KARACHI: The State Bank of Pakistan (SBP) has opened up its subsidized Temporary Economic Relief Facility (TERF) scheme to expand existing projects as well as new projects, the central bank said in a statement issued on Friday.
The measure is known as Balancing, Modernization and Replacement (BMR), and has been taken to provide further stimulus to the economy in the context of COVID-19’s impact on the economy, the central bank said.
The hope is that the scheme will support investment in the country for modernizing or expanding manufacturing and production units.
Previously, on March 17, the SBP had introduced TERF and its Shariah compliant version to stimulate new investment in the manufacturing sector.
Under this scheme, the SBP would provide refinance to banks for their onward extension of financing at a maximum end-user rate of 7 percent for 10 years. The maximum financing for a single project under the scheme is Rs5 billion.
The scheme was intended to act as a signal to the business community of Pakistan to view the COVID-19 crisis as an opportunity.
However, the scheme received criticism, as due to the COVID-19 climate, investors and business people were reluctant to ask for loans for new projects, and instead were scrambling to make sure existing projects were still running smoothly.
The SBP itself acknowledged this in its statement, saying the scheme had been revised ‘in response from feedback from stakeholders’.
Under the revised TERF, SBP has allowed financing for purchase of new imported and locally manufactured plant and machinery against foreign LC and inland LC.
The funding under the facility cannot be used to buy second-hand machinery, land or to carry out civil works.
Banks are also required to make disbursements to their customers on the basis of certificates of their Internal Audit which confirms that financing is within the terms and conditions laid down in the facilities.
Borrowers will be required to submit a report from Pakistan Banks Association’s approved surveyors to that the newly purchased plant and machinery has been installed as per their initial request for BMR or expansion.
“With expansion in scope of the facility, SBP expects that existing businesses will avail this subsidized funding to improve productivity of their business projects leading to higher economic activity and employment generation,” the central bank said.
Since the outbreak of COVID-19, the SBP has taken several measures to help economic activity in the country. These include reducing the policy rate, schemes to help prevent the layoff of workers, refinancing for hospitals and disinfecting currency notes, among others.