Lending Operations

&
Risk Management

1
 A Credit Policy of a Banking
Institute is a Combination of Certain
Globally and Locally accepted
Standards.

2
These standards are related to:
• SAFETY

• LIDUIDITY

• PROFITABILITY

• EXPECTED RISK

3
 Financial Methodology:
General Guidelines for Banks:
1. Commercial Banks Should undertake only those
credit risks for which they have required level
of risk assessment expertise and
apparatus;
In terms: To supervise
Personnel
the
Risk
System support
4
General Guidelines for Banks:
2. Which Risk type the bank can and
should undertake.

3. Procedural aspects of risk

assessment method to be followed
for risk types.

5
General Guidelines for Banks:
4. Type and proportion of security / collateral
support needed for lending risks.

5. The maximum credit risk which may be

taken on an individual borrower.

6. Spreading portfolio risk among customer /

business / economic sector types.

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General Guidelines for Banks:
7. Management Level competent to sanction
credit facilities.

8. Monitoring and reporting systems, and

internal controls.

9. The experience and the knowledge of the

staff

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General Guidelines for Banks:
10. Current and prospective Market
Conditions.

11. Interest Rates.

12. The current position of loan

portfolios
8
 All these General guidelines are

necessary to standardize the bases

for financing decisions in order to

comply with the principle of fairness

and equity, and more importantly to

ensure that all credit decisions are on

consistent basis. 9
Who is the Borrower?

Who CAN Borrow From Bank?

10
 In extending financial facilities to
customer, it is always important to
know about the PURPOSE for
which a borrower is asking for
banks’ funds.

11
 Who can borrow??????????
• Individual
• Joint Account holders
• Sole Proprietorships
• Role of Attorney Holder
• Partnership
• Limited Liability Companies
• Local Authorities and other statutory undertaking
• Persons Acting in fiduciary Capacity
• Trusts
• Non banking Financial institutions
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Who can borrow?
1. Individual…
For customer – bankers relationship:
• Must be adult ( should be of 18 years of age and have CNIC)

• Must be of sound mind

• Must not be excluded from entering into a

contract under any law for time being.

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For extending any Financing Facility the
following aspects must also be noted:

• Personal means of security for

recovering customer’s liability.

• Generally avail the finance facility for

investments and / or non-commercial
uses. Restricting the normal course of
cash generation to serve as a regular
source of repayment.
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For extending any Financing Facility the
following aspects must also be noted:

• Besides all adequate securities, an

individual Should have reliable source
of regular income.

• Bank must stop all debit transactions

in an account of a customer who is
now becoming a lunatic. Incoming
funds may be credited into his / her
finance account.
15
For extending any Financing Facility the
following aspects must also be noted:

• Individual may be declared insolvent

by court of law upon petitioning by
their unpaid creditors or at their own
request.

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Who can borrow?
2. Joint Account Holder…
• Account of two or more persons. Who are
neither partner nor trustee.

• They are the title holders to the same

bank account.

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For extending any Financing Facility the
following aspects must also be noted:
• A joint Mandate signed by all joint account
holders must be obtained.

• It must be stated by the joint holders in

writing as it which one, or more, of the
joint account holders will operate the
account.

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Who can borrow?
3. Sole Proprietorship…..
- Business enterprises which are owned
and managed by a single person.

- They may have too unlimited liabilities

towards proprietorships’ creditors and the
proprietor’s personal assets are available
for satisfaction of creditors’ claim.

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For extending any Financing Facility the
following aspects must also be noted:

• Good and Viable commercial purpose

• Customer’s business assets for

recovering financing facility.

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Risk factors:
- These businesses generally tend to
have small base and loss sustaining
capacity.
- They are One –man / woman show.
- Managerial Capacity and good health of
the proprietor.
- Management style
- Book keeping
- Unprofessional skills

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Who can borrow?
4. Role of Attorney Holder…..
• They are appointed by customer to
execute documents on their behalf as well
as operate their bank account.

• Can be appointed by account holders for

performing specific duties only.

