LAHORE, March 5: Pakistan Export Finance Guarantee Agency has issued export trade finance guarantees worth $350,000 to some 13 new and old small and medium exporters since September when it started its operations.

“Besides, we have processed several cases involving guarantees to the tune of $500,000 and forwarded them to banks for advancing export credit,” PEFG market research analyst Sajjad Haider Malick told Dawn here on Tuesday.

In all, the PEFG has received 60 applications for export trade guarantees. Many of them involving guarantees over $1 million are under consideration.

The export finance guarantees issued by the PEFG range between $5,000 and $500,000, showing a wide spread. The agency guarantees 80 per cent of the exporter performance risk, leaving the rest of 20 per cent with the partner bank. Unlike the commercial banks or financial institutions, which either do not entertain the requests of new and small exporters or demand hefty collateral, the agency requires the borrowers to furnish a security equal to 50 per cent of the risk covered by it.

The guarantees also help exporters obtain the rest of 20 per cent credit from the bank by depositing equal to the amount of the loan.

The PEFG charges a premium of 1-4 per cent on its export trade finance guarantees, depending on the risk involved, for 90 days.

“It is pre-shipment financing and the borrower has to pay back in the given time, irrespective of the fact whether export proceeds have been repatriated or not,” Malick said.

The premium charged by the agency, however, raises the cost of credit for exporters who don’t have collateral to pledge with banks for loan. But, the PEFG analyst asserted, “it must not be a cause of concern.” “With the present interest of 7.50 per cent on export credit, the premium charged by us should be affordable for exporters,” he said.

The PEFG, having paid-up capital of $10 million, was set up in July. Some 20 per cent of its equity is held by the Asian Development Bank and the rest of 80 per cent is shared by 13 commercial banks, which also include foreign banks.

The objective of establishing the agency was to expand exports by providing a broad range of export trade finance guarantees for new, small and medium exporters who do not have an access to bank credit because of lack of enough collateral, hampering their plan to explore the foreign markets.

The PEFG is now working these days to develop a new product — post-shipment insurance — for exporters. “It’s a big task. It is the backbone of exports and is available in 53 countries. In this connection we are negotiating with Islamic Development Bank (IDB) and some US companies for reinsurance of the risk,” Malick said.

He said post-shipment insurance facility for exporters was needed because foreign buyers all over the world want to trade in “open” accounts. “But the (Pakistani) exporters are not willing for this for fear of losing money. So, some agency has to be there to take the buyers’ risk,” he said.

All the clients handled by the agency so far belong to Karachi or Hyderabad as it is based only in the Sindh’s capital. “We have been approached by exporters from Punjab, but cannot entertain the applications because we don’t have any set-up in Lahore. But if anyone interested in availing of the facility could pledge his property in Karachi and/or paper security, the PEFG would readily entertain his request,” Malick said, adding the agency would soon be establishing its office in Lahore as well.