3) Commercial invoice
4) Bill of lading
These documents must be checked in the above mentioned order first of all the contract between
the exporter and the importer or the latter of credit then the E-form is verified and then the
commercial invoice that all the items included in to eligible items list by the ministry of finance
like yarn or white cloth is not approved and loan is not sanctioned for that export. In the end bill
of lading to verify the shipment dates
Problems:
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SBP-BSC

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2014
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As whole the environment is very good and conducive towards achieving maximum efficiency
but we have seen two major problems
1) IT is still at the developing phase and at some places very out dated technology is being still
used
2) Working environment is not as comfortable as the private or commercial banks provide to
their employees.