KARACHI, Nov 30: Rice exports to Iran through official channels is fast dwindling because local banks are not ready to finance genuine exporters holding letters of credit (LCs) and to give collateral against their finance.

As a result of this, there is a rapid rise in smuggling of rice through border area which is not only depriving national exchequer of revenue, but also badly damaging regular trade through official channels.

According to rice traders, exports to Iran through official channels has almost become nominal from 0.3 million tons as major banks are not ready to accept Iranian banks LCs.

Traditionally Iranian traders had been purchasing around 0.3 million tons rice annually through official and banking channels. Besides, state-run Iranian Trading Corporation also issues tenders and purchases Pakistani rice, particularly basmati, which is very popular amongst Iranian.

Rice traders told Dawn that leading banks, instead of accepting genuine exporters’ LCs, are now financing smugglers and hoarders who give them better and higher returns on lending, ranging between 13 to 15pc.

However, this was badly damaging country’s regular trade, and Iranian rice market is being taken over by smugglers and hoarders as was the case with Afghanistan.

These traders lamented that for the last 60 years Pakistan had been feeding Afghanistan by allowing major crops to be smuggled across the board, but now it seems that Iran has been added as no steps have been taken by government departments concerned to check the rapidly rising smuggling to Iran.

Despite the fact there are no such directives from the State Bank of Pakistan of not financing rice exports to Iran, but business circles believe that many commercial banks have taken a unilateral decision of not accepting LCs opened by Iranian banks.

They also disclosed that some leading banks are not ready to take risk by accepting LCs of Iranian banks because in case of outbreak of a war, funds may stuck-up and could cause huge financial loss to exporters and banks.

However, president, Union of Small and Medium Enterprises (Unisame), Zulfikar Thaver, told Dawn that the State Bank should give cover by announcing indemnity scheme in case of outbreak of war.

He said a similar situation had developed when exporters’ sale proceeds were stuck-up in Iraq and Sudan, but ultimately funds were released when situation became normal.

He urged the Commissioner, Ministry of Food Agriculture and Livestock (Minfal), to disclose the correct production figures of different varieties of rice in all the four provinces.

Mr Thaver said presently middlemen are creating havoc by concocting different stories about the size of rice crop which has already push prices to an unprecedented level in the domestic market.

Once correct harvesting figures are release by the Minfal, he said middlemen would not be able to create panic and exporters will be able to enter export contracts on sure supplies and without any fear.

The Rice Exporters Association of Pakistan (Reap) was also urged to develop a system whereby exporters can buy directly from millers and the role of middlemen was eliminated.