In order to incentivise and boost the export sector, the State Bank of Pakistan (SBP) has been introducing steps from time to time. One such step is the Export Refinance Scheme in which banks are to provide financing to exporters on subsidized mark-up rates. Like other sectors of the economy, exporters can finance their exports by availing and utilizing the credit lines available to them from different banks. However, such financing is provided at a competitive rate like normal financing.
Related: Pakistan’s export challenges and dealing with trade imbalances
SBP Policy Rate and Its Effect on Exporters
In recent years, the SBP policy rate has exceeded 20% due to issues at macroeconomic level. In June 2020, the policy rate was set as 7% which rose to 22% in June 2023. Such high rates made the cost of financing expensive to all private businesses having credit limits with the banks. This also impacts the exporters in the country who seek financing from commercial banks in order to fund their export orders and need working capital/short term financing.
However, with the stability in macroeconomic indicators, the policy rate has come down from 22% in June 2023 to 12% in January 2025 and is expected to decline more to single digit number.
A lower rate could ease financing constraints, reduce export costs, and improve Pakistan’s competitiveness in global markets. While lower interest rates signal relief, exporters still navigate other challenges, including global demand shifts, exchange rate volatility, and trade regulations. Continued policy support and financial incentives will be key to sustaining growth in the sector. The decline in policy rate will encourage businesses and exports to get advances from the banks at a cheaper rate than before.
Export Finance Scheme and Value-Added Exports
The Export Refinance Scheme by the State Bank of Pakistan (SBP) has been in place since 1973 1 and continues to evolve with changing economic conditions. Unlike standard export financing, this is a specialized scheme designed to offer cheaper financing to exporters who meet specific eligibility criteria. The focus is on value-added and manufactured goods, while exporters dealing in raw materials and basic commodities are excluded. To ensure clarity, SBP has issued a negative list outlining ineligible export categories.Â
How Does the Scheme Work?
The scheme targets the exporters who export value added and manufactured goods to other countries. The exporters with export of raw material or basic commodities are not eligible to avail the refinance scheme. In this regard, a negative list has been provided by SBP which enlists the types of exports not covered under the scheme.
Under the refinance scheme, the eligible customers are entitled to finance their exports at the mark-up rate of 3% lesser than the policy rate. So, the financing rate is linked with the SBP policy rate which makes sure that the gap between the SBP rate and export refinance rate is kept at 3%. Further:
- Banks charge a 1% spread for large businesses and a 2% spread for SMEs, making financing slightly more accessible for smaller exporters.
- High-performing exporters i.e. who are consistently increasing their export volumes receive an additional rebate of 0.5% to 1.5%, further reducing their financing costs.
EFS Rates Over the Years
Over time, the Export Finance Scheme (EFS) rate has fluctuated in response to shifts in the SBP policy rate. The export finance scheme (EFS) rate for the past few years is illustrated in the below chart.
By keeping borrowing costs lower, the EFS plays a key role in strengthening Pakistan’s export competitiveness and supporting businesses that drive value addition in the economy.
As interest rates stabilize, exporters will continue to look toward policy support and further incentives to expand into global markets and sustain long-term growth.
Export Finance Under SBP’s Export Refinance Scheme
In 2019, 383 billion rupees were provided to exporters under EFS which has increased to 737 billion in December 2024. This reflects the growing reliance on low-cost financing to support Pakistan’s export sector.
EFS Structure and Financing Streams
The EFS is provided in two streams; transaction based and performance based. These streams are called Part-I and Part-II respectively. The maximum tenure of the facility is 180 days.
Transaction Based EFS Facility
In EFS Part-I facility, the commercial banks provide financing to customers on the basis of respective export transactions against LC/contract/firm export order. The facility under Part-I can be rolled for further 90 days if the exporter shows performance of 117% of the amount advanced by the bank.
Performance Based EFS Facility
The EFS Part-II is based on the performance of exporters in previous cases. The exporters are provided revolving credit limit as high as 50% of the export proceeds realized by them in the preceding financial year. The initial tenure of the facility is 180 days which can be further rolled over for another 180 days provided that the exports show shipment of at least 70% of the initial credit amount.
It is important to note here that SBP refinances the credit provided by the banks to the exporters under EFS. The banks have to repay the amounts to SBP on due dates. However, ultimate credit risk of exporters is borne by the banks providing financing under EFS and their repayment to SBP is not dependent on repayment by the exporters to the bank.
Islamic Export Refinance Scheme
Keeping in view the growth in Islamic financial institutions and their customer base, SBP has introduced Islamic Export Refinance Scheme or IERS in a Shariah-compliant way 2. The refinance facility by SBP to the Islamic banks is provided on the basis of Musharakah (profit-sharing basis).Â
Musharakah-Based Financing
The IERS uses Musharakah, a Shariah-approved structure based on profit and loss sharing (PLS). Instead of charging interest, SBP and Islamic banks enter into a partnership, creating a dedicated Musharakah pool. Through this pool, Islamic banks offer financing to eligible exporters, sharing the profits or losses proportionately based on predefined ratios. Like EFS, IERS also has two parts; Part-I and Part-II.
The Islamic Export Refinance Scheme not only meets the growing demand for Islamic financial products but also provides accessible export financing, promoting inclusive economic growth. By aligning with Islamic financial principles, SBP strengthens Pakistan’s export sector and encourages greater market participation from exporters preferring Shariah-compliant financial solutions.
EXIM Bank
In various parts of the world, dedicated export-import banks (EXIM) have been established to provide solutions for exporters and importers. Such banks exist in China, US, Malaysia and Bangladesh. In Pakistan, EXIM bank was formally launched at the end of 2023. These dedicated banks have contributed significantly across the globe in boosting the export finance and disbursed more than 2 trillion USD 3.
As required by the International Monetary Fund (IMF), the SBP has started phasing out EFS and IERS and directed the bank to route export facilities through EXIM bank 4.Â
Supporting SMEs
One of EXIM Bank Pakistan’s key objectives is to enhance the competitiveness of exporters, particularly SMEs. A major challenge in Pakistan’s export sector has been the lack of credit insurance. Currently, commercial banks bear the credit risk of exporters, making them reluctant to extend financing to SMEs.
EXIM Bank aims to bridge this gap by offering credit insurance solutions, reducing risk for banks, and making export financing more accessible to small and medium-sized businesses. This shift is expected to boost exports, reduce financing bottlenecks, and create a more resilient trade finance ecosystem.
Conclusion
Establishing EXIM Bank Pakistan marks an important step in modernizing the export financing system of Pakistan. As SBP phases out EFS and IERS, it aligns Pakistan with global trade finance practices. This guarantees more financing availability and help for SMEs. EXIM Bank might increase Pakistan’s global trade competitiveness with its credit insurance solutions and special attention on exporters. Its success going forward will rely on good implementation, solid financial support, and policies that meet exporter demands. If executed properly, EXIM Bank has the potential to change Pakistan’s export industry.