KARACHI: The State Bank has decided to introduce a Modaraba-based Islamic Refinance Scheme for working capital financing of small and low-end medium enterprises.

The central bank on Wednesday said that it will make Modaraba investment in general pool of Participating Islamic Financial Institutions (PIFIs) under the scheme.

The financing will be initially available for information technology, furniture, gems and jewellery, leather industry, surgical goods, dates processing, fruits, vegetables and food processing and packaging, and printing and packaging.

Small enterprises (SEs) for SME financing are eligible under the scheme while medium enterprises (MEs) with annual sales turnover of up to Rs300 million can also avail the scheme. Maximum financing limit for MEs is Rs50m, with a maximum financing tenure of one year.

The banks and DFIs may submit their requests for the status of PIFI. They may also apply for allocation and assignment of limit under the scheme. The SBP said these requests may be submitted within 30 days from the date of issuance of this circular.

The funds made available under the scheme to PIFIs will be provided by the designated offices of the SBP under the limits conveyed by the concerned department of SBP in favor of each PIFI. The SBP will review the utilisation of limits by the PIFIs periodically (quarterly) and may cancel or reduce the unutilised limit. No PIFI will be authorised to sanction financing with a view to merely utilise the limit under the scheme, said the SBP.

The financing will be allowed against a single or multiple underlying transactions, designed on the basis of Islamic modes of financing, approved by the Sharia Board of the concerned PIFI. The PIFIs will not take more than 15 days in case of SEs and 25 days in case of medium enterprises MEs in evaluating an application for financing under the scheme from the date of receipt of complete information from the customer.

According to the SBP circular, disbursements by PIFIs should not be made to the customers directly. Payments will be made to the suppliers of the customers. The expected rate of return on financing provided by the PIFI to its customer under the scheme may not exceed rates announced by SBP on similar refinance facilities. The SBP expects profit rates or return on its investment close to its return on such type of refinance facilities.

The expected rate of return on financing once fixed will remain locked-in for the entire duration of the financing, provided that the customers continue to pay all scheduled amounts at the respective due dates.

“The SBP’s investment in the general pool will be assigned profit sharing ratio and weightage keeping in view SBP’s expected rate of return as well as PIFI’s policy and practice for such type of depositors in the general pool. Such weightages shall be used to calculate profits on SBP investments,” said the SBP.

Published in Dawn, August 8th, 2019