In a timely move the State Bank of Pakistan has announced its decision to extend Long Term Financing Facility (LTFF), already available to buyers of new imported as well as locally manufactured plants and machinery, to importers of used machinery. Businesses will now be able to get bank financing for the purpose at the concessional 8 percent rate of interest until the end of the current year, ie, December 31.
The concession though will not be available on local purchases, which makes sense within the current context. As it is, a number of industries in the advanced western countries have gone out of business consequent to a global economic downturn and recession. Old as well as relatively newer business concerns have gone under. This seems to be a time to look for opportunity in adversity.
Which, apparently, is the rationale behind the central banks decision to allow import of used machinery on concessional rates. Nevertheless, if past experience is any guide unscrupulous elements will want to exploit the facility to import junk on nominal prices and use the low interest loans for purposes other than the ones stated in financing requests. And, of course, the pervasive problem of over-invoicing will also be there to detract from the likely benefits.
It is good to note that the SBP is conscious of these issues and has put in place some important measures to avoid misuse. First of all, as per an SBP circular, the facility will not be available for just any kind of second-hand machinery; in order to qualify for financing, imports must not be older than three years.
Also, the loans will be accessible to the same sectors or sub-sectors that are eligible under the LTFF scheme, albeit the facility would be subject to certain terms and conditions such as that the useful life of importable machinery should be longer than the period of loan itself. Equally, if not more important, is the requirement that borrowers submit reports verified by the Pakistan Banks Associations approved surveyors to determine the quality and condition of the machinery to be imported.
These are all, important measures to minimise abuse. It would also be helpful if instead of offering the facility to all sectors and sub-sectors eligible under the LTFF, the list of the industries likely to benefit from the present scheme is drawn afresh. It must ensure whatever is brought in, aside from being in good working condition, is also relevant to our specific needs. Restricting it to SME sector-related economic activity can prove to be quite productive.