The State Bank of Pakistan (SBP) has allowed advance payments against letters of credit (L/Cs) and firm-registered contracts up to 100 per cent of the value of the imported goods.

The move is seen as an effort by the central bank to further liberalise Pakistan's foreign exchange regime and to help importers.

Conditions

According to a SPB circular, the facility will be provided subject to certain conditions.

These include a requirement for banks contemplating making an advance payment to take all possible measures to verify that a transaction is genuine and obtain a creditworthiness report on the foreign supplier before agreeing to advance payment.

Guarantee

The importer's bank may also have to ask its client to obtain a performance guarantee from the supplier's bank.

The importer's bank will have to obtain an undertaking from the importer that in case goods are not received for any reason within the period of four months, the bank as well as the customer will repay the advance payment.

Penalties

In case the importer is unable to import goods against advance payment and the underlying contract is cancelled, the bank will impose and recover a penalty at the rate of 0.25 per cent per month on the amount of advance payment from the date of remittance until the date it is repaid.

The SPB has warned that this new facility should not be abused. It says that if an advance payment is made but in reality no goods are delivered, the importer will be barred from using the facility in the future.

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