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Govindram Seksaria Institute of
Management And Research, Indore
PROJECT ON INTERNATIONAL TRADE FINANCE
Internship Project Repot at TIL Dewas
SUBMITTED BY :- SUBMITTED TO:-
Arpit Malpani Mr. Rohit Upadhyaya
MBA 3rd
sem Finance Manager
2014-2016

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ACKNOWLEDGEMENT
I would like to express my thanks to many people. This dissertation is an effort to contribute
towards achieving the desired objectives. In doing so, I have optimized all available resources
and made use of some external resources, the interplay of which, over a period of time, led to the
attainment of the set goals.
My sincere thanks to my guide Mr. Rohit Upadhyaya who helped me in every step right from
explaining the meaning and significance of International trade finance, documentation of import
& export and the various verticals involved in it. The support & guidance from sir, was of
great help & it was extremely valuable.
I also express my sincere thanks to all the people who, directly or indirectly, contributed in time,
energy and knowledge to this effort.
Thanking You!!
Arpit Malpani
MBA 3rd
Semester

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CERTIFICATE
This is to certify that Mr. ARPIT MALPANI MBA 3rd
semester student of Govindram
Seksaria Institute Of Management and Research, Indore is bonafide owner of this project on
international trade finance.
He worked as a trainee in TATA INTERNATIONAL LIMITED, DEWAS from 23th
September
to 7th
November 2015.
Mr. Rohit Upadhyaya
Finance Manager
FLB Division
Tata International Ltd., Dewas

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TABLE OF CONTENT
1. Introduction : Company Profile…………………………………………………………..5
2. About Trade Finance………………………………………………………………………9
3. Methods of Payment in International Trade……………………………………………...11
4. Cash-in-Advance…………………………………………………………………………14
5. Letters of Credit………………………………………………………………………….16
6. Documentary Collections………………………………………………………………...18
7. Open Account……………………………………………………………………………20
8. Export Credit Insurance………………………………………………………………….22
9. Export Packing Credit…………………………………………………………………...24
10. Post Credit Finance…………………………………………………………………….27
11. Exim Bank Of India……………………………………………………………………30
12. Buyers Credit…………………………………………………………………………..35
13. Cristilization Of Export Bill……………………………………………………………39
14. Hedging Of Export Document…………………………………………………………40
15. Conclusion……………………………………………………………………………...45
16. Learning at TIL………………………………………………………………………...46
17. Documentation Of Export Bills………………………………………………………..47
18. References……………………………………………………………………………..48

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INTRODUCTION
Company Profile
Tata International Limited [TIL] is a global trading and distribution company with a network of
offices and subsidiaries spanning more than 39 countries in Africa, Asia, Europe and the
Americas.As a member of the reputed business conglomerate the Tata Group, we pride ourselves
in upholding the highest ethical standards in the way we conduct our businesses. Supported by a
10,000+ strong employee base, we are strongly driven by customer centricity, and have, over the
years, formed strategic alliances and partnerships with market leaders that have reinforced our
role as preferred partners in international trade and business.
Our worldwide revenues of US $2.2 billion in FY15 have set us firmly on a path of sustained
growth even as we continue to focus on value-added offerings for our customers, backed by
strong compliance of global norms within the sectors in which we operate. We leverage our
worldwide presence along with sourcing and marketing competencies to deliver what we
promise to customers across our five key business verticals.
Metals Trading
Supported by global sourcing, deep market knowledge and supply chain management of various
steel and related products, our metals trading business serves customers across 50 countries.
Recent investments in downstream activities in Africa have enabled us to widen our product
offering and increase customer retention.
Key products offered include steel, metallics and rolls, products for the aluminium industry
(customised engineering products) and module mounting systems (solar). The business also
supports a growing domestic (pan-India) business for bicycles under the brand Stryder.

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Distribution
We commenced automobile distribution in Africa way back in 1977 and have since evolved into
a leading distributor of Tata Motors vehicles in the continent with operations in more than 12
countries. Our business spread is marked by sophisticated showrooms, workshops with trained
personnel and responsive after-sales service. Recently, we have earned the distinction of adding
the prestigious Jaguar Land Rover dealership to our stable for select geographies.
Our current operations have expanded to include infrastructure and construction equipment as
well as farm machinery. We also have long-term representation agreements, marketing and
distribution tie-ups with reputable manufacturers like John Deere, ST Kinetics‘ Trxbuild /
Leeboy, Aquarius, Escorts (FarmTrac), etc.
The distribution business has consistently exceeded customers‘ and principals‘ expectations, and
is now on course to replicate this success across other geographies like Southeast Asia.
In addition, we have a nascent but growing presence in chemicals and healthcare products for
select markets in Africa.
Leather and Leather Products
We are India‘s leading exporter, manufacturer and supply chain integrator of leather and leather
products with exports to over 35 countries. Our diversified product basket comprises a large
range of footwear, finished leather and garments, all of which reflect contemporary trends in
design and colour palette.
We operate India‘s only performance leather facility. Our quality and customer orientation have
helped us build enduring associations with major global brands like Marks & Spencer, Gabor,
Aerosoles, Zara, Mango and others.
Our state-of-the-art manufacturing facilities in India (Chennai and Dewas) and development
centres in China and Portugal, besides a design studio in Italy put us ahead of our peers in terms
of capabilities and the breadth of our offerings. We are also the largest exporter of children‘s
shoes from India and have a major stake in Move-On Shoes, a leading Portuguese footwear
retailer.
Minerals Trading
We are primarily engaged in coal imports into India. Our team has strong expertise in global
sourcing and we aspire to be one of the largest coal trading companies in India, supported by
additional volumes from China and Thailand.
Additionally, other key products handled by us are coal and coke; ores and fluxes; ferro-alloys
and base metals like nickel, tin, etc.
Agri Trading
The vision for the business is to tap into the ever-increasing global trade in agricultural
commodities like cereals, pulses, oilseeds, etc, and create efficient linkages between India,
Africa and Myanmar for a select presence across the value chain. Our teams provide an end-to-
end trading solution to our customers and we are constantly engaged in growing our sourcing
base while adhering to quality and food safety standards.

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We are currently trading in pulses such as split pigeon peas and black matpe (Toor Whole and
Urad Dals, as they are known in India) from Myanmar; rice from Vietnam and Myanmar into
Africa; sesame seeds from Africa into India and China; and soya bean meal for animal feed from
India for our Myanmar customers.
Subsidiaries and Joint Ventures
TIL‘s largest subsidiary, Tata Africa Holdings has served as the flag bearer of the Tata Group in
the continent since 1977 and is headquartered in South Africa. It has facilitated several business
collaborations and has successfully created a niche for the Tata brand, its values and
commitment to the larger community.
Through subsidiaries and joint ventures worldwide, we also have business interests in luxury
hotels, bus body building, logistics, vehicle assembly and trailer manufacturing facilities.
Corporate Sustainability
At TIL, we are deeply committed to being a proactive and responsible member of the community
and the environment in which we are present. Stringent goals for the reduction of carbon
footprint and greenhouse gases in our leather plant and other facilities, coupled with initiatives
for empowering local communities in equal measure, drive our long-term sustainability agenda.
Winner of several prestigious national awards and international certifications for environment
and quality, TIL is also a signatory to the UN Global Compact.
At home in the world
The Tata group‘s global footprint spans more than 100 countries in six continents
The Tata group has been international in its approach to business from its inception. The
Founder, Jamsetji Nusserwanji Tata, began his business career in international trade in China and
England. The businesses he later established in India measured up to international standards and
used world-class technology. Tata Exports (now Tata International) was set up in 1962 and
currently Tata companies export their products and services to over 150 countries.
In 2014-15 the Tata group had international revenues of $73.4 billion, 67.5 percent of its total
revenues, with the UK and the US being the two main overseas revenue contributors.
Each operating company in the Tata group develops its own international strategy as an integral
part of its overall strategy, depending on the nature of the industry, opportunities available and
competitive dynamics of the global stage.
For some companies, focus on the domestic Indian market remains the priority. For others, it is
developing a presence in international markets in terms of trading and distribution of their
products. Then there are Tata companies, increasing in number, setting up greenfield projects,
making acquisitions and creating joint ventures in overseas geographies and becoming an
integral part of the development and economy of those geographies.