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Who can borrow?
4. Role of Attorney Holder…..
• Duties of attorney holder must clearly and
unambiguously spelled out in power of attorney (
on non-judicial stamp paper) to be signed by the
customer and witnesses by the bank.

• The customer must unconditionally accept

liability for all actions of the attorney holder taken
within the parameters specified in the Power of
Attorney documents.

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Who can borrow?
4. Role of Attorney Holder…..
• Power of attorney is not issued for a
specific period, it can be revoked by
customer any time.

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For extending any Financing Facility the
following aspects must also be noted:
• Job of banker is risky due to late submission of
notice of revocation.

• Imperative that the documents is registered with

the appropriate authority.

• They only advantage of insisting on power of

attorney being registered is that the date of its
revocation can clearly be established.
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For extending any Financing Facility the
following aspects must also be noted:

• The attorney must be well versed with the

affairs of the customer, and should also
fulfill the conditions applicable to an
account holder.

• The power of attorney should be executed

for caring out only those duties which are
understood by the banker.
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For extending any Financing Facility the
following aspects must also be noted:
• Limits of authority of attorney holder are very
precisely spelled out in terms of permitted
actions, borrowing powers and purposes for
which borrowing should be permitted by the
bank.

• Notice of revocation of Power of Attorney will

become effective from the day it is received by
the bank and not from the date on which it is
issued by the customers.

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Who can borrow?
5. Partnership…..
• According to section 4 of partnership Act
1932,
PARTNERSHIP is the relation between
persons who have agreed to share the
profits and losses of the business carried
on by all or any of them acting for all the
other partners.

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5. Partnership….
• All partner may not be actively involved in
affairs of the partnership, though they
remain partner for all legal purposes, and
are liable to the creditors of the firm as
much as the active partners.
• Partnership may be created
– Verbally or
– In writing….. in the form a formal Partnership
Deed giving the particulars, share and role of
the partners of the firm.
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5. Partnership….
i. Active and Non – Active Partners:
Partners may authorize one or more
partner or non-partner to operate the
firm’s account.

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 All partners jointly issue mandate to
one or more of the partner or a non-
partner giving him / her the power to:

3)Draw, endorse and accept bills on behalf

of the partnership.

5) Mortgage the properties of the

partnership

7) Sell the assets of the partnership

4) Borrow for partnership firm and bind the

co-partners for such borrowing. 31
5. Partnership….
ii. Registered and Unregistered
Partnerships:
Registration of partnership with the office
of the registrar of Partnership.
Disadvantages of unregistered Partnership are:
d. Cannot File Law suits to enforce rights
arising out of contract with outsider.
e. Cannot sue the firm for damages or
wrongful dismissal or for claiming their
shares in profits of the firm.
32
5. Partnership….
iii. Continuing and Non-continuing partnership:
Change in partnership due to :
c. Death of any partner
d. Bankruptcy
e. Retirement
f. Addition of any partner
g. Mental Incapacity of Partner
They may occur change in the constitution (membership) of the firm

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5. Partnership….
• Partnership deed of continuing
partnership should clearly state the
circumstances in which the partnership will
stand dissolve.

In the case of continuing Partnership the

following points are important to be noted for
a banker:
i) Section 31 of the partnership Act provides
that an incoming partner does not become
liable to the creditors of the firm for any thing
done before his /her joining the firm 34
5. Partnership….
ii) Operation of the account should be
stopped immediately and the partners
asked to resolve their differences or settle
the partnerships’ liabilities and close the
account if the partnership account is
overdrawn and the new member does not
agree to share the outstanding liabilities to
the bank.

