Shariah-compliant: SBP issues long-term financing facility

Exporters can utilise it for imported and locally manufactured plants and machinery

KARACHI: The State Bank of Pakistan (SBP) has issued an Islamic long-term financing facility (ILTFF) based on Mudarabah in order to provide a Shariah-compliant alternative of conventional long-term financing facility (LTFF) to meet the long-awaited demand of exporters.

Since 2008, the SBP has been offering a long-term refinancing facility for plant and machinery through commercial banks and financial institutions. The aim is to provide an opportunity to exporters to avail concessional financing for imported and locally manufactured plants and machineries.

However, such a facility could not be availed through Islamic banking institutions in the absence of a Shariah-compliant alternative.

The ILTFF will allow exporters an opportunity to avail long-term refinancing facility of the central bank for the purchase of imported and locally manufactured new plants and machineries from the eligible Islamic banking institutions.

The facility will be available to the export-oriented projects if their annual export is at least equivalent to $5 million or 50% of their sales constituted exports, whichever is lower, according to a press release.

The period of financing under the ILTFF shall not exceed more than 10 years including a grace period of maximum two years while maximum limit for obtaining financing under this facility by a prospective customer shall be Rs1.5 billion.

The participating Islamic banking institutions will undertake due diligence process in accordance with their respective financing policies before sanctioning the facility subject to the respective prudential regulations prescribed by the SBP for each type of customer.

Islamic banking institutions may participate in the scheme by submitting an application to the concerned department of the SBP. Under the scheme, Islamic banking branches of conventional banks may also apply to the central bank for allocation of subjected limit to a maximum of 20% under LTFF for utilisation under ILTFF.

Due to continuous efforts of the State Bank of Pakistan and relevant stakeholders, the market share of Islamic banking industry’s assets and deposits in the overall banking industry has increased to 12.4% and 14.5%, respectively by end December 2017.

Published in The Express Tribune, February 15^th, 2018.

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