The State Bank of Pakistan (SBP) has allowed financing for Balancing, Modernization and Replacement (BMR) and expansion of existing projects under its Temporary Economic Relief Facility (TERF).
Since the outbreak of COVID-19, SBP has taken several measures to safeguard economic activity in the country. As part of these efforts, on March 17, 2020 SBP introduced TERF and its Shariah-compliant version to stimulate new investment in manufacturing sector.
TERF will be available for one year only, requiring a letter of credit (LC) to be opened by end-March 2021. Under this scheme, the SBP decided to refinance banks for financing at a maximum end-user rate of 7 percent for 10 years for setting up of new industrial units. The total size of the scheme is Rs 100 billion, with a maximum loan size per project of Rs 5 billion.
However, on the basis of feedback from stakeholders, the State Bank has decided to expand the scope of TERF to facilitate the industry. Accordingly, in addition to the new projects, existing projects/ businesses are being allowed to avail financing under these Facilities.
Now the industry can avail financing facility for Balancing, Modernization and Replacement (BMR) and expansion of existing projects under this subsidized scheme.
SBP said that this measure has been taken to provide further stimulus to the economy in the context of COVID-19's impact on the economy, to support investment in the country for modernizing or expanding manufacturing / production units, and in response to feedback from stakeholders.
As per TERF eligibility criteria, financing for BMR or expansion will only be available for purchase of new imported and locally manufactured plant and machinery against Letter of Credit (LC) and inland LC, respectively. The funding under the facility cannot be used for procurement of second-hand machinery, land or carrying out civil works.
Further, SBP has also introduced additional internal and external checks and controls to ensure proper utilization of funds. According to fresh directives, Banks/DFIs will be required to make disbursements to their customers on the basis of certificates of their Internal Audit confirming that financing is within the terms and conditions laid down in the facilities.
A copy of the said Internal Audit Certificate will also be submitted to the SBP at the time of availing refinance for the first time for a project/ business while copies of certificates in respect of subsequent disbursements may be submitted at the time of availing last refinance for the same project/business. In case of consortium finance the lead bank will be required to submit the certificate.
The borrowers concerned will be required to submit a report from Pakistan Banks Association's (PBA's) approved surveyors with regard to confirmation that the newly-purchased plant & machinery have been installed as per their initial request and proposal for BMR or expansion. In case of installation part, this report will be required at first and final installation of the plant or equipment.
With expansion in scope of the facility, SBP expects that existing businesses will avail this subsidized funding to improve productivity of their business projects leading to higher economic activity and employment generation.
The objective of this facility is to boost economic activity through investments in manufacturing units and it can be accessed by all manufacturing industries, with the exception of the power sector, where an SBP refinance facility for renewable energy projects already exists.
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