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Central Bank finalises an improved Export Finance and
Insurance Scheme
The Central Bank of Lesotho has completed
a review of the old Export Finance Scheme with a view to
putting in place a new and improved one by the end of the
year. This review was undertaken because the old scheme had
been experiencing a number of problems and had generally had
limited success in achieving its original objective of
expanding and diversifying Lesotho’s export base.
The idea behind
the original scheme was to assist Lesotho-based exporters in
obtaining credit from the commercial banks. This assistance
was provided by way of credit guarantees, on behalf of
exporters, to participating commercial banks. In other
words, the Central Bank was providing guarantees to the
commercial banks that in the event that the exporter fails
to pay the loans advanced for reasons beyond his/her
control, the Central Bank would pay up to 85 percent of the
loan amount outstanding at the time. Even though the
guarantee was provided by the Central Bank, it was
implemented through the Lesotho National Development
Corporation (LNDC). The LNDC would, after appraising the
exporter’s loan application, provide the guarantee directly
to the commercial bank and simultaneously apply for a
counter- guarantee from the Central Bank.
Problems in the old scheme
As the scheme progressed, a number of
problems began to emerge. In addition, it became
increasingly apparent that the scheme was having limited
success in achieving the Bank’s overall objective of
expanding and diversifying the country’s export base. One
key problem came up time and again. Commercial
banks felt that the LNDC was rejecting what in their view
were legitimate claims for a guarantee. The LNDC in turn was
arguing that the commercial banks were not following the
conditions of the guarantees. In the end, commercial banks
withdrew their lending under the scheme and the scheme
ceased to operate even though the Guarantee Fund had as much
as M16.0 million to honour the guarantees.
Main Improvements
In redesigning the
new scheme, the Central bank is eager to avoid the problems
experienced by the old scheme. In the proposed scheme, the
conditions of the guarantee will be simplified so as to make
it easier for the commercial banks to abide by. Also, the
Central bank will directly provide the guarantee instead of
providing the guarantee through the LNDC. Other differences
between the old scheme and the new one are highlighted in
Table 1 below.
Table 1:
Differences between the old scheme and the new one
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Comprehensive Export Finance |
Export Finance and Insurance Scheme |
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1.Scope |
1.Scope |
|
Export Finance
|
Export Finance
and Insurance against Commercial and Political Risks |
|
2. Beneficiaries |
2. Beneficiaries
|
|
Exporters
|
Large and medium-sized small
and medium-sized exporters. Large-scale exporters to be
assisted only if they establish linkages with small and
medium-sized exporters. |
|
3.Risk
Sharing |
3.Risk
Sharing |
|
85% of the
loan to the exporter is guaranteed |
50% of the
loan to the exporter is guaranteed |
In order to
further improve the proposed scheme, the Bank invited all
stakeholders to add their voice to this proposal.
Participants included manufacturers of exportable goods, the
banks, insurance companies, and relevant government
ministries. Most of the participants welcomed the new
scheme. Among the salient amendments made by the
stakeholders to the scheme include the fact that large-scale
exporters can only participate in the scheme if they have
linkages with small exporters. It is also hoped that an
information-sharing forum of all stakeholders shall be
constituted in order to ensure fair play.
Small Scale
Exporters to Benefit
Through the
Scheme, small and medium-sized local exporters are to be
guaranteed up to 50% of their export loans, under the Export
Development Fund (EDF) to be administered by the Central
Bank. Exporters will be required to pledge collateral of
50% of the loan value to ensure that they repay the loan.
Secondly, in order
to forestall unfair competition posed by large-scale
exporters, the latter’s application shall only be considered
if they forge business links with small and medium-sized
exporters.
Procedures for
Application
In order to ensure
that small and medium-sized Basotho exporters benefit from
the scheme, applicants should meet all of the following
conditions:
Exporters wishing
to avail themselves of assistance under the scheme will
apply firstly for a guarantee to the Central Bank. The
Central Bank will assess the application to ensure that the
applicant meets all criteria. If approved the application
will be forwarded to a commercial bank which will in turn
make its own assessment of the loan.
Moreover, the total staff
complement of the export business should
be between 3 to 30 employees. Finally, the applicant should
have been in the export business for a period of at least
two years.
