KARACHI, Jan 31: The State Bank has devised a special foreign- currency based scheme for exporters to help them borrow money from banks at a fixed rate for up to seven years to import plant and machinery for capacity enhancement.

"The scheme designed in consultation with the Export Promotion Bureau is now awaiting approval from the ministry of commerce," EBP Chairman Tariq Ikram told Dawn.

He said the scheme should particularly benefit small and medium-sized exporters who lack enough financial resources to import expensive plant and machinery for capacity and capability enhancement. He said under the scheme exporters would be able to secure fixed-rate loans for five to seven years for import of plant and machinery; developing IT infrastructure and acquiring or getting franchise of brand names.

Mr Ikram said only eligible exporters would be allowed to borrow money from the banks under the scheme. "We will invite applications from exporters and get the facts stated by them and verified by our consultants before recommending them as eligible borrowers." He said the SBP had prepared a comprehensive document containing the conceptual and procedural details of the scheme.

Sources at the SBP confirmed that the document had been finalized, adding the same was awaiting approval from the ministry of commerce. They said the central bank might introduce this scheme any time in February 2004 - after the approval from the commerce ministry.

They said under the scheme the banks financing the import of plant and machinery would not have to arrange currency from their own resources. The central bank will provide them the required foreign exchange for this purpose - and they will lend money to the eligible exporters in rupees and not in foreign currency.

The sources said though the borrowers would be charged a fixed rate of interest on their five-to-seven-year loans secured under this scheme, the rate will keep changing every six months. They said the SBP would use the yield on five-year Pakistan Investment Bonds as a benchmark for pricing these loans. This means that the interest rate on these loans would be a few hundred basis points above the weighted average yield of the five-year PIBs.

The SBP sources say under the scheme the banks may be allowed to charge an interest rate 200-250bps above the yield on five- year PIBs. Since the last weighted average yield on the five-year PIBs was around five per cent businessmen are expecting that they would get loans under the proposed scheme initially at 7.0-7.5 per cent.

"The EPB had consulted us while working on this scheme with the State Bank and we were told that loans under this scheme would be available at 7.0-7.5 per cent," said a leading textile exporter Iqbal Ibrahim. He said the scheme would specially benefit the small and medium-sized exporters who had difficulty in borrowing foreign currency loans from the banks.

"Big exporters are already getting foreign currency loans from the banks," he said. Mr Ibrahim said top textile companies were borrowing FCY loans at LIBOR (London inter-bank offered rate) plus one per cent. Six-month LIBOR being a little less than 1.2 per cent at present "these exporters are able to generate foreign currency funds at around 2.2 per cent". But bankers told Dawn that not all exporters were getting FCY loans at that cheap price.

They said the banks charge some customers LIBOR plus 1.5 per cent and even more on foreign currency loans depending upon their credit worthiness.

The SBP sources said under the proposed scheme for financing capacity enhancement the eligible borrowers would be allowed to borrow as much money as they want. "There will be no floor - no cap on lending (under this scheme)," confirmed an official of the SBP, who declined to be named.