ISLAMIC EXPORT
RE-FINANCE SCHEME
(IERS)
By
Mujeeb Beig
Introduction
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IERS has been prepared by SBP, as the Shari’ah Compliant
alternative to the Export Refinance Scheme (ERS).
The aim of IERS is to provide financing at concessionary
rate to the exporters.
FI’s can apply for sub-allocation of the Bank’s ERF limit
subject to the maximum of 10%.
The list of eligible commodities to be exported, operations
of the scheme in terms of procedures/documentation and
submission of relevant statement are essentially the same as
under ERS.
Salient Features of IERS
Under the IERS the State Bank of Pakistan (SBP) shall
provide finance to the FI’s on Musharakah (profit and
loss sharing) basis. The branches shall be mandated to
finance exporters (eligible under the scheme) through
approved modes of Islamic Finance. (Which in case of
FI’s branches is Murabahah at present)
Implementation Process
FI would create a special Musharakah Pool with the following distinct
features:
Contribution:
Equal contribution shall be made by FI & SBP in the pool.
Utilization of Funds:
Funds contributed by SBP shall be utilized specifically to finance
Exporters eligible under the IERS, whereas funds contributed by FI’s
Branches shall be applied prudently to finance normal business
transactions. Assets already booked can be transferred to the pool.
Eligibility Criteria for Companies to be Financed
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No adverse CIB report and no export overdue of more than
one year.
Good track record on the stock exchange,
OR
Having a rating of minimum B+ or equivalent by rating
agencies approved by SBP for rating banks, as well as
acceptable to the bank as per its own lending policy.
OR
ROE for the last three years or period of operations, which
ever is less, should be higher than the rate of finance
prescribed by SBP under ERS.
Pool Management of IERS
Size of the Musharakah Pool:
The pool should comprise of no less than 10 companies.
(This condition has to be fulfilled by the end of first year of operation of the
IERS)
Sector Exposure of the Musharakah Pool:
Exposure to one sector should not exceed 50% of the total
exposure, especially when the pool consists of more than 2
companies.
(This condition has to be fulfilled by the end of first year of operation of the
IERS)
Pool Management of IERS
Profit Sharing Mechanism:
SBP will share in the overall profits (gross income less net of
provision or reversals thereof) earned by the FI’s Branches on the
Musharakah Pool in accordance with the profit sharing ratio
calculated on daily product basis.
Profit Sharing Ratio:
The profit weight age will be fixed at the beginning of each month,
keeping in view the ongoing rates announced by the SBP under
Export Finance Scheme.
Pool Management of IERS
Provisional Profit Payments:
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FI’s will make provisional payment of the SBP’s share in the
profit of the pool as per the last month’s declared rate on
outstanding balance of Musharakah pool based on the
weightages fixed at the beginning of the month keeping in
view of the on going rates of ERS.
Profits shall be calculated every quarter based on the unaudited accounts of the Musharakah Pool.
Profit would be shared by the SBP & FI in accordance with
the profit sharing ratio. FI shall pay profits to SBP by the
7th of the month following the quarter to which it relates.
Pool Management of IERS
Annual Audit for the Musharakah Pool:
The Musharakah pool would be audited by the external
auditors of FI in order to certify that the term and
condition of the scheme have been adhered to in totality
and that the annualized earnings of the pool have been
worked out correctly.
Pool Management of IERS
Takaful Fund:
Profits (as per the annual audit) in excess of amounts paid
to the SBP on quarterly basis shall be deposited by FI
within 7 days of its determination, in a special nonremunerative reserve fund viz. “Takaful Fund” with the
SBP BSC (Bank).
SBP shall refund amounts paid in excess of the profits as
per the annual audit out of balance held in the Takaful
Fund, if any.
Pool Management of IERS
Loss Sharing:
Loss suffered on the Musharakah pool as per the annual
audited accounts shall be borne by the FI and SBP in the
proportion of investment in the Musharakah Pool
expressed on daily product basis.
The share the loss, SBP will first be met out of credit
balance in the Takaful Fund, if any. The loss not met
from the Takaful Fund shall be borne by the SBP.
Pool Management of IERS
Fines:
SBP can impose fines on the FI’s for default in repayment
of facility within the stipulated period that shall not be
counted as expenses of Musharakah Pool.
The Islamic Bank can recover these expenses from the
exporters if imposition of such fines is on account of their
failure to comply with the instructions of SBP/Islamic
Bank. All other fines will be imposed by SBP as per ERS.
IERS Manual
The IERS Manual shall cover the Accounting Treatment,
Procedures and Guidelines for implementation in
Branches.
Shari’ah Compliance
Shariah Advisor of the Bank has approved the Islamic
Export Refinance Scheme (IERS Product).