KARACHI: In response to COVID-19, State Bank of Pakistan (SBP) announced a Temporarily Economic Refinance Facility (TERF) to facilitate investment for setting up new plants and Balancing, Modernization and Restructuring (BMR) of existing ones. The thinking process at SBP was to facilitate investors in uncertain times by giving them low rates to not let them postpone their investment decisions due to COVID-19 outbreak.

In early days of scheme, there was not much interest from investors. The SBP after consultation with stakeholders reduced the refinancing rate from 3 percent to 1 percent and included BMR in the scheme. This coupled with surprise economic recovery in July 2020 led to investors’ interest.

To date, Rs323 billion worth of loans for 388 projects stand approved. A similar amount is pending approval by the banks. The scheme is expiring on 31st March 2021. Many investors are still showing interest and applying for long-term plant and machinery financing under this scheme.

However, banks maintain that their respective loan limits allocated from the SBP is exhausted. A couple of weeks ago, Deputy Governor Sima Kamil in a TV interview said the banks still have available limits of up to Rs100 billion. At that time, approved loans were of Rs300 billion. This implies that overall financing can reach Rs400 billion by the time of expiry of the scheme.

But this newspaper’s checks from industry and banks reveals that banks are refusing industrial players applying for this scheme, as according to the banks they have exhausted the SBP given limit and further enhancement in their allocated quota has not been allowed by SBP so far. This is a good scheme as this well help in developing gross capital formation in the country which is too low. In this scheme, no particular sector is targeted. Rather, anyone interested in any kind of manufacturing can apply.

There is no winner picked by the regulator. Private sector is investing where they find appropriate. The interest of investors is due to concessionary rates and long-term financing options. Usually, banks are reluctant to extend financing beyond five years’ term. This loan is for ten years. It is an excellent initiative for project financing.

Usually, it’s the job of development finance institutions (DFIs), but in Pakistan DFIs are effectively doing what commercial banks are supposed to do and vice versa. There is a market failure. The SBP intervention is filling the gap. There is still appetite for industry for long-term financing. According to some independent economists, SBP should look at the option of extending the allowed quota stoke allocation for financing. The other option may be to come up with other schemes after expiry of the current one. If there is a problem in long-term lending limits, SBP can free up space from Long-Term Financing Facility (LTFF), which is presently available to export-oriented sectors only by allowing other sectors as well to avail this facility.

Copyright Business Recorder, 2021