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Beginning with Tata Tea‘s acquisition of Tetley in 2000, Tata companies made several
significant overseas acquisitions including Corus by Tata Steel, Jaguar and Land Rover by Tata
Motors and Brunner Mond by Tata Chemicals – all in the UK; Daewoo Commercial Vehicles by
Tata Motors in South Korea; NatSteel in Singapore and Millennium Steel in Thailand by Tata
Steel; and General Chemical Industrial Products by Tata Chemicals, Eight O‘ Clock Coffee by
Tata Tea and Tyco Global Network by Tata Communications in the US.
In 2004, Ratan Tata, then Chairman of Tata Sons, summed up the Tata group‘s efforts to
internationalise its operations thus: ―I hope that a hundred years from now we will spread our
wings far beyond India, that we become a global group, operating in many countries, an Indian
business conglomerate that is at home in the world, carrying the same sense of trust that we do
today.‖

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ABOUT TRADE FINANCE
The term “Trade Finance” means, finance for Trade.
Talking in terms of Foreign Trade or International Business, any trade transaction (buying or
selling between two people in two different countries) has a seller to sell the goods or services
and a Buyer who will buy the goods or use the services.
Various intermediaries such as banks, Financial Institutions facilitate these trade transactions by
financing this process.
Although international trade has been in existence for centuries, trade finance developed as a
means of facilitating it at a relatively later stage. The widespread use of trade finance is one of
the factors that have contributed to the enormous growth of international trade in recent decades.
To enable the production of goods or services the seller needs finance. Also to fund its working
capital he needs finance. Sometimes when he has already sold the goods to the buyer but the
buyer is going to make a payment at a later stage, the seller needs finance to fulfil his next order.
Currently following forms of trade finance are is use.
– Pre shipment Finance
– Post Shipment Finance
– Factoring
– Forfaiting
– Structured Finance.
There are also other instruments that facilitates trade finance in one form or the other like Letter
of Credit, Bank Guarantee, Documentary collections.
Trade form works by reconciling the divergent needs of an exporter and importer. While an
exporter would prefer to be paid upfront by the importer for an export shipment, the risk to the
importer is that the exporter may simply pocket the payment and refuse shipment. Conversely, if
the exporter extends credit to the importer, the latter may refuse to make payment or delay it
inordinately.
In its simplest form, an exporter requires an importer to pay for goods that he has sold in
advance. The importer naturally wants to reduce risk by paying only after he has received the
goods. Thus the buyer and the seller have an arrangement between themselves for the payment.

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Products and services
Banks and financial institutions offer the following products and services in their trade finance
branches.
 Letter of credit: It is an undertaking/promise given by a Bank/Financial Institute on behalf
of the Buyer/Importer to the Seller/Exporter, that, if the Seller/Exporter presents the
complying documents to the Buyer's designated Bank/Financial Institute as specified by the
Buyer/Importer in the Purchase Agreement then the Buyer's Bank/Financial Institute will
make payment to the Seller/Exporter.
 Bank guarantee: It is an undertaking/promise given by a Bank on behalf of the Applicant
and in favour of the Beneficiary. Whereas, the Bank has agreed and undertakes that, if the
Applicant failed to fulfill his obligations either Financial or Performance as per the
Agreement made between the Applicant and the Beneficiary, then the Guarantor Bank on
behalf of the Applicant will make payment of the guarantee amount to the Beneficiary upon
receipt of a demand or claim from the Beneficiary.[1]
Bank guarantee is having various types like 1. Tender Bond 2. Advance Payment 3. Performance
Bond 4. Financial 5. Retention 6. Labour
 Collection and discounting of bills: It is a major trade service offered by the Banks. The
Seller's Bank collects the payment proceeds on behalf of the Seller, from the Buyer or
Buyer's Bank, for the goods sold by the Seller to the Buyer as per the agreement made
between the Seller and the Buyer.

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METHORDS OF PAYMENT IN INTERNATIONAL TRADE
To succeed in today‘s global marketplace, exporters must offer their customers attractive sales
terms supported by the appropriate payment method to win sales against foreign competitors. As
getting paid in full and on time is the primary goal for each export sale, an appropriate payment
method must be chosen carefully to minimize the payment risk while also accommodating the
needs of the buyer. As shown below, there are four primary methods of payment for international
transactions. During or before contract negotiations, it is advisable to consider which method in
the diagram below is mutually desirable for you and your customer.
PAYMENT RISK DIAGRAM

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Key Points
• International trade presents a spectrum of risk, causing uncertainty over the timing of payments
between the exporter (seller) and importer (foreign buyer).
• To exporters, any sale is a gift until payment is received.
• Therefore, the exporter wants payment as soon as possible, preferably as soon as an order is
placed or before the goods are sent to the importer.
• To importers, any payment is a donation until the goods are received.
• Therefore, the importer wants to receive the goods as soon as possible, but to delay payment as
long as possible, preferably until after the goods are resold to generate enough income to make
payment to the exporter.
Cash-in-Advance
With this payment method, the exporter can avoid credit risk, since payment is received prior to
the transfer of ownership of the goods. Wire transfers and credit cards are the most commonly
used cash-in-advance options available to exporters. However, requiring payment in advance is
the least attractive option for the buyer, as this method creates cash flow problems. Foreign
buyers are also concerned that the goods may not be sent if payment is made in advance. Thus,
exporters that insist on this method of payment as their sole method of doing business may find
themselves losing out to competitors who may be willing to offer more attractive payment terms.
Letters of Credit
Letters of credit (LCs) are among the most secure instruments available to international traders.
An LC is a commitment by a bank on behalf of the buyer that payment will be made to the
exporter provided that the terms and conditions have been met, as verified through the
presentation of all required documents. The buyer pays its bank to render this service. An LC is
useful when reliable credit information about a foreign buyer is difficult to obtain, but you are
satisfied with the creditworthiness of your buyer‘s foreign bank. An LC also protects the buyer
since no payment obligation arises until the goods have been shipped or delivered as promised.
Documentary Collections
A documentary collection is a transaction whereby the exporter entrusts the collection of a
payment to the remitting bank (exporter‘s bank), which sends documents to a collecting bank
(importer‘s bank), along with instructions for payment. Funds are received from the importer and
remitted to the exporter through the banks involved in the collection in exchange for those
documents. Documentary collections involve the use of a draft that requires the importer to pay
the face amount either on sight (document against payment—D/P) or on a specified date in the
future (document against acceptance—D/A). The draft lists instructions that specify the
documents required for the transfer of title to the goods. Although banks do act as facilitators for
their clients under collections, documentary collections offer no verification process and limited
recourse in the event of nonpayment. Drafts are generally less expensive than letters of credit.

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Open Account
An open account transaction means that the goods are shipped and delivered before payment is
due, usually in 30 to 90 days. Obviously, this is the most advantageous option to the importer in
cash flow and cost terms, but it is consequently the highest risk option for an exporter. Due to the
intense competition for export markets, foreign buyers often press exporters for open account
terms since the extension of credit by the seller to the buyer is more common abroad. Therefore,
exporters who are reluctant to extend credit may face the possibility of the loss of the sale to their
competitors. However, with the use of one or more of the appropriate trade finance techniques,
such as export credit insurance, the exporter can offer open competitive account terms in the
global market while substantially mitigating the risk of nonpayment by the foreign buyer.

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CASH-IN-ADVANCE
With the cash-in-advance payment method, the exporter can avoid credit risk or the risk of
nonpayment, since payment is received prior to the transfer of ownership of the goods. Wire
transfers and credit cards are the most commonly used cash-in-advance options available to
exporters. However, requiring payment in advance is the least attractive option for the buyer, as
this method tends to create cash flow problems, and unless the seller sees no other option or the
buyer has other vendors to choose from, it often is not a competitive option. In addition, foreign
buyers are often concerned that the goods may not be sent if payment is made in advance.
Exporters that insist on this method of payment as their sole method of doing business may find
themselves losing out to competitors who may be willing to offer more attractive payment terms.
Key Points
• Full or significant partial payment is required, usually via credit card or bank/wire transfer,
prior to the transfer of ownership of the goods.
• Cash-in-advance, especially a wire transfer, is the most secure and favorable method of
international trading for exporters and, consequently, the least secure and attractive option
for importers. However, both the credit risk and the competitive landscape must be
considered.
• Insisting on these terms ultimately could cause exporters to lose customers to competitors
who are willing offer more favorable payment terms to foreign buyers in the global
market.
• Creditworthy foreign buyers, who prefer greater security and better cash utilization, may
find cash-in-advance terms unacceptable and may simply walk away from the deal.
Wire Transfer—Most Secure and Preferred Cash-in-Advance Method
An international wire transfer is commonly used and has the advantage of being almost
immediate. Exporters should provide clear routing instructions to the importer when using this
method, including the name and address of the receiving bank, the bank‘s SWIFT, Telex, and
ABA numbers, and the seller‘s name and address, bank account title, and account number. This
option is more costly to the importer than other options of cash-in-advance method, as the fee for
an international wire transfer is usually paid by the sender.
Credit Card—A Viable Cash-in-Advance Method
Exporters who sell directly to the importer may select credit cards as a viable method of cash-in-
advance payment, especially for consumer goods or small transactions. Exporters should check
with their credit card company(s) for specific rules on international use of credit cards as the
rules governing international credit card transactions differ from those for domestic use. As
international credit card transactions are typically placed via online, telephone, or fax methods
that facilitate fraudulent transactions, proper precautions should be taken to determine the

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validity of transactions before the goods are shipped. Although exporters must endure the fees
charged by credit card companies, this option may help the business grow because of its
convenience.
Payment by Check—A Less-Attractive Cash-in-Advance Method
Advance payment using an international check may result in a lengthy collection delay of several
weeks to months. Therefore, this method may defeat the original intention of receiving payment
before shipment. If the check is in U.S. dollars or drawn on a U.S. bank, the collection process is
the same as any U.S. check. However, funds deposited by non-local check may not become
available for withdrawal for up to 11 business days due to Regulation CC of the Federal Reserve.
In addition, if the check is in a foreign currency or drawn on a foreign bank, the collection
process is likely to become more complicated and can significantly delay the availability of
funds. Moreover, there is always a risk that a check may be returned due to insufficient funds in
the buyer‘s account.
When to Use Cash-in-Advance Terms
• The importer is a new customer and/or has a less-established operating history.
• The importer‘s creditworthiness is doubtful, unsatisfactory, or unverifiable.
• The political and commercial risks of the importer‘s home country are very high.
• The exporter‘s product is unique, not available elsewhere, or in heavy demand.
• The exporter operates an Internet-based business where the use of convenient
payment methods is a must to remain competitive.

