KARACHI, Jan 7: In all limitations that besets the export trade, the Pakistan Export Finance Guarantee (PEFG) Agency has started providing pre-shipment guarantee to the exporters, and is now well set to offer post-shipment insurance cover to exporters.

“The Agency is negotiating an arrangement with the Islamic Corporation for the Insurance of Investment and Export Credit,” the Chief Executive of the PEFG Agency S.M. Zaeem said on Monday.

Simultaneously, the negotiations are under way with an international export credit agency in the US and others in London, and Zaeem hoped PEFG Agency to be in a position to offer post-shipment insurance cover to the exporters in next four to six weeks.

Officials say that there are only about 25,000 licensed exporters in Pakistan. Of them, only 5,000 exporters are active and they cling to hardly two dozen items, bulk of which are textile related goods and their market reach is confined to hardly 15 countries or so.

Pakistan’s export trade received a severe setback after September 11 incident and latest figures of six month export reveal that total export earnings stagnate around 4.5 billion dollars.

Federal Commerce Minister Abdul Razak Dawood has also predicted a shortfall of 1 billion dollar in export target of 10.1 billion dollar.

It was in this utterly dismal and highly volatile business environment that PEFG Agency was set to work. It was launched in July last but started operations in October.

Since October, the Agency has offered more than Rs 57 million pre-shipment export credit guarantees to 30 exporters dealing in a variety of goods that include textiles to marbles and softwear.

All clients are small exporters, many of them would not be acceptable to banks with guarantee from the PEFG. The Agency will make a big leap forward in February or March when it starts offering post-shipment insurance cover and factoring facility to the exporters. These will cover the political risk, war and civil disturbance. Under the factoring facility, the 120 days export credit bills can be paid within 90 days without recourse. The only condition is that goods should be acceptable to buyers and according to his specifications.

The ICIEC is an organisation within the Islamic Development Bank framework with an authorized capital of about 150 million dollars. It provides insurance cover for banks and exporters against non-payment of goods dispatched to buyers that result from commercial or non-commercial risks.

The PEFG Agency has also been asked to become agent of the ICIEC for which permission has been sought from the Securities and Exchange Commission of Pakistan.

Formally launched in July last the PEFGA is a public limited company with authorized capital of Rs610 million. It has a paid-up capital of Rs120 million. The PEFGA has been set up with the assistance of Asian Development Bank, two nationalized banks and 11 private commercial banks.

The Agency will provide a comprehensive range of export trade finance guarantees to the direct and indirect Pakistan exporters focussing on small and medium sized exporters. Export finance guarantees to be issued by the Agency will serve as a substitute for traditional collaterals for the banks.

“In the initial phase, the PEFGA will set itself achievable target of 80 million dollars guarantee business equal to 1 per cent of the current export volume of Pakistan,” declares a publicity brochure of the company.

The Agency has set itself on a task of arranging initial working capital for the small and medium size enterprises. The Agency will issue bankable guarantee on behalf of new and small exporter to any of its partner banks to provide finance from 100,000 dollars to 2.5 million dollars transaction in a year.

While the PEFGA will guarantee 80 per cent of the performance risk leaving 20 per cent to be underwritten by the member banks.

Premia of the Agency will tentatively range from 1 per cent to 4 per cent in case of single transaction and may go even lower than 1 per cent in accordance with the risk Agency assumes and the type of services obtained on a turnover basis. It will levy a 0.25 per cent fee per transaction or with an initial charge of Rs 10,000 for repeat transaction negotiable.

The PEFGA with Asian Bank-sponsored country political risk guarantee cover has acquired a special significance for small and medium exporters in the current scenario when export trade is threatened.