KARACHI, March 15: The State Bank on Friday lowered the markup by 86 basis points on both pre-shipment and post-shipment export financing in foreign currency. But exporters say the rate-cut has to be supplemented by stable exchange rates to make the foreign currency export finance facility more popular.

The SBP informed all banks through a circular that it had cut the markup on pre-shipment and post-shipment export financing in foreign currency to 4.98 per cent from 5.84 per cent. The SBP said it had also reduced to 4.48 per cent from 5.34 per cent the markup in case of post-shipment financing where post-shipment insurance cover has been obtained by the exporter. The central bank said the new rates became effective from March 15.

“The rate-cut is not enough,” said an ex-chairman of Pakistan Yarn Merchants Association Rafiq Ibrahim. “You have to have a stable exchange rate to make the foreign currency export finance scheme more popular.”

The State Bank launched the scheme on March 28, 2001 with the financial help of Asian Development Bank and announced the rates of markup for the first time on April 22, 2001.

Since then the exporters have so far obtained less than $40 million as export finance in foreign currency—despite the fact that the original rates of markup was cut by 1.81 per cent in September last year.

The foreign currency export finance facility was originally designed to help exporters buy domestic inputs and finance the import of inputs and raw materials. It was also meant to give small and medium-sized exporters an access to export financing.

The facility is a dollar-based window and is self-liquidating i.e. exporters can sell the dollars borrowed under this facility in the inter-bank market to generate rupee funds.

Senior bankers say the majority of exporters has been using this facility for the same purpose particularly after September 2001 when the rupee started its upward movement.

Exporters sell foreign currency export finance at prevailing exchange rate to meet their requirements. This effectively means raising rupee funds at a much lower rate than the export finance available in rupees.

Currently rupee-denominated export finance is available at 7.5 per cent. Now as the markup on foreign currency export finance has come down to roughly 5 per cent the exporters will be generating rupee funds at a rate lower by 2.5 per cent than the rate of rupee -based export finance.

But if the rupee declines by say 2.5 per cent in the period for which the foreign currency export finance has been obtained then the foreign currency export finance would effectively cost them 7.5 per cent.