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5. Partnership….
iii. If the partnership account is not
overdrawn nor any of the financing
facilities are unpaid, admission of the new
partner may be accepted by the bank.

iv. Bank must obtain a fresh Partnership

deed or mandate dully signed by all
partners to cover the future operation in
the account.
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5. Partnership….
v. Section 32 of the partnership act also states
that, unless expressly agreed by the other
partners:

a. A retires partner is liable for debts of the firm

incurred during the period he / she was the
firm’s partner.

b. If the balance in the account of the firm is in

debit at the time of receiving a partner’s notice
advising bank about his intension to retire,
operation in the account should be stopped to
determine the retiring partner’s liability.
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v. Section 32 of the partnership act also
states that, unless expressly agreed
by the other partners:
c. The partnership should advised
immediately to either arrange for its
substitution, takeover or settlement if
the other partners are desired to
continue operation in the partnership
account.
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 5. Partnership….

vi. Properties owned by the retiring partner

pledged or mortgaged to the bank as a
security for extending financing facilities to
the partnership, should be released only
after a settlement.

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iv. Insolvency of Partnership

v. Liability of the partners

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Who can borrow?
6. Limited Liability Companies…..
• As per Section 2 of the Companies Act 1913
(Re-enacted in Pakistan as Companies Ordinance 1984) Defines the
Joint Stock Company as

“(i) An association of Individuals for the purpose of profit,

possessing a common capital contributed by the
members constituting it,

(ii) Such capital being divided into shares, of which each

(member) possesses one or more (shares), and which
are transferable by their owner.

(iii) Incorporated under the relevant laws, it becomes an

artificial person created by the law with common seal
and perpetual succession. It is regarded as legal person
separate and distinct from its member”. 41
• Liability of the owners of the Joint stock
companies is limited to the amount due to
the shares held by them.

• Companies are either Private limited

Companies or Public Limited Companies.

• Public Limited Companies cab be:

– Listed companies; whose shares are listed /
traded on one or more stock exchanges.
– Unlisted Companies; whose share are not
listed/ traded on any stock exchange.
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1. Private Limited Companies:
• Generally smaller limited liability concern
which are formed and operated under a
set of restrictions imposed by
Companies Ordinance. Like:
(a) Public subscription to their shares is
prohibited and, as such,
(b) The number of members 9 shares holders)
is restricted to 50 and Therefore,
(c) Most shares are usually held by the director.

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1. Private Limited Companies:
• They are formed and governed by the
same laws as applicable to Public Limited
Companies.

• Their formation must be file with the

security and exchange commission of
Pakistan ( SECP).

• They should have their detail Prospectus

giving the antecedents of the promoters,
salient features of business venture being
set-up and Memorandum and Article of
Association. 44
1. Private Limited Companies:

• They must regularly file periodic returns as

required by SECP.

• Accounts with Paid-Up Capital of Rs.

3.000(m) and above must be audited by
an auditing firm to be appointed by share
holders in Annual general Meeting.

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For extending any Financing Facility the
following aspects must also be noted:
• The manager must obtain the information
about the following questions from the
Memorandum And Articles of Association (
MAA)
i. Whether the Director of the company
have the power to borrow on behalf of
the company or not?
ii What are the limitations on the amount
which can be borrowed by the
company?
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For extending any Financing Facility the
following aspects must also be noted:
iii. What is the purpose of borrowing? It
must be within the scope of the
company’s objective?
iv. What powers are there to pledge
company’s assets as security against
credit facilities availed from banks?
v. What are the requirements for
execution of the security documentation
duly supported by the board’s
resolution, and for the registration of
charge on the company’s assets 47
2. Public Limited Companies:
• They are formed generally for setting up large business.
• Major concessions for them are:
– Public subscription to their shares is allowed.
– The number of members ( share holders) is
unrestricted.
– Shares are usually held by large number of general
public who elect Directors to run the affairs of the
company on their behalf.
– The board of directors is authorized to appoint the
managing agents.
– Managing directors are accountable to the Board Of
Directors who are in turn accountable to the
shareholders of the company.

48
Who Can Borrow?
7. Local Authorities and statutory
undertakings:

- The borrowing powers of the local authorities

are regulated by the Federal or Provincial
legislatures.
- Powers are granted to the local authorities to
borrow for short periods.

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Who Can Borrow?
8. Persons acting in fiduciary capacity:
• Trustees: Trust Act or Trust Deed

• Executors / Administrators: Appointed by

the court to wind up the estate of the
diseased person an per the instruction
contained in the WILL.

