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.
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.
Differences between the old scheme and the new one
|Comprehensive Export Finance
||Export Finance and Insurance Scheme
Export Finance and Insurance against Commercial and Political Risks
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
|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
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.
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
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
CLICK ON A QUESTION BELOW TO REVEAL THE ANSWER
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
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
- 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
- The applicant must have a valid export order.
- A large scale exporter must have a linkage with
- The applicant must keep a proper set of business
- 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
- 5. What is the distinction between small and large scale
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
- 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.
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