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LETTERS OF CREDIT
Letters of credit (LCs) are among the most secure instruments available to international traders.
An LC is a commitment by a bank on behalf of the buyer that payment will be made to the
beneficiary (exporter) provided that the terms and conditions have been met, as verified through
the presentation of all required documents. The buyer pays its bank to render this service. An LC
is useful when reliable credit information about a foreign buyer is difficult to obtain, but you are
satisfied with the creditworthiness of your buyer‘s foreign bank. This method also protects the
buyer, since no payment obligation arises until the documents proving that the goods have been
shipped or delivered as promised are presented. However, since LCs have many opportunities for
discrepancies, they should be prepared by well-trained documenters or the function may need to
be outsourced. Discrepant documents, literally not having an ―I-dotted and T-crossed,‖ can
negate payment.
Key Points
• An LC, also referred to as a documentary credit, is a contractual agreement whereby a
bank in the buyer‘s country, known as the issuing bank, acting on behalf of its customer
(the buyer or importer), authorizes a bank in the seller‘s country, known as the advising
bank, to make payment to the beneficiary (the seller or exporter) against the receipt of
stipulated documents.
• The LC is a separate contract from the sales contract on which it is based and, therefore,
the bank is not concerned whether each party fulfills the terms of the sales contract.
• The bank‘s obligation to pay is solely conditional upon the seller‘s compliance with the
terms and conditions of the LC. In LC transactions, banks deal in documents only, not
goods.
Illustrative Letter of Credit Transaction
1. The importer arranges for the issuing bank to open an LC in favor of the exporter.
2. The issuing bank transmits the LC to the advising bank, which forwards it to the exporter.
3. The exporter forwards the goods and documents to a freight forwarder.
4. The freight forwarder dispatches the goods and submits documents to the advising bank.
5. The advising bank checks documents for compliance with the LC and pays the exporter.
6. The importer‘s account at the issuing bank is debited.
7. The issuing bank releases documents to the importer to claim the goods from the carrier.

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Irrevocable Letter of Credit
LCs can be issued as revocable or irrevocable. Most LCs are irrevocable, which means they may
not be changed or cancelled unless both the buyer and seller agree. If the LC does not mention
whether it is revocable or irrevocable, it automatically defaults to irrevocable. Revocable LCs are
occasionally used between parent companies and their subsidiaries conducting business across
borders.
Confirmed Letter of Credit
A greater degree of protection is afforded to the exporter when a LC issued by a foreign bank
(the importer‘s issuing bank) is confirmed by a U.S. bank (the exporter‘s advising bank). This
confirmation means that the U.S. bank adds its guarantee to pay the exporter to that of the
foreign bank. If an LC is not confirmed, the exporter is subject to the payment risk of the foreign
bank and the political risk of the importing country. Exporters should consider confirming LCs if
they are concerned about the credit standing of the foreign bank or when they are operating in a
high-risk market, where political upheaval, economic collapse, devaluation or exchange controls
could put the payment at risk.
Special Letters of Credit
LCs can take many forms. When an LC is issued as transferable, the payment obligation under
the original LC can be transferred to one or more ―second beneficiaries.‖ With a revolving LC,
the issuing bank restores the credit to its original amount once it has been drawn down. Standby
LCs can be used in lieu of security or cash deposits as a secondary payment mechanism.
Tips for Exporters
• Consult with your bank before the importer applies for an LC.
• Consider whether a confirmed LC is needed.
• Negotiate with the importer and agree upon detailed terms to be incorporated into the
LC.
• Determine if all LC terms can be compiled within the prescribed time limits.
• Ensure that all the documents are consistent with the terms and conditions of the LC.
• Beware of many discrepancy opportunities that may cause nonpayment or delayed
payments.

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DOCUMENTARY COLLECTIONS
A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of
payment to the remitting bank (exporter‘s bank), which sends documents to a collecting bank
(importer‘s bank), along with instructions for payment. Funds are received from the importer and
remitted to the exporter through the banks involved in the collection in exchange for those
documents. D/Cs involve the use of a draft that requires the importer to pay the face amount
either on sight (document against payment—D/P) or on a specified date in the future (document
against acceptance—D/A). The draft lists instructions that specify the documents required for the
transfer of title to the goods. Although banks do act as facilitators for their clients under
collections, documentary collections offer no verification process and limited recourse in the
event of nonpayment. Drafts are generally less expensive than letters of credit (LCs).
Key Points
• D/Cs are less complicated and less expensive than LCs.
• Under a D/C transaction, the importer is not obligated to pay for goods prior to shipment.
• The exporter retains title to the goods until the importer either pays the face amount on
sight or accepts the draft to incur a legal obligation to pay at a specified later date.
• Banks that play essential roles in transactions utilizing D/Cs are the remitting bank
(exporter‘s bank) and the collecting bank (importer‘s bank).
• While the banks control the flow of documents, they do not verify the documents nor take
any risks, but can influence the mutually satisfactory settlement of a D/C transaction.
Typical Simplified D/C Transaction Flow
1. The exporter ships the goods to the importer and receives in exchange the documents.
2. The exporter presents the documents with instructions for obtaining payment to its bank.
3. The exporter‘s remitting bank sends the documents to the importer‘s collecting bank.
4. The collecting bank releases the documents to the importer upon receipt of payment.
5. Or the collecting bank releases the documents on acceptance of draft from the importer.
6. The importer then presents the documents to the carrier in exchange for the goods.
7. Having received payment, the collecting bank forwards proceeds to the remitting bank.
8. Once payment is received, the remitting bank credits the exporter‘s account.
Documents Against Payment (D/P) Collection
Under a D/P collection, the exporter ships the goods, and then gives the documents to his bank,
which will forward them to the importer‘s collecting bank, along with instructions on how to
collect the money from the importer. In this arrangement, the collecting bank releases the

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documents to the importer only on payment for the goods. Upon receipt of payment, the
collecting bank transmits the funds to the remitting bank for payment to the exporter.
Time of Payment: After shipment, but before documents are released
Transfer of Goods: After payment is made on sight
Exporter Risk: If draft is unpaid, goods may need to be disposed
Documents Against Acceptance (D/A) Collection
Under a D/A collection, the exporter extends credit to the importer by using a time draft. In this
case, the documents are released to the importer to receive the goods upon acceptance of the time
draft. By accepting the draft, the importer becomes legally obligated to pay at a future date. At
maturity, the collecting bank contacts the importer for payment. Upon receipt of payment, the
collecting bank transmits the funds to the remitting bank for payment to the exporter.
Time of Payment: On maturity of draft at a specified future date
Transfer of Goods: Before payment, but upon acceptance of draft
Exporter Risk: Has no control of goods and may not get paid at due date
When to Use Documentary Collections
Under D/C transactions, the exporter has little recourse against the importer in case of
nonpayment. Thus, the D/C mechanism should only be used under the following conditions:
• The exporter and importer have a well-established relationship.
• The exporter is confident that the importing country is stable politically and
economically.
• An open account sale is considered too risky, but an LC is also too expensive for the
importers.

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OPEN ACCOUNT
An open account transaction means that the goods are shipped and delivered before payment is
due, usually in 30 to 90 days. Obviously, this is the most advantageous option to the importer in
cash flow and cost terms, but it is consequently the highest risk option for an exporter. Because
of the intense competition for export markets, foreign buyers often press exporters for open
account terms. In addition, the extension of credit by the seller to the buyer is more common
abroad. Therefore, exporters who are reluctant to extend credit may face the possibility of the
loss of the sale to their competitors. However, while this method of payment will definitely
enhance export competitiveness, exporters should thoroughly examine the political, economic,
and commercial risks, as well as cultural influences to ensure that payment will be received in
full and on time. It is possible to substantially mitigate the risk of nonpayment associated with
open account trade by using such trade finance techniques as export credit insurance and
factoring. Exporters may also wish to seek export working capital financing to ensure that they
have access to financing for both the production for export and for any credit while waiting to be
paid.
Key Points
• The goods, along with all the necessary documents, are shipped directly to the importer
who agrees to pay the exporter‘s invoice at a future date, usually in 30 to 90 days.
• Exporter should be absolutely confident that the importer will accept shipment and pay at
agreed time and that the importing country is commercially and politically secure.
• Open account terms may help win customers in competitive markets, if used with one or
more of the appropriate trade finance techniques that mitigate the risk of nonpayment.
How to Offer Open Account Terms in Competitive Markets
Open account terms may be offered in competitive markets with the use of one or more of the
following trade finance techniques: (1) Export Working Capital Financing, (2) Government-
Guaranteed Export Working Capital Programs, (3) Export Credit Insurance, (4) Export
Factoring, and (5) Forfaiting. More detailed information on each trade finance technique is
provided in this sections :
Export Working Capital Financing
To extend open account terms in the global market, the exporter who lacks sufficient liquidity
needs export working capital financing that covers the entire cash cycle from purchase of raw
materials through the ultimate collection of the sales proceeds. Export working capital facilities
can be provided to support export sales in the form of a loan or revolving line of credit.