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Who Can Borrow?
9. Trust
Who Can Borrow?
10. Non – Bank Financial
institutions ( NBFIs)

Who Can Borrow?

11. Staff
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Finance facilities
Finance facilities

Fund-based Facilities: Non – Fund-Based

…..for finance of Facilities:
c. Domestic business Also known as
d. International Business Contingent Liability
• Import For supporting both
• Export vii.Domestic Business
viii.Foreign trade Businesses

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Fund-based Facilities:
Financing commercial and trade business

Provide funding support for all possible

Working Capital requirements of business
and industry.

W o r k i n g C a p i t a l: Capital in cash and stocks

needed for a company to be able to work.

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 Fund-based Facilities:
Fund-Based financing for Working Capital broadly
includes facilities that customers avail from
commercial banks in order to finance one or all of the
following facilities:
ii. Acquire and hold stock-in-trade until it is sold or
processed or used for manufacturing.
iii. Processing / manufacturing overheads for converting
raw material into finished goods.
iv. Hold finished goods inventories until they are sold
v. Credit sales realization period
vi. Promote the sale of goods i.e. selling, General &
Administrative expenses

Purpose - Oriented Financing

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Non- Fund-based Facilities:
Contingent facilities / Liability for
supporting both domestic and foreign
trade businesses.

C O N T I G E N T L I A B I L I T Y:
Liability which may or may not occur,
but for which provision is made in a
bank’s accounts.

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Non- Fund-based Facilities:
Meeting the banking needs of importers
and all types of contracting firms by
offering full range of :

Letter of Credit ( L/C)

Letter of Guarantee (L/G)

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Non- Fund-based Facilities:

These facilities yield high return

on assets

These facilities are high RISK

assets

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 Classification of Commercial Credit Facilities

Fund-Based Credit Facilities Non-Fund-Based Facilities

General Financing Facility

Inland Bill Financing

Import Financing Facilities

Export Financing Facilities

Contingent Facilities
58
 General Financing Facility

1. Temporary Running Finance:

Temporarily overdrawing the current account balance to
meet unexpected and urgent finance requirement.
This is allowed on the basis of: (SPTA)
• Security Coverage
• Previous conduct of the account with bank
• Turnover in the account
• Average balance maintained
This facility is extended for very short period of time
OR
should alternatively be converted into regular running
finance
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 General Financing Facility
2. Running Finance:
A fluctuating – balance financing facility to meet :
1. Temporary funding shortfalls in fulfilling payment
Commitments
2. Operating expenses.
3. Investment requirement

This facility can be drawn up to stated limit & granted

against the security of tangible assets to a reasonably
acceptable extent, in addition to normal prime security
of hypothecation charge over stocks-in-trade.
This facility is normally allowed for maximum period of
twelve months on roll-over basis
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 General Financing Facility
3. Demand Finance
This is short to medium term finance facility
under which the usual maximum term is up to
three years depending on the bank’s knowledge
about the:
v. Customer

vii. Merits of the proposal

iii. The nature of the financing needs

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General Financing Facility: Demand Finance

1. Customer Credentials:
A customer should fulfill the following criteria:
c)Existing relationship with a satisfactory track
record of business reciprocity and meeting
re-payment commitment.
d)Good business judgment and market
reputation.
e)Availability of adequate un-encumbered
assets or otherwise as may be acceptable to
the bank. 62
General Financing Facility: Demand Finance

2. Purpose

3. Re-Payment

4. Security

63
 General Financing Facility
4. Term Finance:
This facility required by customer for:

d) Acquisition of capital good such as plant and equipment

for expansion of the existing processing or manufacturing
facility.

b) Business premises construction while plant and

equipment has either been acquired or its acquisition is
being financed by another bank.

c) Large lump-sum repayment to third parties.

d) Re – structuring of existing liabilities to the bank. 64

 General Financing Facility

Term
Temporary Demand Finance
Running Finance
Finance
Running
Finance

65
 Inland Bill Financing
Financing the Trade Receivables

Financing Domestic Business is essential

For contributing to Economic well being of
the country.
In financing domestic business, financing
trade receivables is a major commercial
banking activity for which bank offers the
finance facilities.
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 Inland Bill Financing
Inland Bills Purchased ( IBP) - Clean

