COMMERCIAL LENDING

Fund Based Non-Fund Based

1 Running Finance / Cash Finance
2 Demand Finance / Term Finance
3 Export Refinance Facility (ERF)

Short Term Financing / Working Capital

Financing (Current Asset – Current
Liabilities)
Running Finance (Overdraft Limit)
Let Say RF Rs 5M
Separate Bank A/c is opened for
customer in a separate bank ledger
which is generally known as RF Ledger
To facilitate Working Capital required by
customer
Cash Operating Cycle
Inventory + Receivables - Payables
Days Days Days
Turnover = Sales (CGS)
Inventory
Days Inventory, Receivables & Payables
Days Inventory = Inventory X 300
CGS
Days Receivables = Avg Receivables x 300
Credit Sales
Days Payable = Trade Payables x 300
CGS
Convention of 300 / 360 / 365 days based on
actual working days for particular business
Days Inventory + Days Receivable - Days
Payable= Net Cash Operating Cycle (Days)
Example: 50+40-45= 45
CGS x 360 (or 300 days as feasible)
NCOC (Days)
CGS x 360
NCOC (Days)
Calculation of Net Working Capital
Requirement

Forecasted / Projected Financial Statements

 Judgemental / Estimation / Expectation
 Difference of opinion between bank and
customer
  Under financing
 Actual or True Financial Statements
indicating Actual Business Operating
Performance

Running Finance / Cash Finance

RF
Primary Security: Hypothecation of stocks
and/or Receivables.
Secondary Security: Pledge of stocks/Mortgage
of Property / Liquid security (Readily converted
to cash without legal intervention)
Rs. 20M stocks
Nature of RF/CF is same but product dynamics
are different
CF Pledge (CF Facility against pledge of stock)
Stock in Godown / warehouse Rs 20M
CF (pledge) (Margin: 25%) Loan:Rs 15M
Safe Margin available
D/O Issue (Delivery Order)
Its an authority issued by bank to Mucaddam
(godown/warehouse keeper) to release specific
quantity/quality of goods to borrower
(customer)
500,000 worth of stock is required by customer
Customer bank a/c will be debited by bank
Cash deposited by customer: Rs. 667,000/=
500,000 = Rs.667,000
0.75
1-margin requirement = 1-0.25=0.75
Loan (o/s) : Security (Pledge of Stock)
15: 20
3:4
Mucaddam: Individual / (Mostly)
Firm/Corporate Entity

SECURITIES OFFERED BY CUSTOMERS TO

SECURE BANK LOANS
Hypothecation of Stocks (under control of
Customer / NO PLEDGE)
Pledge of Stock (CF Product)
Properties as Security (Residential /
Commercial / Industrial / Agricultural)
Liquid Securities: (Bonds/ Stocks/Investment
Certificates)
Rs 15,000,000 – Rs 667,000 = Rs 14,333,000
Demand Finance Facility PKR 24M
Repay 24 Monthly Installments
1M per month customer pays to adjust the DF
Facility of 24M

TRADE FINANCE
Export Finance Scheme (EFS) SBP / Export
Refinance (ERF) (BANKS) SCHEMES
Suppliers Credit: Credit provided by supplier
(exporter) to buyer (importer)
EFS started in 1973 by SBP
SBP Funds involved
Concessionary Finance (markup rate < market
rate)
Max Tenor 180 days
Commercial Bank Fund NOT involved
To encourage exporter by meeting their
operating requirements
Country Foreign Exchange Reserves
Trade Balance / Current A/c improve
Spread of Commercial Bank: 1%
Example:
SBP EFS Rate= 9% + Comm. Bank Spread = 1%
Markup Rate Charged to Customer = 10%
Markup: 6 months weighted average T-Bill Rate
Soverign Debt: State Debt / Borrowing by GoP

1. Transaction Based / Case to Case

2. Performance Based
Customers’ export performance judged
through EE-Form / EF-Form
Pre-Shipment Facility ERF-I, ERF-II
 ERF-Part-I: On Case to Case Basis
 ERF-Part-II: Regular Limit instead of “case
to case basis”
(More like a RF)
Per Forma Invoice / Indent

Post-Shipment Facility
Shipped on Board (Consignment has been
loaded on ship)
B/L (Bill of Lading) Airway Bill
R/R Railway Receipt Bill-T (BILTY)
ERF-II Limit Disbursement
Dr: Loan A/c Cr: Customer A/c
ERF-II Limit Adjustment
Dr: Customer A/c Cr: Loan A/c

Yield from Customer

1. Markup from ERF Loan
2. Earning on Deposit (Export Proceeds)
3. Exchange Earning
4. Export Loan /Doc Processing Charges

FAFB
FBP/IBP