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Government-Guaranteed Export Working Capital Programs
The Export-Import Bank of the United States and the U.S. Small Business Administration offer
programs that guarantee export working capital facilities to U.S. exporters. With these programs,
U.S. exporters are able to obtain needed facilities from commercial lenders when financing is
otherwise not available or when their borrowing capacity needs to be increased.
Export Credit Insurance
Export credit insurance provides protection against commercial losses—default, insolvency,
bankruptcy, and political losses—war, nationalization, currency inconvertibility, etc. It allows
exporters to increase sales by offering liberal open account terms to new and existing customers.
Insurance also provides security for banks providing working capital and financing exports.
Export Factoring
Factoring in international trade is the discounting of a short-term receivable (up to 180 days).
The exporter transfers title to its short-term foreign accounts receivable to a factoring house for
cash at a discount from the face value. It allows an exporter to ship on open account as the factor
assumes the financial ability of the importer to pay and handles collections on the receivables.
The factoring house usually works with consumer goods.
Forfaiting
Forfaiting is a method of trade financing that allows the exporter to sell its medium-term
receivables (180 days to 7 years) to the forfaiter at a discount, in exchange for cash. With this
method, the forfeiter assumes all the risks, enabling the exporter to extend open account terms
and incorporate the discount into the selling price. Forfaiters usually work with capital goods,
commodities, and large projects.

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EXPORT CREDIT INSURANCE
Export credit insurance (ECI) protects an exporter of products and/or services against the risk of
nonpayment by a foreign buyer. In other words, ECI significantly reduces the payment risks
associated with doing business internationally by giving the exporter conditional assurance that
payment will be made in the event that the foreign buyer is unable to pay. Simply put, with an
ECI policy, exporters can protect their foreign receivables against a variety of risks, which could
result in nonpayment by foreign buyers. The policy generally covers commercial risks—
insolvency of the buyer, bankruptcy or protracted defaults (slow payment), and certain political
risks—war, terrorism, riots, and revolution, as well as currency inconvertibility, expropriation,
and changes in import or export regulations. The insurance is offered either on a single-buyer or
portfolio multi-buyer basis for short-term (up to one year) and medium-term (one to five years)
repayment periods.
Key Points
• ECI allows you to offer competitive open account terms to foreign buyers while
minimizing the risk of nonpayment.
• Creditworthy buyers could default on payment due to circumstances beyond their control.
• With reduced nonpayment risk, you can increase your export sales, establish market share
in emerging and developing countries, and compete more vigorously in the global market.
• With insured foreign account receivables, banks are more willing to increase your borrowing
capacity and offer attractive financing terms.
Overview
What is ECGC?
Export Credit Guarantee Corporation of India Ltd. ( ECGC ) is a Government of India
Enterprise which provides export credit insurance facilities to exporters and banks in India. It
functions under the administrative control of Ministry of Commerce & Industry, and is managed
by a Board of Directors comprising representatives of the Government, Reserve Bank of India,
banking , insurance and exporting community. Over the years, it has evolved various export
credit risk insurance products to suit the requirements of Indian exporters and commercial banks.
ECGC is the seventh largest credit insurer of the world in terms of coverage of national exports.
The present paid up capital of the Company is Rs. 1200 Crores and the authorized capital is Rs.
5000 Crores.
ECGC is essentially an export promotion organization, seeking to improve the competitive
capacity of Indian exporters by giving them credit insurance covers comparable to those
available to their competitors from most other countries. It keeps it's premium rates at the lowest
level possible.

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What does ECGC do?
 Provides a range of credit risk insurance covers to exporters against loss in export of
goods and services.
 Offers Export Credit Insurance covers to banks and financial institutions to enable
exporters to obtain better facilities from them.
 Provides Overseas Investment Insurance to Indian companies investing in joint ventures
abroad in the form of equity or loan.
How does ECGC help exporters?
ECGC
 Offers insurance protection to exporters against payment risks.
 Provides guidance in export-related activities.
 Makes available information on different countries with it's own credit ratings.
 Makes it easy to obtain export finance from banks/financial institutions.
 Assists exporters in recovering bad debts.
 Provides information on credit-worthiness of overseas buyers.
Need for export credit insurance
Payments for exports are open to risks even at the best of times. The risks have assumed large
proportions today due to the far-reaching political and economic changes that are sweeping the
world. An outbreak of war or civil war may block or delay payment for goods exported. A coup
or an insurrection may also bring about the same result. Economic difficulties or balance of
payment problems may lead a country to impose restrictions on either import of certain goods or
on transfer of payments for goods imported. In addition, the exporters have to face commercial
risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer
going bankrupt or losing his capacity to pay are aggravated due to the political and economic
uncertainties. Export credit insurance is designed to protect exporters from the consequences of
the payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.

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EXPORT PACKING CREDIT
Export Packing credit is the most commonly used trade finance tool by an exporter. Packing
credit or preshipment finance is very important to small and medium enterprises for their
financing needs. The international sales‘ cycle is comparatively longer than that of domestic
sales, which makes packing credit a very convenient and handy line of credit for the exporters.
Definition of Export Packing Credit
Packing credit is basically a loan provided to exporters or sellers to finance the goods‘
procurement before shipment. The bank will make the funds available against a letter of credit
issued favoring the seller and a confirmed order for selling the goods or services. The advance is
provided to purchase raw materials, process, manufacture, pack, market and transport the
required goods and services. At times, the packing credit is also used for financing the working
capital and meet the requirements of wages, travel expenses, utility payments, etc for companies
listed as exporters.
Generally importers are not ready to advance payments to exporters as it is not secure and full of
risk for them. In such scenarios, the facility of export packing credit supports the exporter‘s
supply chain and provides them funds to bridge the gap till the final payment. The bank issuing
the packing credit will usually advance the partial or full proportion of the invoice, depending on
the assumed risk. The packing credit is especially very viable for exporters who export goods
overseas as it has a more flexible repayment plans than the usual bank loans. The loan can be
granted in either the exporter‘s currency or another easily convertible currency mutually decided
by both the exporter and the lending bank.
Banks and other lending institutions follow their internal process such as verification of the
buyer, scrutiny of the purchase order or the letter of credit to authenticate the transaction.
However, the documentation and the credit process is not very complicated in a packing credit
loan. The loan can be in the form of a fund-based or a non-fund-based credit.
Features of Packing Credit
The packing credit has the following features:
 Self-liquidating : Self-liquidating feature is the most significant feature of packing
credit. The loan can be liquidated against the final payment of the goods and services or
can even be converted to post-shipment finance post the shipment of the goods. This is
extremely beneficial to small exporters who may not have the required capital. This also
eliminates a lot of risk from the financing as the bank has the assurance of payment
before the exporter receives the proceeds.

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 Credit to Buy Goods : Packing credit is a convenient way to purchase expensive goods
or raw materials even if they exceed the set budget.
 Covers Manufacturing Expenses : Packing credit also covers the manufacturing –
related expenses like wages, cost of raw materials, etc. This is especially useful if the
exporter has outsourced all or a part of the goods to be shipped.
 Lower Rate of Interest : Packing credit charges lower rate of interest as compared to a
typical overdraft facility. All the banks may not have standard interest rates for packing
credit as it varies depending on the business‘ nature, borrowing amount, etc. However, it
will surely be lower than various standard loans.
 Flexible Terms of Credit : Due to its self-liquidating feature and customized loans,
packing credit enjoys flexible terms. The bank allows the exporter to repay the loan after
he receives the final payment and continues to finance all the interim needs of the
exporter.
PACKING CREDIT GUARANTEE
What is the objective of Packing Credit Guarantee?
Timely and adequate credit facilities at the preshipment stage are essential for exporters to
realize their full export potential. Exporters may not, however, be easily able to obtain such
facilities from their bankers for several reasons, e.g. the exporter may be relatively new to export
business, the extent of facilities needed by him may be out of proportion to the equity of the
firms or the value of collateral offered by the exporter may be inadequate. The Packing Credit
Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers.
The Guarantees assure the banks that, in the event of an exporter failing to discharge his
liabilities to the bank, ECGC would make good a major portion of the bank's loss. The bank is
required to be coinsurer to the extent of the remaining loss.
What are the loans and advances eligible for Packing Credit Guarantee?
Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods
meant for export against a firm order or Letter of Credit qualifies for Packing Credit Guarantee.
Preshipment advances given by banks to parties who enter into contracts for export of services or
for construction works abroad to meet preliminary expenses in connection with such contracts
are also eligible for cover under the Guarantee. The requirement of lodgement of Letter of Credit
or export order for granting packing credit advances is waived if the bank grants such advances
in accordance with the instructions of the Reserve Bank of India in that respect.