Inland Bill Purchased ( IBP) - Documentary

Inland Bill Discounting ( IBD)

67
 1. Inland Bill Purchased (IBP) - Clean

• Customer Receive Payments through:

i. Commercial b. Pay Order

c. Cheques
ii. Non-Commercial
d. Demand drafts

I Drawn on banks in Pakistan

ii. Collection of these instruments take time ( Especially when they are drawn on
bank / branch located in other city or town.
iii. Beneficiary of these instruments need financing against their proceeds.

THE WAY TO ASSIST THEM IS TO PURCHASE THESE INSTRUMENTS.

68
1. Inland Bill Purchased (IBP) -
Clean
Necessary points to be noted are:
2. Bills sholud normally be of the following
types:
a. Demand draft
b. Pay order
c. Government Cheques
d. Cheque listed public companies

69
Necessary points to be noted are:
2. For a one-time purchase prior approval
should be obtained from the competent
authority.
3. For regular utilization of this facility a
formal Inland Bill Purchased limit should
be obtained.
IBP involves the RISK of bills being
dishonored.

70
In the event a bill purchase earlier
is returned unpaid:
• It Should immediately be debited to the
customer’s account along with the mark-
up from its value date.
• The customer be informed in the usual
manner prescribed for returning unpaid
cheques.

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2. Inland Bill Purchased- Documentary

Contractor, Suppliers, and Manufacturers

are paid for goods or services supplied
by them either through:
b. Open account arrangement
c. Bills for Collection Drawn either at sight
or on usance basis
d. Bills draw under Sight Or Usance Inland
Letter of credit
72
2. Inland Bill Purchased- Documentary

• When Payment is claimed through bills drawn on

collection basis, they are called Inland
Documentary Bills.
• Banks purchase these bills and pays their
proceeds to the customer pending the
realization of their proceeds from the drawee.

THE BANK EFFECTIVELY FINANCE THE TRADE

RECEIVABLES OF THE CUSTOMER

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 Inland Documentary Bills

Letter of Credit Collection

Sight Usance

Purchase Discounting
74
• Inland documentry bills purchase often
involves the risk…….dishonored on
presentation.

• CAUTION
A Bank lose the right of resources against
the drawer of if the Inland LC is confirmed
and advised through the same bank.

75
• The bank purchase the IDB and wait for
the realization of the bill proceeds from
drawee upon:

– Maturity ( in case of usance Bills ) or

– With in 10-15 days ( In case of Sight)

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To qualify for being purchased the bills must be
accompanied by:
ii. Air Way Bill, RR, TR……evidencing
transportation of the goods to the buyer’s
location.
iii. Invoice in the name of the buyer
iv. Packing list
In case of LCs the customer must present all
other documents required by LC.

77
 Inland Documentary Bills
Discounted (IBD)
• The bank will discount these bills, pay off
the customer and wait for realization of the
bill proceeds at maturity.

• Not must different from IBP facility except

the bill being discounted must be duly
accepted by the drawee for payment at
maturity.
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• If the bill discounted earlier is returned
unpaid:
a) It should immediately be debited from the
customer’s account with the value date of
the purchase of the bill to recover its value
along with the mark-up for the period of the
facility.
b) The customer be informed in as prescribed
for returning unpaid cheques.

79
 Inland bills facility

Inland Bills
Inland Bills Inland Bills Discounted
Purchased Purchased (IBD)
(IBP)-Clean (IBP)-
Documentary

80
3. Import Financing Facilities

Post import finance facility:

Bank pay off the exporter and
agree to be re-paid by the
importer after a specific period.

81
 Import Finance facility

Finance Against Finance Against

Imported Trust Receipt
Merchandise (FIM) (FATR)

Inward Foreign Bills (IFB)

82
 Inward Foreign Bills (IFB)
Reimbursement instructions :
a) Claim Form Our account with ABC
Bank ( Payment date remains uncertain
which makes the timely funding of the
Nostro account rater difficult)
b) Claim from us by the telex / swift ( there
is enough cushion for timely funding of
the Nostro)
83
Remittance of funds against
Import Documents convert
the Contingent Liability into
Funded Liability.

