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Export financing



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  • 1. C hapter 11 Export Finance
  • 2. Pre-Shipment Finance Pre-shipment credit is provided to the exporters for meeting their need of getting the shipment ready. It is generally offered as Packing Credit (PC). The exporter has to submit the prescribed application form for obtaining packing credit together with the required papers to the bank. The documents required generally are the export order, letter of credit, proof of business address, financial papers like profit & loss account and the balance sheet. Banks also require the exporter to obtain an insurance cover from ECGC against payment risks. Pre-shipment credit is extended in both Indian rupees as well as in foreign currency. This facility entitles the exporter to borrow funds as pre-shipment credit in foreign currencies like US Dollar, Japanese Yen, Pound Sterling or Euro. Such credit is offered at internationally competitive interest rates to enable the exporter to take advantage of the same under stiff competitive environment.
  • 3. Advances against Duty Drawback/Incentives Banks may also extend loans prior to shipments against the drawback/incentives receivable from the government covered by ECGC guarantee in certain exceptional cases. This type of advance is normally extended after the goods have been shipped. The exporter will have to present his case as a special one to the satisfaction of the bank. The bank in its own discretion may advance a loan for up to 90 days at any interest rate within the ceiling of BPLR (Benchmark Prime Lending Rate) minus 2.5%.
  • 4.
    • Post-Shipment Credit
    • Post-shipment finance is provided at concessional interest rates as per RBI guidelines. The proof of shipment of goods, serves as the basis of grant of such facility. The basic purpose of this credit is to finance export receivables.
    • The following options are available to the exporter for post-shipment credit:
    • Export bills purchase/discounting
    • Export bills negotiated (against letter of credit)
    • Advances against bills for collection
    • Advances against duty drawback receivable from the government
    • Advances against exports on consignment basis
    • Advances against undrawn balances
    • Banks can extend post shipment finance on concessional rates for periods listed below:
    • Demand bills
    • Usance bills
  • 5.
    • Some of the following steps are involved:
    • The exporter ships the goods to the importer.
    • The exporter assigns his invoices through the export factor to the import factor who assumes the credit risk (as per prior arrangement).
    • The Export factor prepays invoices.
    • The importer pays the proceeds to the import factor, who transfers the amount to the export factor.
    • The export factor deducts pre-payment already made, other charges and pays the balance proceeds to the exporter.
  • 6.
    • Advantages to Exporters
    • Factoring is beneficial to the exporters in the following ways:
    • Elimination of the cost and delays experienced in transacting business under LC.
    • The import factor offers credit risk protection in case the buyer does not pay invoices within 90 days of the due date.
    • ECGC policy cost can be saved.
    • The exporter can obtain valuable information on the standing of the foreign buyers on trade customs.
    • The following up of receivables by import factor will speed up the collections.
    • As we provide finance up to 90% on export invoices.
  • 7. Role of Export-Import Bank of India in Export Finance
    • Lines of Credit
    • Supplier's Credit
    • Overseas Buyer's Credit
    • Finance for Rupee Expenditure for Project Export Contracts (FREPEC)
    • Pre-Shipment Rupee Credit
    • Refinance of Export Credit
    • Forfaiting:
      • by discounting export receivables.
      • evidenced by bills of exchange or promissory notes.
      • without recourse to the seller ( viz. exporter).
      • carrying medium to long term maturities.
      • on a fixed rate basis (discount).
      • up to 100% of the contract value.
  • 8.
    • Advantages to Exporters :
      • Converts a deferred payment export into a cash transaction, improving liquidity and cash flow
      • Frees the exporter from cross-border political or commercial risks associated with export receivables
      • Finance up to 100% of the export value is possible as compared to 80- 85% financing available from conventional export credit programmes
      • As forfaiting offers without recourse finance to an exporter, it does not impact the exporter's borrowing limits.
      • Provides fixed rate finance.
      • The exporter is freed from credit administration and collection problems
      • Forfaiting is transaction-specific.
      • Exporter saves on insurance costs as forfaiting obviates the need for export credit insurance
      • Simplicity of documentation enables rapid conclusion of the forfaiting arrangement.