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What are the general conditions regarding Packing Credit Guarantee?
The Guarantee, issued for a period of 12 months based on a proposal from the bank, covers all
the advances that may be made by the bank during the period to an individual exporter within an
approved limit. The bank is required to submit monthly declarations of advances and repayments
and to pay premium at the rate of 13 paise per Rs.100 per month on the highest amount
outstanding on any day. Approval of ECGC has to be obtained if the period for repayment of any
advance is to be extended beyond 360 days from the date of advance. If the bank apprehends a
loss, it is required to call back the outstanding advances and to take suitable action to prevent or
to minimize the loss including any action that may be suggested by ECGC. The bank will be
entitled to claim 66 2/3% of its loss from ECGC if the entire amount due from the exporter is not
recovered within a period of four months from the due date of repayment. The claims are
payable if ECGC is satisfied that the bank had conducted the account with normal banking
prudence and has also complied with the terms and conditions of the Guarantee. Any amount that
is recovered by the bank after the settlement of the claim has to be shared between the
Corporation and the bank in the same ratio in which the loss was originally borne by them.
What is the Whole turnover Packing Credit Guarantee available to banks and what are
its advantages?
ECGC issues Whole turnover Packing Credit Guarantee (WTPCG) to banks which undertake to
obtain cover for packing credit advances granted to all its customers on all-india basis. In
consideration of the large volume of business offered for cover and the spread of risks that will
thus become available to it, the Corporation grants a higher percentage of cover, lower premium
rate and considerable reduction in procedural formalities.
What are the premium rates applicable for WTPCG and what is the extent of cover
provided by it?
A differential premium rate is now applicable for the banks, which have opted for WTPCG. The
rates vary between 7 paise to 10 paise per Rs.100 per month payable on the average outstanding
for the month. The rate for each bank is fixed based on the actual claim premium ratio for the
bank for the period of immediately preceding five years. The percentage of cover is normally
75% for most of the banks (except a few banks for which it is 65%, taking into account the
extremely high claim premium ratio of those banks). There is a reduction of 10% in the cover if
the total advance sanctioned to any particular exporter exceeds the total premium received from
the bank (for all the accounts put together) in the immediately preceding year; even in respect of
such exporters, the lower percentage of cover will apply only for the advances sanctioned over
and above the value of such total premium.

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POST CREDIT FINANCE
Post Credit Finance is a kind of loan provided by a financial institution to an exporter or seller
against a shipment that has already been made. This type of export finance is granted from the
date of extending the credit after shipment of the goods to the realization date of the exporter
proceeds. Exporters don‘t wait for the importer to deposit the funds.
Basic Features
The features of post shipment finance are :
 Purpose of Finance : Postshipment finance is meant to finance export sales receivable
after the date of shipment of goods to the date of realization of exports proceeds. In cases
of deemed exports, it is extended to finance receivable against supplies made to
designated agencies.
 Basis of Finance : Postshipment finances is provided against evidence of shipment of
goods or supplies made to the importer or seller or any other designated agency.
 Types of Finance : Postshipment finance can be secured or unsecured. Since the finance
is extended against evidence of export shipment and bank obtains the documents of title
of goods, the finance is normally self liquidating. In that case it involves advance against
undrawn balance, and is usually unsecured in nature. Further, the finance is mostly a
funded advance. In few cases, such as financing of project exports, the issue of
guarantee (retention money guarantees) is involved and the financing is not funded in
nature.
 Quantum of Finance : As a quantum of finance, postshipment finance can be extended
up to 100% of the invoice value of goods. In special cases, where the domestic value of
the goods increases the value of the exporter order, finance for a price difference can also
be extended and the price difference is covered by the government. This type of finance
is not extended in case of preshipment stage.Banks can also finance undrawn balance. In
such cases banks are free to stipulate margin requirements as per their usual lending norm.
 Period of Finance : Postshipment finance can be off short terms or long term, depending
on the payment terms offered by the exporter to the overseas importer. In case of cash
exports, the maximum period allowed for realization of exports proceeds is six months
from the date of shipment. Concessive rate of interest is available for a highest period of
180 days, opening from the date of surrender of documents. Usually, the documents need
to be submitted within 21days from the date of shipment.

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Financing For Various Types of Export Buyer's Credit
Postshipment finance can be provided for three types of export :
 Physical exports : Finance is provided to the actual exporter or to the exporter in whose
name the trade documents are transferred.
 Deemed export : Finance is provided to the supplier of the goods which are supplied
to the designated agencies.
 Capital goods and project exports : Finance is sometimes extended in the name of
overseas buyer. The disbursal of money is directly made to the domestic exporter.
Supplier's Credit
Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale purchasing
under a contract. Once the bank approved loans to the buyer, the seller shoulders all or part of
the interests incurred.
Types of Post Shipment Finance
The post shipment finance can be classified as :
1. Export Bills purchased/discounted.
2. Export Bills negotiated
3. Advance against export bills sent on collection basis.
4. Advance against export on consignment basis
5. Advance against undrawn balance on exports
6. Advance against claims of Duty Drawback.
1. Export Bills Purchased/ Discounted.(DP & DA Bills) : Export bills (Non L/C Bills) is
used in terms of sale contract/ order may be discounted or purchased by the banks. It is
used in indisputable international trade transactions and the proper limit has to be
sanctioned to the exporter for purchase of export bill facility.
2. Export Bills Negotiated (Bill under L/C) : The risk of payment is less under the LC, as
the issuing bank makes sure the payment. The risk is further reduced, if a bank
guarantees the payments by confirming the LC. Because of the inborn security available
in this method, banks often become ready to extend the finance against bills under LC.
However, this arises two major risk factors for the banks:
1. The risk of nonperformance by the exporter, when he is unable to meet his terms and
conditions. In this case, the issuing banks do not honor the letter of credit.

29. 29
2. The bank also faces the documentary risk where the issuing bank refuses to honour its
commitment. So, it is important for the for the negotiating bank, and the lending bank
to properly check all the necessary documents before submission.
3. Advance Against Export Bills Sent on Collection Basis : Bills can only be sent on
collection basis, if the bills drawn under LC have some discrepancies.Sometimes exporter
requests the bill to be sent on the collection basis, anticipating the strengthening of
foreign currency.
Banks may allow advance against these collection bills to an exporter with a concessional
rates of interest depending upon the transit period in case of DP Bills and transit period
plus usance period in case of usance bill.
The transit period is from the date of acceptance of the export documents at the banks
branch for collection and not from the date of advance.
4. Advance Against Export on Consignments Basis : Bank may choose to finance when
the goods are exported on consignment basis at the risk of the exporter for sale and
eventual payment of sale proceeds to him by the consignee.However, in this case bank
instructs the overseas bank to deliver the document only against trust receipt /undertaking
to deliver the sale proceeds by specified date, which should be within the prescribed date
even if according to the practice in certain trades a bill for part of the estimated value is
drawn in advance against the exports.
In case of export through approved Indian owned warehouses abroad the times limit for
realization is 15 months.
5. Advance against Undrawn Balance : It is a very common practice in export to leave
small part undrawn for payment after adjustment due to difference in rates, weight,
quality etc. Banks do finance against the undrawn balance, if undrawn balance is in
conformity with the normal level of balance left undrawn in the particular line of export,
subject to a maximum of 10 percent of the export value. An undertaking is also obtained
from the exporter that he will, within 6 months from due date of payment or the date of
shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.
6. Advance Against Claims of Duty Drawback : Duty Drawback is a type of discount
given to the exporter in his own country. This discount is given only, if the inhouse cost
of production is higher in relation to international price. This type of financial support
helps the exporter to fight successfully in the international markets.
In such a situation, banks grants advances to exporters at lower rate of interest for a
Maximum period of 90 days. These are granted only if other types of export finance are
Also extended to the exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant documents
. to the relevant government authorities. These claims are processed and eligible amount is
Disbursed after making sure that the bank is authorized to receive the claim amount
directly from the concerned government authorities.

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EXIM BANK OF INDIA
Export-Import Bank of India (Exim Bank) was set up by an Act of the Parliament ―THE
EXPORT-IMPORT BANK OF INDIA ACT, 1981‖ for providing financial assistance to
exporters and importers, and for functioning as the principal financial institution for co-
ordinating the working of institutions engaged in financing export and import of goods and
services with a view to promoting the country‘s international trade and for matters connected
therewith or incidental thereto.
Exim Bank has two broad business streams: one, the traditional export finance typical of export
credit agencies around the world and two, financing of export oriented units (export capability
creation), which are non-traditional for export credit agencies. Since inception, Exim Bank has
been the principal financial institution in the country for financing project exports and exports on
deferred credit terms. As per Memorandum PEM (MEMORANDUM OF INSTRUCTIONS ON
PROJECT EXPORTS AND SERVICE EXPORTS) of Reserve Bank of India, the following
constitute project exports:
i. Supply of goods / equipment on deferred payment terms
ii. Civil construction contracts
iii. Industrial turnkey projects
iv. Consultancy / services contracts
Exim Bank extends funded and non-funded facilities for overseas turnkey projects, civil
construction contracts, technical and consultancy service contracts as well as supplies.
 Turnkey Projects are those which involve supply of equipment along with related
services, like design, detailed engineering, civil construction, erection and commissioning
of plants and power transmission & distribution
 Construction Projects involve civil works, steel structural works, as well as associated
supply of construction material and equipment for various infrastructure projects.
 Technical and Consultancy Service contracts, involving provision of know-how, skills,
personnel and training are categorised as consultancy projects. Typical examples of
services contracts are: project implementation services, management contracts,
supervision of erection of plants, CAD/ CAM solutions in software exports, finance and
accounting systems.
 Supplies: Supply contracts involve primarily export of capital goods and industrial
manufactures. Typical examples of supply contracts are: supply of stainless steel slabs
and ferro-chrome manufacturing equipments, diesel generators, pumps and compressors.
Exim Bank, under powers delegated vide the PEM, provides post-award clearance for project
export contracts valued upto USD 100 million. Project export contracts valued above USD 100
million need to be provided post-award clearance by the inter-institutional Working Group. The
Working Group is a single-window clearance mechanism, comprising Exim Bank as the
convenor and nodal agency, RBI – Foreign Exchange Department and Export Credit Guarantee