84
 Finance Against Imported
Merchandise (FIM)
• Under this facility imported goods come
under the custody of the bank as soon as
they are off-loaded from the carrier
( aircraft . Ship)
• Clearing / forwarding is carried out by the
bank’s approved clearing / forwarding
agents, and the agent is required to
transferred the goods to a warehouse
under the supervision of the bank’s either
directly or through the bank’s approved
Muccadam.
85
• The warehouse may be either rented
or stored by the customer /
Muccadam but the imported goods
stored therein remain under the
Bank’s custody.
• The safety , security and
maintenance of the record of the
receipt and release of good is the
responsibility of Bank’s Mucadam,
whose services are paid by the
Importer. 86
• Goods are released to the importer only
on payment.
• The process of determining the
proportionate value of the goods to be
partially delivered to the customer is
facilitated by making reference to the
packing lists accompanying the related
import documents.
• On receiving payment for goods the bank
will issue a Delivery Order; wherein the
Muccadam will be instructed to release the
goods or part thereof as the case maybe.
87
• If the goods are not sold in time, their condition
may be deteriorate and they may either
become un-saleable or may have to be sold at
a large discount.
The important points t be consider are:
c. Customer must be pursued for taking prompt
delivery of the goods against payments.
d. Every time the goods may be released a
Margin should be retain by bank
e. Goods should be inspected frequently to
ensure that they are being well looked after.

88
Finance against Trust Receipt
(FATR)
• Import documents are released to the
customer after the customer signs a “Trust
receipt” evidencing the fact that the
customer is receiving custody of the goods
as a “Trustee” of the bank not as the
owner of the goods.
• This is the liberal financing facility because
it allows the customer to freely “deal” in
the goods

89
• This facility is allowed to the imported for
60 or 90 days.
• This facility is extended under the
following circumstances:
– the customer is trustworthy and is not likely to
consume / sell the goods without paying their
proceeds to the bank.
– Security provided by the customer adequately
covers the interest of the bank.

90
• Under this facility imported goods
come under the custody of the
CUSTOMER as soon as they are off-
loaded from the carrier ( aircraft .
Ship)
• The warehouse where the imported
goods are stored shall be owned by
the customer. Even in the rented
house the imported goods must
remain under the custody of the bank.
91
• The safety , security and maintenance of
the record of the receipt and release of
good is the responsibility of Customer.
The important points t be consider are:
c. Customer must be pursued continuously for
depositing sale proceeds of the goods with the
bank to gradually reduce the FATR facility
ensuring its timely adjustment.
d. The customer must submit stock reports
regularly indicating therein the extent to which
goods have been sold / consumed, and the
outstanding FATR balance reduced
accordingly.
e. Goods should be inspected periodically to
ensure that they are being well looked after.
The frequency of the inspection will depend on
the nature of the goods 92
 Import Finance Facility

Finance
Inward Finance against against
Foreign Imported Trust
Bills (IFBs) merchandise Receipt
( FATR)
(FIM)

93
 4. Export Financing Facilities
• Exporters have to wait for six months
before they get paid by the importers.
• This creates a need for financing on :
– Pre-shipment basis
– Post-shipment basis

94
• Due to intense price competition in
exports, Government often provide a
variety of incentives to exporters so that
they can cut their costs and become price
competitive in the international market.
• To achieve these objectives government
insist the commercial banks to:
i. Re-financing on subsidized mark-up
rates the pre-shipment finance facilities
extended by commercial banks to their
exporter customers

95
ii. Rediscounting export bills earlier
purchase / discounted by commercial
banks.
Note: Such subsidized export finance is
provided for selected items only.
** financing exports of items other than
those covered by government sponsored
Re-finance Schemes is undertaken on
commercial rats of mark-up.

