KARACHI, Oct 28: The liquidity crunch faced by the banking sector started to take its toll on export trade as most of the scheduled banks are refusing export refinance fund to exporters.

Steep depreciation in the rupee value against dollar should have worked as an impetus for export trade at a time when the country badly needs foreign exchange but short liquidity to meet export commitments was inhibiting exporters to increase their trade volume.

About 18 months back the State Bank of Pakistan (SPB) launched a scheme under which scheduled banks were asked to arrange funds for export refinance scheme up to 30 per cent and the remaining balance of 70 per cent for the scheme would be coming from the central bank.

In the past, entire amount allowed under export refinance scheme was provided by the State Bank but a change was made to curb liquidity and high inflation in the market.

Under export refinance scheme, exporters are given funds on discounted rate of around 7.5 per cent against normal bank interest rates of around 12 to 13 per cent.

Though the banks had always been reluctant to give export refinance which fetches less profit against normal loaning at higher interest rates, recent liquidity crunch in banking sector has further squeezed funds and exporters are almost deprived of such cheap and discounted fund required for export trade.

Many trade bodies have approached the SBP suggesting that the entire export refinance should be taken back by the central bank and this way it would not only help remove exporters’ complaint but would also ease liquidity position of scheduled banks.

There had been reports that the scheme was being badly abused and misused by some unscrupulous elements. Instead of using cheap finance for export trade, these funds were being diverted toward purchase of real estate or were put under different bank schemes giving higher rates of return.

In order to check such malpractices, many trade bodies have given various suggestions to the SBP which could help check diversion of cheap funds to other lucrative investments at the cost of export trade.

Pakistan Hosiery Manufacturers Association (PHMA), Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea), Towel Manufacturers Association (TMA) and Pakistan Bedwear Exporters Association have made such suggestions to the central bank which could help check misuse of export refinance scheme.

The export refinance scheme under part-I allows cheap funding against Letters of Credit (L/Cs) and under part-II it gives such funding on performance which is based on previous year exports.

According to these trade bodies, it is the part-II of the cheap funding which attracts misuse because huge funds based on performance are given to exporters but are diverted to other lucrative businesses, including real estate and higher interest rates of banking system.

The SBP has been asked to change present refinance scheme and instead introduce different slabs based on period.

Leaders of these trade bodies want to make the scheme foolproof so that only genuine exporters could benefit from cheap finance.

These trade bodies have further suggested that on giving export refinance for a short period of 75 days, the markup or interest rate should be lesser around four per cent and above that period and up to 90 days, the rate should be at 7.5 per cent and for a period above 90 days and up to 180 days, the markup should be at 8.5 per cent.

Any payment of export proceeds exceeding 180 days should be charged at commercial rate.