KARACHI - State Bank of Pakistan on Friday announced a new financing facilities scheme for cotton ginners with a view to modernize their factories to produce quality ginned cotton for the textile value chain and to minimize electricity consumption. This scheme is only available for SME borrowers, as defined in Prudential Regulations for SMEs. This scheme has been effective from September 04, 2009 (Friday) and shall remain valid only up to December 31, 2010 on first come first served basis and subject to availability of funds under the Scheme. In a circular issued by central bank, it was stated that financing under the scheme would be available for a maximum period of seven years including a maximum grace period of six months. Financing facilities under the scheme shall be provided through all commercial banks and Development Finance Institutions (DFIs). According to SBP, financing shall be available only for Balancing, Modernization and Replacement (BMR) of Cotton Ginning Factories. SBP further said cotton seeds crushing machinery installed in the premises of ginning factories shall also be eligible to avail financing facilities under the scheme. Financing shall be available for purchase of only new locally manufactured plant, machinery & equipment. Financing for purchase of new generators up-to a maximum capacity of 500 KVA shall also be eligible. The capacity of generator shall, however, not be in excess of the ginning factorys in-house energy requirements or upto 500 KVA, whichever is less. As per details, SBP announced different mark-up rates for different periods for financing this scheme, for instance, for the tenure of 3 years, banks will charge 6 per cent rate of refinance, 2 per cent spread with 8 per cent end users rate while over 3 years and up-to 7 years period, this facility will be available on paying 6.50 per cent rate of refinance, 2.5 per cent bank spread and 9 per cent end user rate from the borrowers. Over 5 years and up-to 7 years rate of refinance will be 7 per cent, spread 3 per cent and 10 per cent end users rate respectively. It is important t note that financing rates shall be revised on annual basis effective from July each year and mark-up shall be paid on quarterly basis. The rate of mark-up once fixed shall remain locked-in for the entire duration of the loan, provided the borrowers continue to repay all scheduled installments by the respective due dates. Similarly, in cases where the loan amount is not disbursed in full during the validity of an applicable rate, the un-disbursed amount shall attract the new rate of finance/refinance applicable on the date of its disbursement by the bank/DFI, SBP said. SBP also stated, Financing under the scheme shall be provided by the banks/DFIs on first come first served basis within the overall amount earmarked for the purpose. While adequate funds have been earmarked for the Scheme under reference, the banks/DFIs shall, however, be required to approach SME Finance Department, State Bank of Pakistan, before release of finances to the borrowers for confirming the availability of funds. State Bank will respond to the concerned bank/DFI within three working days in this regard with a copy to the concerned office of the SBP BSC (Bank) from where it will avail refinance. Principal amount of loans shall be repayable in equal quarterly / half yearly installments after prescribed grace period, if any. However, if a borrower repays the loan amount or its installment, in part or in full, before the due date(s), the banks/DFIs shall be under obligation to repay the amount(s) so received within three working days to the concerned office of SBP-BSC (Bank) failing which fine for late adjustment of loan will be recovered from the concerned bank/DFI, at the rate specified by the State Bank, SBP added. The refinance granted by SBP-BSC offices to the Banks/DFIs shall be recovered on the due dates as reported in the original repayment schedule from the account of the banks/DFIs maintained with the respective office of the SBP BSC (Bank). In case the borrowers fail to make repayment of the amount of installment as per the original repayment schedule, the bank/DFI will be entitled to charge normal rate of mark up on such overdue principal amount besides taking other actions to recover the same as are incidental to such defaults. In no case the liability of banks/DFIs to pay/repay to SBP BSC the principal amount of refinance, or mark up or any other charges or penalty thereon shall be dependent upon the recovery from the borrower nor shall such liability be affected by any default on the part of the borrower. Banks/DFIs shall not take more than six weeks in evaluating an application for financing under the Scheme from the date of receipt of complete information from the borrower. Where the request is declined, the bank/DFI will explicitly apprise the prospective borrower of the reasons for rejecting the application. Financing banks/DFIs shall ensure fulfillment of requisite pre-disbursement formalities by the borrower through due diligence as per their own internal arrangements to avoid malpractice and mis-utilization of funds under the Scheme. Banks/DFIs shall consider financing based on the debt to equity requirements as prescribed in Prudential Regulations for SMEs. The financing bank/DFI may, however, ask for higher contribution of equity from the borrowers keeping in view individual risk profile. Refinance shall be provided on the basis of certification by the Internal Audit of the financing bank/DFI with regard to confirmation that the loan is within the terms and conditions laid down in the Scheme. A copy of the said Internal Audit Certificate shall also be submitted to the concerned office of SBP BSC at the time of availing the refinance facility. Locally manufactured machinery using more than 80% imported components shall not be eligible for financing under the Scheme. However, the financing shall be limited only to the extent of local components. This condition shall not apply to purchase of generators. Second-hand machinery shall not be eligible under the scheme. Financing under the Scheme shall be checked/verified by our Banking Inspection Department (BID) during inspection of the banks/DFIs to ensure that the same have been allowed as per the terms and conditions of the Scheme. Financing shall not be available for the purpose of acquisition of land, construction of building etc. Financing shall be available to the extent of ex-factory/showroom price of the new locally manufactured plant, machinery, equipments & generators. Advance payment to the extent of 20% of the ex-factory /showroom price can be made in terms of related underlying agreement by securing the banks interest. Disbursements by banks/DFIs should not be made to the borrower directly; instead payments shall be made to the manufacturers / suppliers of the locally manufactured machinery/generator. Where a bank/DFI considers the requests of their borrowers for rescheduling of loans granted under the Scheme, the principal amount of refinance shall only be rescheduled in a way that total tenor of refinancing under the scheme does not exceed maximum period of 7 years from the date of original disbursement made by the banks/DFIs. Further, the borrower shall be liable to make payment of mark-up at the rate applicable on the date of such rescheduling, or the original rate whichever is higher. In case of violation of the terms & conditions of the Scheme, the State Bank shall reserve the right to recover the amount of refinance granted to the bank/DFI along-with fine at the rate of Paisa 60 per day per Rs 1000/- or part thereof. In case, a borrower will make early repayment(s) of the amount of loan/installment(s) and bank/DFI fails to repay the same to concerned office of SBP-BSC within three working days as mentioned in clause 8(i) above, late adjustment fine will be charged from the concerned bank/DFI at the rate of Paisa 60 per day per Rs 1,000 or part thereof or prospectively at such rate as may be announced by the State Bank from time to time.