SBP introduces Mudarabah based Islamic Long Term Financing Facility through Islamic banking institutions

According to a notification on its website the State Bank of Pakistan is introducing Mudarabah based Islamic Long Term Financing Facility (ILTFF) for plant and machinery through Islamic banking institutions

State Bank of Pakistan (SBP) which has been offering long term refinance facility to promote export oriented industries in the country since January 2008 under the 'Long Term Financing Facility (LTFF) for plant and machinery' through commercial banks and development finance institutions.

The facility provides necessary finance to the exporters for adoption of new technologies and modernizing their plant and machinery in line with the international competitive environment.

However, the said facility was not available through Islamic banking institutions (IBIs) in the absence of a Shariah compliant alternative.

Salient features of the new facility are as follows:

• Under ILTFF, exporters (including SMEs) can avail long term local currency financing through Participating Islamic Banking Institutions (PIBIs) for purchase of imported or locally manufactured new plant and machinery for eligible sectors.
• The Facility shall be available to the export oriented projects only if their annual export is at least equivalent to US $ 5 million or if at least fifty percent (50%) of their sales constitute exports, whichever is lower.
• The maximum limit for obtaining financing under this facility by a prospective customer shall be Rs. 1.5 billion
• Maximum period of financing under ILTFF shall be 10 years, including a maximum grace period of up-to 2 years.
• Funding from SBP shall be available to IBIs which are approved by SBP as Participating Islamic Banking Institutions (PIBIs) under ILTFF.
• The PIBIs shall 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.
• Each year, SBP shall allocate/assign financing limits under ILTFF to each PIBI on the basis of SBP's internal criteria.
• Islamic banking branches (IBBs) of conventional banks may apply to SBP for allocation of limit subject to a maximum of 20% of the limit under LTFF for utilization under this facility. SBP may consider request for enhancement of the ceiling of 20% on case-to-case basis.
• PIBIs shall at all times remain within the limits assigned to them for disbursements/financing under the facility in a given financial year.
• Applications for allocation / assigning of limits for each fiscal year (July-June basis) shall be sent by the interested PIBIs to the Director, Infrastructure, Housing & SME Finance Department (IH&SMEFD), SBP, Head Office, Karachi, each year on such date and in such manner as may be advised by SBP from time to time.

The facility shall be effective immediately.