96
 Export Re-finance
• Government provides subsidized Export
Re-finance facility through SBP.
• Under SBP’s Export Refinance Scheme,
exporters are provided funds at subsidized
mark-up rates.
• These funds are routed through
commercial banks which serve as a
medium for channeling them to exporters.
97
 Export Re-finance
• SBP only Re-finance banks’ export
finance portfolio.
• Assumes No risk
• This facility is extended up to 150 to 180
days
• On maturity of facility, SBP simply
recovers it from commercial banks by
debiting their accounts along with mark-
up.
98
 Export Re-finance
• In this scheme export re-finance proposals
are:
– Received by banks
– Investigated by the banks and examined for
their soundness
– Monitored for timely realization of export
proceeds like any other financing proposal

99
 Export Re-finance
• All export Financing proposal should be
scrutinized and monitored by the Export
Re-finance Department of the bank.

• Adequate securities must be provided by

the exporter to secure the Bank against
Risk of Non-realization of export proceeds.

100
 Export Re-finance
• In export financing the Bank's risk rests
on:
– The basis of export i.e. whether under LC or
on contract basis.
– The ability of exporter to perform under the
export LC or contract.
– On the efficiency and diligence of the
negotiating or remitting banks abroad

101
Export Re-finance
• Assessing these risks call for judging the
exporter’s resources and ability to:
– Obtain contract / export LCs from well reputed
buyers abroad on reasonable prices and
supply terms
– Manufacture / process of or sub-contract
these activities
– Arrange requisite raw material in time for
manufacturing / processing the consignment
for effecting shipment on time.

102
Export Re-finance
• This call for thoroughly investigating
exporter’s:
– Past export records, especially for timely
realization of export bills sent on collection
basis because they involve a high risk of
recovery.
– List of buyers and countries they are located
in.
– Premises to verify manufacturing capability
and the extent to which the exporter is
dependent on sub-contracting.
– Obtaining bank references to verify the above 103
facts
Export Re-finance
• Banks can expect to realize export
proceeds only if the exporters:
– Effects shipment on time, whether as per LC /
contract terms or as amended later o
– Submits complete and correct documents
evidencing shipment of the goods
– Request for routing documents through
reputable banks abroad
– Can provide evidence of buyer’s timely
payments.

104
Export Re-finance
NOTE:

It is imperative that branches take all

due care in document scrutiny

105
SBP Export Re-finance scheme:
• This scheme enables exporters to
purchase raw material and convert them
into finished goods for export or
alternatively obtain financing facility
against export receivables.

106
 SBP Export Re- Finance

SBP export Refinance SBP export Refinance

Part –I Part -II

i. Pre-Shipment Pre-shipment

ii. Post Shipment

107
 SBP Export Re-finance
• SBP sanctions a combine limit for both parts of
the scheme to each applicant bank.
• The limit is effective from 1st July for the current
year and remains valid until 30th June of the
following year.
• The limit is equal to 3.75 times of a bank’s
audited equity / net worth (paid-up capital plus
all reserves minus accumulated losses as on
31st December o previous year.

108
 SBP Export Re-finance
• To avail the Re-finance limit, bank has to
provide an undertaking to the SBP
(standard text provided by SBP) wherein
the Bank unconditionally undertakes to
draw the facility exclusively for financing
exports.

109
 i. SBP Export Re-finance Part-I
(Pre-shipment)
• Under Part-I of the scheme, exporters
become entitled to export finance facility
on fulfilling one of the following
conditions:
a) Receipt of export letters of credit favoring
the exporters
b) Executing firm sales contract with foreign
buyers.

110
When exporters want to avail financing under Part-
I (pre-shipment) of the scheme, they are required
to submit the following to the bank:
a) Export L/C or firm contract executed within the foreign
buyers (SBP to be provided photocopies of these
documents after bank has marked its lien on the above
original documents)

b) Demand Promissory Note (affixed with appropriate

revenue stamps)

c) Undertaking on the appropriate stamped non judicial

paper or on the Bank’s printed form affixed with
appropriate special adhesive stamps.

d) Complete form EC (SBP stationery) providing the details

of the LC or contract 111