31. 31
Corporation of India Ltd. [ECGC]. In the case of very large value projects, officials of Ministry
of Finance, Ministry of Commerce and Industry and Ministry of External Affairs, Government of
India, are invited to participate in the Working Group Meetings. In order to obtain immediate
clarifications for speedy clearance of proposals by the Working Group, the exporters concerned
and their bankers are also associated with the meetings. With the same objective, participation
of the main sub-suppliers, sub-contractors or other associates and their bankers in such meetings
is also encouraged, particularly in respect of proposals for high value contracts. Exim Bank also
plays the role of a financier and provides funded and non-funded support for project export
contracts of Indian Entities.
In addition to project exports, Exim Bank also extends fund-based and non-fund-based facilities
to deemed export contracts as defined in Foreign Trade Policy of GOI, e.g.,
- secured under funding from Multilateral Funding Agencies like the World Bank,
Asian Development Bank, etc.;
- contracts secured under International Competitive Bidding;
- contracts under which payments are received in foreign currency.
Exim Bank offers the following Export Credit facilities, which can be availed of by Indian
companies, commercial banks and overseas entities.
For Indian Companies executing contracts overseas
Pre-shipment credit
Exim Bank's Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides
access to finance at the manufacturing stage - enabling exporters to purchase raw materials and
other inputs.
Pre-shipment credits are usually extended by exporters‘ commercial banks for period upto 180
days. Exim Bank extends pre-shipment / post-shipment credit either directly or in participation
with commercial banks. In order to offer one-stop banking products to export clients, the Bank
has also been offering short-term pre / post shipment credit either directly or through exporter‘s
bankers. Exim Bank may consider extending pre-shipment credit and post-shipment credit for
periods exceeding 180 days, on case-to-case basis and subject to the merits of the case.
Supplier's Credit
This facility enables Indian exporters to extend term credit to importers (overseas) of eligible
goods at the post-shipment stage.
Post-shipment Supplier‘s Credit can be extended to Indian exporters upto the extent of the
deferred credit portion of the export contract, either in Rupees or in Foreign currency. The period
of deferred credit and moratorium will generally depend on the nature of goods [List A and List
B of Memorandum PEM] or nature of projects, as per guidelines contained in the Memorandum
PEM of RBI.

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For Project Exporters
Export Project Cash-Flow Deficit Financing Programme [EPCDF]
Indian project exporters (including those under Deemed Exports category) incur expenditure in
rupee or foreign currency while executing contracts i.e. costs of mobilisation/acquisition of
materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses for
-
a) Project Export Contracts;
b) contracts in India categorized as Deemed Exports in the Foreign Trade Policy of India.
Capital Equipment Finance Programme (CEFP)
Capital Equipment Finance Programme [CEFP] has been conceived to cater to capital expenditure for
procurement of capital equipment to be utilized across multiple contracts. CEFP provides direct access to
Exim Bank‘s finance for eligible Indian companies for procurement of indigenous and imported capital
equipment for executing overseas projects / deemed export projects.
For Exporters of Consultancy and Technological Services
Exim Bank offers a special credit facility to Indian exporters of consultancy and technology
services, so that they can, in turn, extend term credit to overseas importers.
Guarantee Facilities
Indian companies can avail of guarantee facilities of different types to furnish requisite
guarantees to facilitate execution of export contracts (including deemed export contracts) and
import transactions.
Advance Payment Guarantee (APG): Issued to project exporters to secure a project
mobilization advance as a percentage (10-20%) of the contract value, which is generally
recovered on a pro-rata basis from the progress payment during project execution.
Performance Guarantee (PG): PG for up to 5-10% of contract value is issued valid until
completion of maintenance period and/or grant of Final Acceptance Certificate (FAC) by the
overseas employer/client.
Retention Money Guarantee (RMG): This enables the exporter to obtain the release of retained
payments from the client prior to issuance of Project Acceptance Certificate (PAC)/ Final
Acceptance Certificate (FAC).
Other Guarantees: e.g. in lieu of customs duty or security deposit for expatriate labour,
equipment etc.
Eligibility: Indian project exporters securing overseas or deemed export contracts.

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For Overseas Entities
Buyer's Credit
Overseas buyers can avail of Buyer's Credit from Exim Bank, for import of eligible goods from
India on deferred payment terms. As per Memorandum PEM guidelines, RBI has authorised
Exim Bank to extend overseas buyer‘s credits upto USD 20 mn for project exports without
seeking approval of RBI.
The facility enables exporters/contractors to expand abroad and into non-traditional markets. It
also enables exporters/contractors to be competitive when bidding or negotiating for overseas
jobs.
Benefits to Foreign Customers
 Enables overseas buyers to obtain medium-and long-term financing
 Competitive interest rate against host country's high cost of borrowing.
Eligibility:
Buyer's Credit is extended to a foreign project company that intends to award the project
execution to an Indian project exporter. The financing will be available to all kinds of projects
and service exports from India. Facility is available for development, upgrading or expansion of
infrastructure facilities; financing of public or private projects such as plants and buildings;
professional services such as surveyors, architecture, consultations, etc.
Buyer’s Credit under NEIA
Buyer‘s Credit – NEIA is a unique financing mechanism that provides a safe mode of non-
recourse financing option to Indian exporters and serves as an effective market entry tool to
traditional as well as new markets in developing countries, which need deferred credit on
medium or long-term basis.
Under this facility, Exim Bank facilitates project exports from India by way of extending credit
to overseas sovereign governments and government owned entities for import of Indian goods
and services from India on deferred credit terms. Exim Bank will obtain credit insurance cover
under NEIA through ECGC. NEIA is a trust set up by the Ministry of Commerce and
administered by Export Credit & Guarantee Corporation of India (ECGC).Facility is available
for project exports requiring medium or long term deferred credit.
Eligibility:
Exim Bank extends the credit directly to overseas buyer of projects from India without recourse
to Indian exporter. Borrower should be overseas sovereign governments or government owned
entities. Amount of Loan should generally not be more than 85% of the contract value.
Sovereign guarantee is needed where the borrower is other than the foreign government. Any
other security may be stipulated on a case-to-case basis.

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The Project Finance menu of funded and non-funded facilities to Indian exporters, commercial banks in
India and overseas entities is given below:
For Indian Exporters For Commercial Banks in India
 Post-shipment Supplier‘s Credit
 Export Project Cash flow Deficit
Financing Program
 Pre-shipment Credit in Rupee and Foreign
Currency
 Finance for Export of Consultancy and
Technology Services
 Finance for Deemed Export contracts
 Capital Equipment Finance
 Financing Deemed Export contracts
secured via structures including but not
restricted to BOT / BOO / BOOT / BOLT
 Letters of Credit / Guarantees
 Risk participation in funded /
non-funded facilities extended
to Indian exporters.
 Refinance of Export Credit
For Overseas Entities
 Buyer‘s Credit
 Buyer‘s Credit under NEIA

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BUYERS CREDIT
Buyer‘s Credit is a unique programme of Exim Bank, under which the Bank facilitates Indian
exports by way of extending credit facility to the overseas buyers for financing their imports
from India. Under Buyer‘s Credit Programme, Exim Bank makes payment of eligible value to
Indian exporters, without recourse to them. Buyer‘s Credit is a safe and non-recourse mode of
financing option available to Indian exporters, especially to small and medium enterprises
(SMEs), and motivates them to enter overseas markets. Buyer‘s Credit programme also seeks to
obviate the requirement of opening of ‗Letter of Credit‘ by overseas buyers in favour of Indian
exporters, thereby reducing the transaction cost and also the complexities involved in financing
international trade transactions. The Programme enables Indian exporters to enter into the
competitive international market with the product and financing to enable the buyer import the
same from India. It also frees Indian exporter‘s working capital thereby enabling them to
increase their scale of operations.
(Buyer’s Credit offered by Exim Bank is different from the Buyer’s Credit generally
availed by Indian companies by borrowing in foreign currency from international banks,
to finance their imports at competitive LIBOR based interest rates. Buyer’s Credit
extended by Exim Bank is for financing the overseas buyer’s imports from India i.e. export
of Indian goods and services)
SALIENT FEATURES OF BUYER’S CREDIT
 Facilitates exports from small and medium sized Indian companies by providing credit to
overseas buyer to import goods from India.
 Can also be offered for financing capital goods or services on deferred payment terms.
 Provides non-recourse finance to Indian Exporter by converting the deferred credit
contract into cash contract.
 Can also be extended by way of advance payments to Indian Exporters on behalf of the
Overseas Buyer.
 Can be a transaction specific financing or a revolving/renewable limit.
 Can be extended to more than one overseas subsidiaries of any Indian company.
 Non-LC transactions leading to saving of LC charges.

