KARACHI - The Union of Small and Medium Enterprises (UNISAME) has invited the attention of Yasin Anwar, the governor State Bank of Pakistan (SBP), that in the absence of Export Credit Guarantee Insurance (ECGI) the banks are just not prepared to negotiate letters of credit (LCs) from third world countries and LCs established by banks of low rating, disabling the SME exporters from exporting to these countries.
According to the statement, President UNISAME Zulfikar Thaver raised this issue and the advisory committee of SBP acknowledged the importance of ECGI and comprehended the fact that in the absence of ECGI the exports to underdeveloped countries will not be possible yet no steps have been taken to work in this direction.
He pointed out that in the discounting of bills the banks take into consideration the ranking of the LC opening bank and the country. Exports can be substantially increased by indemnifying the banks with ECGI which is the solution and many countries have increased their exports by providing the risk cover to banks by the state.
He said the SBP launched an insurance scheme and is providing 40% cover to commercial banks for providing finance to SMEs in case of default and this is noteworthy and offers support to the sector and makes the banks comfortable in financing the SMEs to an extent but ECGI is a very specific requirement of the commercial banks who are not prepared to take risk in discounting bills of underdeveloped countries and of banks not coming in the category of first class banks.
Mahboob Piracha, member UNISAME Mentor Committee (MC), pointed out that to boost export to third world countries by SMEs the need of the hour is providing post shipment ECGI cover with minimum charges so that shippers can get their LCs and export bills finance/discounted by local commercial banks with which they are dealing.
He clarified that ECGI scheme should only cover “ Country Risk & Payee Bank Ranking” as these are the only two concerns of local commercial banks to finance or discount the LC coming from a third world country or from a bank with low ranking.