Introduction of modern concepts and new avenues of export refinancing, like Avalised Bill of Exchange, are imperative for the promotion and development of SME sector.
In case of Avalised Bill of Exchange, the discounting bank will make payment of the exporters bill and will recover the amount on maturity from the buyers bank, which on avalising the bill drawn on the buyers stand, committed to honour the same on maturity.
The benefit to the SMEs is that they can enter new markets and export goods on credit and at the same time get their bills discounted and utilise the amounts for further production. Usually banks demand collateral from SMEs but in the event of discounting of bills the funds would be released and the liquidity enhanced.
Convener of Union of Small and Medium Enterprises (UNISAME) Zulfikar Thaver explained this, while emphasising the need of promoting new concepts of refinancing in the country.
Earlier in this connection, he arranged a meeting with Saleem Shaikh, chief executive of Mercantile Consolidated, representing leading overseas banking houses in the country, and intended to indulge in discounting of Avalised Bill of Exchange having confirmed maturity dates even beyond 180 days and holding clarifications from authorities in Pakistan, on Friday.
Also present in the meeting were officials of Habib Bank Ltd and Farooq Lakhani, chief executive of International Asset Management Company Ltd, and others.
PREDOMINANT: Thaver said that the system of Avalising Bills was predominant all over the globe and needed to be well introduced in Pakistan. It was the policy of the union to introduce modern technology and highly professional skills in the country to promote trade and industry, he added.
He mentioned that an exporter could either export on advance payment received from his buyer or ship goods on account or send documents for collection to the buyers bank or against letter of credits to get payment for his exports.
He pointed out that in Pakistan, though the export refinance rate was low, the demand by banks for collaterals was not possible for SMEs.
Therefore, he recommended that it was important that other avenues, such as discounting, avalisation, forfeiting and factoring, should be put into practice.
He maintained that Avalised Bills attracted excellent rates and their use was common in many EC & EFTA countries.
He elaborated that Avalisation involved the buyer's bank giving an undertaking to the holder of an accepted term bill of exchange that they would pay at maturity. Bills of exchange bearing the "AVAL" of a first class bank were discounted at advantageous rates, he reiterated.