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Utilising export refinance facility

September 08, 2012


RECENTLY the SBP has reduced the discount rate by 1.5 per cent, thereby reducing it to 10.5 per cent. Since the discount rate is linked to export refinance, exporters have urged the authorities to reconsider lowering it as well.

The reduction in export refinance to exporters will tend to assist exporters to boost their exports but the question is: Is all the export refinance already advanced to them fully employed by the exporters for the purpose it is advanced for?

Looking at the overall performance of the industrial exporting sector, it is doubtful that export refinances are genuinely employed for the right purpose. Although this tendency may be found in many exporting industries, the most badly hit exporting sector due to this irregularity is the seafood exporting industry.

A few years ago the largest seafood exporter in Pakistan got busted due to vagaries of utilising bank loans of more than Rs2bn out of which Rs95m is still unpaid or said to be written off by its financing institution without the SBP’s approval.

Even after this, conditions in the fisheries sector have not improved and poor fishermen are not readily paid for their hauls by exporters. This shows the poor cash flow of those exporters who have already used the huge amounts of export refinances from the financial institutions, but are unable to pay promptly.

It also goes to show that the low-interest money that was advanced to them for buying raw seafood has been siphoned away in other pursuits, thereby creating cash crunch to such exporters. Had all export refinances been invested for the intent they were advanced, seafood exporters should be able to pay for their purchases of raw material (fish/shrimp) to the hardworking fishermen on the spot.

But this is not being done. This fact alone reflects on the mystery of misutilisation of export refinances by exporters.

Frozen seafood is an expensive item and soon builds up in value to meet the 1:1 ratio of borrowing vs exports (previously the SBP ratio was 1:2.4 or one part borrowing vs 2.4 times export).

The banks usually count eligibility for export refinance on the basis of this value and sooner or later are risked to lose their money if the same has not been spent for the right purpose of its granting, viz, purchase of fresh seafood for processing and exports.

Although financial institutions are bound to verify the stocks hypothecated against export refinances/loans advanced, this is seldom done or done in a superficial casual manner.

Thus financial institutions never come to evaluate the real value of stocks held by the exporter to cover the loan. Then there comes a time when the exporter faces market upsets or quality claims; his exports dwindle to meet the set export target and he goes bust.

Although this aggravation may continue for some years unnoticed by the loan-giving agencies, finally there goes a blast and the matter ends up in the hands of banking courts.

This is a very serious matter which need foremost and immediate attention of the SBP and other concerned authorities if they are looking for better outcome of export refinance facility to exporters not only in the seafood exporting sector but in the overall exporting industries of Pakistan.

If the utilisation of export refinancing facility is fully employed in any exporting sector, be it fisheries, textiles and manufacture of other items, there is no reason that these industries won't flourish without raising an unfair hue and cry over mildly inflated export refinance rates.