Progress
The bulk of the
work has been the promotion of the scheme, particularly
amongst the indigenous exporters, as this is part of the
population, which is being targeted by the government policy
on poverty alleviation. In collaboration with the Ministry
of Trade and Industry, public gatherings were held in most
of the districts. In the first instance, the idea was to
sensitise on the existence of the small indigenous and or
potential exporters. Secondly, to establish their needs,
particularly in relation to accessing the banking services.
Meetings were also
held with the large exporters as well. It was through these
meetings that it became clear that these companies are not,
at least for now, in need of financial assistance. These
companies do get every support they need from their parent
companies as they are foreign owned.
AN IMPROVED EXPORT
FINANCE AND INSURANCE SCHEME
1.
What is the Export Finance and Insurance
Scheme?
The Export
Finance and Insurance Scheme facilitates lending to
exporters by providing credit guarantees to commercial
banks on behalf of financed exporters. The scheme
was established by the Government of Lesotho and is
administered by the Central Bank of Lesotho in collaboration
with the commercial banks. The Central Bank supports an
exporter by guaranteeing 50% of credit extended by the
exporter’s bank. The credit facility is only for working
capital requirements.
2.
The objective of the Export Finance and
Insurance Scheme
The
key objective of the Scheme is to enhance economic growth
by assisting local exporters gain competitive advantage in
the international markets, with the aim of achieving
poverty reduction and job creation.
3.
Who is eligible to borrow under the
scheme?
Only
applications from exporters will be considered. In
addition, such exporters must meet the following criteria:
·
The
applicant must have been in the export business for at least
one year.
·
The
applicant’s business must export at least 50% of its
annual production.
·
All
of the exporter’s merchandise/service must be manufactured
in Lesotho with a Value Added component of least 35%.
·
The
applicant must have a valid export order.
·
A
large scale exporter must have a linkage with Basotho
businesses.
·
The
applicant must keep a proper set of business records.
4.
What are minimum and maximum loan
amounts.?
Minimum amount
that can be borrowed under the scheme is M50,000. Maximum
amount for small scale businesses is M1,000,000 while large
scale businesses can borrow up to M5,000,000.
5. What is the
distinction between small and large scale enterprises?
For purposes of
the Scheme, a business with a staff complement of less than
50 employees or whose total annual turnover is less than
M5,000,000 is classified as a small scale enterprise. A
business with a staff complement of 50 and more or whose
total annual turnover is M5,000,000 and more is classified
as a large scale enterprise.
6. What is
the duration of the guarantee cover?
The guarantee
cover shall be for a period of one year from the date of
issue.
7. What
will be the interest rate?
Commercial banks
will charge exporters interest up to the maximum of the
prevailing prime rate.
8. What
other fees are payable?
A non-refundable
application fee is payable upon submission of an
application.
· For small
scale exporters the fee is 0.5% of total amount applied for
but shall not exceed M500.
· For large
scale exporters the fee is 1% of the total amount applied
for but shall not exceed M15,000.
In addition to the
application fee a financed exporter will be charged a
quarterly guarantee fee at the rate of 0.75% on the highest
amount outstanding in each quarter.
9. Insurance
The exporter has
to take insurance cover against both commercial and
political risk.
10. Security
The exporter is
expected to put up collateral for uninsured component of the
lending. Such security may comprise the assets of the
exporter, irrevocable letters of credit, any bills insured
by the bank of the buyer, advance payments or any other form
of security that may be agreed upon between the bank and the
exporter.
11. Where can
applications be directed to?
Applications can
be submitted in any branch of Lesotho Bank(1999) Limited,
Nedbank Lesotho and Standard Bank Lesotho. Enquiries can
also be made at the following addresses of the banks:
Lesotho Bank
(1999) Limited, Lesotho Bank Tower,
P.O.Box 1053, Maseru 100
Tel: (+266) 22315737
Fax: (+266) 22310268
Nedbank Lesotho
Limited: Nedbank Building, Kingsway
P.O.Box 1001, Maseru 100.
Tel: (+266) 22312696
Fax: (+266) 22313921
Standard Bank
Lesotho Ltd: Standard Bank Building, Kingsway
P.O.Box 115, Maseru 100
Tel:
(+266) 22312423
Fax: (+266) 22310235
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