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DETAILED STEPS INVOLVED
1. Contract for export of goods or services is signed between Overseas Buyer (Importer) and
Indian Exporter.
2. Overseas Buyer requests Exim Bank for sanction of Buyer‘s Credit facility to finance the
import of goods or services under the contract.
3. Exim Bank after due diligence, sanctions Buyer‘s Credit facility to the Overseas
Importer/Buyer (Borrower) on mutually agreed terms that include security, rate of interest, credit
tenure and repayment schedule etc.
4. Exim Bank and Overseas Buyer execute security documents including Buyer‘s Credit
Agreement (BCA) and create security as per the BCA.
5. Indian exporter ships the goods and dispatches export documents; a) either directly to buyer‘s
banker or b) through its own banker in India.
6. Indian exporter submits two sets of non-negotiable copies of export documents to Exim Bank
along with a request letter for disbursement specifying the remittance instructions.
7. Overseas borrower accepts the documents presented by its banker and makes arrangement for
payment by way of disbursement under Buyer‘s Credit for which, it forwards payment
authorization, promissory note, trust receipt along with payment instructions requesting Exim
Bank to make disbursement under the credit facility.
8. Exim Bank disburses the eligible amount under the Buyer‘s Credit and remits the amount to
Nostro account of Indian Exporter‘s Bank for onward credit to Indian Exporter‘s account.
9. Indian exporter‘s banker receives payment in its NOSTRO Account, gives credit to the
exporter and issues advices / FIRC to that effect.
10. Overseas borrower services the Buyer‘s Credit extended by Exim Bank, as per the terms &
conditions of the sanction.
COST INVOLVED
1. Interest cost: is charged by overseas bank as a financing cost
2. Letter of Comfort / Undertaking: Your existing bank would charge this cost for issuing letter
of comfort / Undertaking
3. Forward Booking Cost / Hedging cost
4. Arrangement fee: Charged by person who is arranging buyer's credit for buyer.
5. WHT (Withholding tax): The customer may have to pay WHT on the interest amount remitted
overseas to the local tax authorities depending on local tax regulations. In case of India, the
WHT is not applicable where Indian banks arrange for buyer's credit through their offshore
Offices.
RISK INVOLVED
Buyer's credit is associated with Currency Risk.

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INDIAN REGULATORY FRAMWORK
Banks can provide buyer‘s credit up to US$20 million per import transactions for a maximum
maturity period of one year from date of shipment. In case of import of capital goods, banks can
approve buyer‘s credits up to $20 million per transaction with a maturity period of up to three
years. No rollover beyond that period is permitted.
As per RBI directives dated 11.07.13, at the time of availment of trade credit, the period of trade
credit should be linked to the operating cycle and trade transaction. AD banks need to ensure that
these instructions are strictly complied with.
RBI has issued directions under Sec 10(4) and Sec 11(1) of the Foreign Exchange Management
Act, 1999, stating that authorized dealers may approve proposals received (in Form ECB) for
shortterm credit for financing—by way of either suppliers' credit or buyers' credit—of import of
goods into India, based on uniform criteria. Credit is to be extended for a period of less than
three years; amount of credit should not exceed $20 million, per import transaction; the
`allincost' per annum, payable for the credit is not to exceed LIBOR + 50 basis points for credit
up to one year, and LIBOR + 125 basis points for credits for periods beyond one year but less
than three years, for the currency of credit.
All applications for shortterm credit exceeding $20 million for any import transaction are to be
forwarded to the Chief General Manager, Exchange Control Department, Reserve Bank of India,
Central Office,External commercial Borrowing (ECB) Division, Mumbai. Each credit has to be
given `a unique identification number' by authorised dealers and the number so allotted should
be quoted in all references.The International Banking Division of the authorised dealer is
required to furnish the details of approvals granted by all its branches, during the month, in Form
ECBST to the RBI, so as to reach not later than 5th
of the following month. (Circular AP (DIR
Series) No 24 dated September 27, 2002.
As per RBI Master circular on External Commercial Borrowing and Trade Finance 1 July 2011,
the all in cost ceiling for interest is now six month L + 200 bps(bps is Basis Points . A unit that is
equal to 1/100th of 1%) for buyer's credit arrange for tenure up to three years. All cost ceiling
includes arranger fee, upfront fee, management fee, handling and processing charges, out-of-
pocket and legal expenses, if any.
The above ceiling go revised on 15/11/2011 to 6 Month Libor + 350 bps and got further
extended on 30/03/2012 till 30/09/2012. From 01102012 Maximum cap of 6 Month Libor + 350
bit/s has been extended till further review.

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DOCUMENTS TO BE SUBMITTED BY THE BORROWER AT THE TIME OF EACH
DISBURSEMENT:
1. Request letter from Indian Exporter for disbursement, specifying the remittance details where
the disbursement amount is to be remitted
2. Non-Negotiable copy of Shipping Documents
3. Promissory note covering the eligible value (disbursement amount) of export contract
4. Trust receipt covering value of consignment financed by disbursement under the Buyer‘s
Credit facility
5. Authorization letter from Borrower to disburse the eligible value under the Buyer‘s Credit
facility and remit it to the Indian exporter.

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CRISTILIZATION OF EXPORT BILL
Once after shipping of goods, most of the exporters discount or negotiate the export bills with
bank by submitting necessary export documents like Bill of Lading / Airway Bill, Invoice,
Packing list and other required export documents. Most of the government supports exporters by
extending financial assistance by providing them loan against export documents with very low
rate of interest. Bank is expected to receive amount of such exports from overseas buyer on due
date agreed mutually between buyer and seller.However, if export bills are not realized even
after 30 days of its maturity, bank withdraws the facility of low interest rate by delinking the bills
by converting commercial rate of interest. This is called crystallization of export bills.
Crystallization of bills is also called delinking of export bills.
Crystallization of Overdue Export Bills
Exporter foreign exchange is converted into Rupee liability, if the export bill purchase /
negotiated/discounted is not realize on due date. This conversion occurs on the 30th day after
expiry of the NTP in case of unpaid DP bills and on 30th day after national due date in case of
DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the original bill
buying rate, whichever is higher.

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HEDGING OF EXPORT DOCUMENT
Currency Risk Management Export Transaction
Exchange rates of major currencies are fluctuating, in highly unpredictable manners under the
influence of demand and supply forces. Sometimes market witnesses very high percentage of
change in exchange rates in short periods. Adverse movements in exchange rate have potential to
eliminate profit factor from the export transaction.
Each exporter, invoicing in foreign currency, with condition to receive payment in future has
Transaction Exposure. This process has transferred the currency risk from the foreign buyer to
the exporter. Normally exposure period starts with conversion of Rupee cost to sale price in
foreign currency. Terminates, when actually export sale proceeds are credited to current a/c of
the exporter by the bank.
Exchange rates of foreign currency during the exposure period may change in favour or against
the interest of the exporter. Covering, the foreign exchange risk due to adverse change in
exchange rates, is termed as hedging the currency risk. If exporter does not want to hedge the
currency risk it means that view has been taken that future movement of exchange rates will be
in favour of the exporter. Depending on such views may lead to heavy losses due to adverse
movements in exchange rates.
Management of Currency risk in export trade transaction depends on factor as appended below:
 Nature of Invoice Currency
 Amount of Currency
 Exposure Period
 Hedging Instruments
 Selection of Bank‘s Branch
 Hedging System
Nature of Invoicing Currency
Selection of invoice currency not only shifts the risk to exporter but also bring the responsibility
of managing currency exposure. Exports in USD, exposes to currency risk due to adverse
movements of USD/INR exchange rates only, during the exposure period. Whereas, invoice in
non-USD exchange rates in Indian forex markets & second changes in USD/ Rupee exchange
rates in international forex markets during the exposure period.
Exporter should note that foreign currency for its trade transaction, at any point in time, will fall
in one of the following market conditions:
a. Strengthening Trend With Forward Premiums
Both the factors are in favour of the Exporter. With Passage of time market will produce better
exchange rates for exporters. Hedging policy may be to wait and watch. Wait till exchange rates

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and forwards margins are moving in the favour of the exporter. Cover the exposure on reversal
of the exchange rates trend in consultation with banker/forex expert.
b. Weakening Trend With Forward Discounts
Both the factors are against the business interest of the Exporter. Hedge the exposure
immediately. Delays may lead to avoidable losses.Banks provide free consultant service and
share the forex market information with suggestions.
c. Uncertain Trends
Selective hedging strategy in uncertain exchange rate movements has been found to be
profitable. Some portion of the exposure, based on short term forecasting, is covered and balance
is retained as uncover.
The portion of covered and uncovered exposures are changed by cancellation and rebooking the
hedge depending upon short-term exchange rate changes.
Quantum & timing of hedge is based on forex market condition & forecasting by the experts.
Bank is the cheap and best source of understanding market trends and provide support for risk
cover operations. Exporter should try to conduct business in strong currency.
Amount of Exposure
Banks provide card exchange rates for small amount transactions. These rates are calculated by
loading heavy margins and are adverse for exporters.Bank quotes better exchange rates based on
ongoing market rates for higher amount export transaction. In case of market lots transaction,
exporter gets market rate loaded by a few paisa only. Better rate creates more cash flows for
exporters.Exporter should negotiate with banker in each export transaction, for Better exchange
rate based on ongoing market rate. Avoid where ever possible, the application of banks‘ card
rates.
Exposure Period
Normally exposure period starts with converting of Rupee cost to foreign currency sale‘s price,
covering following activities/stages and ends with receipt of Rupee payment in bank‘s account.
EXPOSURE PERIOD FOR EXPORT TANSACTION
Exporter should note carefully that Exposure Period is longer than tenor of the export bill or
credit offered to Foreign Buyer. Longer the Exposure Period higher the Uncertainty and
Currency Risk.
In case invoiced foreign currency is on Premium against Rupee, take the benefit of higher
exchange rate than spot rate offered by banks.
Longer the period of credit, better is the exchange rate for exporter.Long period, export
receivable in case of premium currency must be hedged to avoid uncertainties & loss due to
adverse movement of exchange rate during exposure period. Some exporter hedge the exposure
risk, when they get better rate than forward exchange rate available on date of conversion of
costs to foreign currency sale‘s price.

