KARACHI - The amount outstanding under Islamic Export Refinance Scheme (IERS) has increased to Rs 7 billion during third quarter of CY08 (Jul-Sep 2008), depicting a 30 percent increase over CY07. The IERS limits had been revised to Rs. 10 billion for the second quarter of FY09 while the Islamic Banking branches of conventional banks were assigned Rs 1.2 billion during the period under review. During the third quarter of CY08 about Rs. 4 billion were disbursed compared to Rs 3 billion during the comparative quarter of FY08 registering an increase of Rs 1 billion (32 percent). However when compared to the respective quarter of FY07, the increase is marginal, 6 percent. The increase is attributed to an increase of Rs 1 billion by a single bank. It is pertinent to mention here that the IERS was started with an initial limit of Rs. 500 million assigned to Meezan Bank Ltd in 2002. The limits assigned under IERS for the quarter ended September 08 were Rs. 9.5 billion and shared by 7 banks. The Islamic Export Refinance Scheme was initiated in 2002 with only one Islamic bank participating in the scheme. The scheme has been designed as a Musharaka between SBP and a participating Bank. The participating bank at its end may provide IERS funds through products approved by SBP, to its client under the conditions of the Musharaka stated in the scheme. With the growth in Islamic banking that number has consistently been increasing and at present four Islamic banks and four conventional banks are availing financing under the scheme. The scheme has been developed such that the Shariah principles of financing are followed but that the exporters should not be disadvantaged under the scheme compared to the conventional EFS as the rates of profit charged to them have been maintained at par with the EFS. SBP in its report titled Development Finance Review for third quarter 2008 revealed that the overall quantum of limits for banks under EFS for FY2008-09 was increased by 25 percent of the amount outstanding as on 30th June 2008. Accordingly, on an overall basis, SBP allowed limits to the extent of Rs 125 billion to banks under the Scheme during FY09 up from Rs 100 billion during FY08. However, in Nov 2008, SBP decided to take over the 30pc financing provided by the banks and the limits of banks have been enhanced to Rs. 169b consequently. OUTSTANDING FINANCING UNDER EFS At the end of the first quarter of FY09, Rs. 147 billion was outstanding under the EFS as compared Rs. 125 billion on September 30, 2007 and Rs.110 billion on September 30, 2006. A look at the trend of amount outstanding under the Export Finance Scheme clearly suggests that the quantum of outstanding financing increased by 33 percent over Sept '06 position. The amount outstanding against foreign banks has reduced by 53 percent when compared with first quarter of 2006 and 37 percent when compared to the first quarter of 2007; however, this decrease is off-set by the increase in private banks outstanding position resulting in a net increase of 20 percent over Sept '06 position. The outstanding position reflects SBP's monetary stance as the outstanding funds of SBP have remained constant and in fact have declined by 9 percent when compared to Sept '06 due to sharing of 30 percent financing by banks. The growth of financing under EFS since July 1, 2008 showed increase of Rs 1.5 billion during the quarter under review, with the maximum increase in private banks. The decrease in outstanding position of foreign banks is corroborated by the negative flows, reflecting greater repayments compared to disbursements. The textile sector continues to dominate share of financing, which is 64 percent. Other sectors such as edibles (dominated by rice), leather and leather goods also received a significant share. The distribution of EFS funds has been concentrated in the top big borrowers. Top 100 beneficiaries have availed about 62 percent of total financing under EFS, while the top 200 availed 76 percent of the total financing under EFS which reflects that only a small segment (i.e. 8 percent) of total borrowers have availed more than 75 percent of EFS funds. The total number of beneficiaries under EFS reported by all banks stood at 2,410, decreased by 20 percent from 3,030 as on June 30, 2008. One important reason for this decline was the use of different reporting formats of BD Form used by banks as we curtailed the BD Form for FY09 by excluding from it the finance provided by banks from their own sources at other than EFS rates. Region wise borrowers of EFS are unevenly allocated. According to banks' data for the quarter under review, up to 90 percent borrowers are from four major cities i.e. Karachi, Sialkot, Lahore and Faisalabad. Similarly, more than 90 percent EFS funds are accumulated in these four cities and more than 50 percent funds have been availed by only Karachi based exporters.