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   Export Finance and Insurance Scheme

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

Comprehensive Export Finance Export Finance and Insurance Scheme
1.  Scope
Export Finance Export Finance and Insurance against Commercial and Political Risks
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
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.


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.



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:

Bank Address
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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