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Monitoring of exchange rate movements during exposure period also provide an opportunity to
earn extra profits by obtaining and lifting the hedge depending upon exchange rate trends.
Hedging Instruments
Various hedging instruments traded on the counter and at the exchange houses are available for
hedging the Currency Risk. Selection of hedging instrument for exports depends upon
availability, flexibility & cost. The most common and exporter friendly hedging instrument in
India is Forward Purchase Contract offered by the banks.
Forward Purchase Contract
Banks provide on the counter derivative, Forward Purchase Contract for Exporters. Forward
Purchase Contract is a firm agreement by the exporter to deliver fixed amount of Foreign
Currency at future date at prior & fixed exchange rate. It is a firm and binding contract Banks do
not charge any upfront commission and book the contract, from very small amount to large
amounts. Only very small handling charges approx. Rs. 250 per Contract is charged
irrespective of the amount.
Exporter should take uncertainties pertaining to exchange rates movements as a Threat to Profit
and transfer the currency risk to Bank by booking forward purchase contract. During the cover
period exchange rates may move against the interest of the Exporter but it will get the contracted
rate.
Main defect of forward Contact is that exporter is denied to take the benefit of favourable
exchange rate movement during covered period.
Booking of Forward Contract
1. Only bank‘s customers are eligible for booking the forward contracts.
2. Forward Contracts are offered by the banks for expected export proceeds already made or be
made. Where shipment is already made, forward contract shall be booked on the basis of export
bills tendered to banks. In other cases, forward contacts are booked on the basis of the track
record of the exporter.
3. Choice of currency and tenor of exposure period are left to requirement/decision of the
exporter. Further, maturity of the cover period should not exceed the maturity of the export
transaction. The maturity of export bills is calculated as under:
4. Cover Period=Period of Usance + Normal Transaction Period + Grace Period (if any)
5. Exporters are permitted to split the hedging to cover the exposure partially and balance to
remain uncovered.
6. Exporter is permitted to book forward contract with fixed date or option period delivery of
foreign exchange amount. Maximum option period of one month is given that too in last month.

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7. Exporter is free to foreclose the Forward Contract at any time before maturity. Any loss or
gain will be passed on to the exporter. Some exporter have developed expertise in booking,
cancelling & rebooking of forward contacts to generate extra cash flows.
8. Forward purchase contracts may be freely booked, cancelled any time before maturity, rolled
over at the ongoing markets without any restrictions.
9. Exporters are permitted to transfer the exchange risk to third currency with objective to
achieve better exchange rates. An exporter having receivable in Rupee may use the third
currency Yen for hedging the currency risk. Third currency hedge and currency/INR hedge may
be cancelled and rebooked as per requirements.
Selection of Bank’s Branch
Success of an Exporter depends upon the right choice of the Branch of the Bank. Exporter should
select a branch of the bank which is authorised to deal in foreign exchange business or
international banking division. Branch should have trained, experienced staff with SWIFT
address and facility.
Develop professional relations with forex merchant dealer appointed in branch or forex dealer of
the bank. Visits to them will make exporter more wise and professional. Negotiate for better rate
based on ongoing market exchange rates for each export transaction. Bring cases of delayed
export payments and better exchange rates offered by other banks to improve upon these services
by your bank. Market competition will bring good results for your efforts.
Bankers, normally take the benefit of knowledge gaps of exporters, especially in the area of
quoting better exchange rates for exports.
Best branch of the bank to deal with is ―A‖ category branch in Metropolitan city with SWIFT
facility & having best-feedback form exporters.
Hedging Systems
Export organization depending upon the resources, must develop some hedging system. Such
system will help in monitoring the exchange rate movements and to take timely hedge actions. It
is found from the experienced of exporters that even spending 15 to 20 minutes a week, spending
on scanning of currency rates will create more profits from export business.
For developing, currency risk management strategies and skills to take timely hedging action,
following reports have been found to be useful:
Daily Scan Reports of Exchange Rates
Prepare daily scan report with the help of the information obtained from your bank or inputs
available in daily financial newspapers. Give the responsibility to junior official in your
organization to prepare it on daily basis.
Exporter may analyse on daily or weekly basis, this report to find out the trend or factors
affecting exchange rates of the currency in which you are or may be exporting in near future.

44. 44
Exporters have to study & understand the markets and factor affecting exchange rates. Expertise
has to be developed in risk management to take right hedging decision at right time & to secure
better exchange rate to improve cash inflows Watch trade & political news, monitor economical
& fiscal policies of the major countries of the world & also those of countries in whose currency
exporter do business.
Daily scan report will help in developing currency view and timing of taking hedging decisions.
Brief Market Comments
Mainly covering the factors influencing the exchange rate of currencies in the local and foreign
markets.
Monthly Risk Report
Monthly risk report should contain the information currency wise covering projections of export
& imports that will take place on monthly basis. Report will provide the net figure of monthly
exports & imports means gaps. Conservative exporter may take policy decision to hedge only
gaps by booking purchase or sale forward covers with bank. Aggressive exporter depending
upon exchange rate forecasting information may book export and import transactions separately
on monthly basis.
Order sheet contains information on the basis of export orders obtained from foreign buyers. It
also contain the information about the budgeted rate which is the rate applied by exporter to
convert the costs into foreign currency sale‘s price. Column for market forward exchange is
provided to note down the forward hedging rate available on the date of application of the
budgeted rate.
Information contained in order sheet will help in :
 Taking decision to hedge the currency exposure.
 Measure the performance of the hedging action.
 Use booking, cancelling & rebooking facility to generate more cash inflows.
 Budgeted Rate & Market Forward Rate will be treated as reference rates for hedging
decision.

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CONCLUSION
This project has explained the need for trade finance and introduced some of the most common
trade finance tools and practices. A proactive role of governments in trade finance may alleviate
the lack of trade finance in emerging economies and contribute to trade expansion and
facilitation. However, the best long-term solution in resolving the constraints in trade financing
is to encourage the growth and development of a vibrant and competitive financial system,
comprising mainly private sector players. This point is important as some of the government-
supported trade financing schemes may Trade Finance Trends in Asia.
The recent economic slowdown is making the need for sound trade finance policies and strong
financial systems more acute. Many companies are trying to preserve cash by delaying payment
and the number of SMEs in emerging Asian economies with high credit risk is growing. This is
partly the result of a regional trend toward unsecured, open-account type transactions. Large
Western buyers are asking that their Asian suppliers sell goods on open-accounts terms, instead
of using guarantees like letters of credit (LCs). These buyers simply do not want to bear the extra
cost of payment guarantees and will source their goods from somewhere else if they are not
given open-accounts. These open-accounts allow the buyers to delay payments as needed, rising
the need for credit for Asian companies who choose to supply them. The economic slowdown
also has made many companies rethink their commitment to electronic trading and payment
systems. While these systems may cut significant costs out of the labor-intensive trade finance
process, they also make payment delays more difficult to justify. Large Western buyers are not
the only ones delaying payments. In fact, many companies prefer dealing with these buyers than
with the thinly capitalized buyers commonly found in many emerging Asian economies, mainly
because these large buyers remain relatively punctual and have very low credit risk (i.e., even if
they delay payment a little, they will pay).
The role of the government and other parties involved in trade finance will need to evolve along
with the country‘s economy. Underlying the functions provided by the different players is the
need for a clear and effective legal environment. The commercial legal system must be
transparent. Laws of property, contract and arbitration must be clear. The commercial legal
environment must be integrated with the financial infrastructure framework in order for it to be
effective.

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LEARNING AT TIL
Regarding my learning goals which I have set before my Internship many of them have been
achieved and in few areas improvement is required.
 I got an opportunity to understand the functioning of finance and accounts department
and working conditions of a Manufacturing organization.
 This platform helped me to see if this kind of work is a possibility for my future career.
 I used my theoretical knowledge and skills to get my work done.
 Came to know about what skills and knowledge I still need to work in a professional
environment.
 I learned about various techniques in Excel to analyse data.
 I learned how to do Marine Insurance and Bill of exchange on SAP Software.
 Also learn how to make Documentation of Export Bill for letter of credit and advance
payment for bank.
 Enhanced my communication skills.
 I got an opportunity to build a professional network.

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DOCUMENTATION OF EXPORT BILL
Principal Documents include:
 Commercial Invoice (and the invoice prescribed by the importer).
 Packing list.
 Certificate of Inspection.
 Certificate of Marine Insurance/Insurance Policy.
 Bill of Lading/Airway bill/Combined Transport Documents.
 Certificate of Origin.
 Bill of Exchange.
 Export Declaration form.
 Shipment Advice.

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REFERENCES
 www.export.gov.com
 www.ecgc.in
 www.eximguru.com
 www.eximbankindia.in
 buyerscredit.worldpress.com
 rbi.org.in
 india.smetoolkit.org
 www.trade.gov