EXPORT FINANCE

Export Finance- 3 features

1.
2.

3.

Purpose based
Directed lending- concessional rate of
interest
In anticipation of exports

EXPORT ACTIVITY

SALES TOUR
PARTICIPATION IN
FAIRS/EXHIBITIONS

ADVERTISING IN
FOREIGN MEDIA
OPENING OF
FOREIGN OFFICES

EXIM BANK
FIEO / MoC

PROCUREMENT OF
RAW MATERIALS

LC or

PRODUCTION

ORDER INSURANCE

SHIPPING
DOCUMENTS

REALIZATION
OF PROCEEDS
RECEIVABLES

FREIGHT
SHIPMENT

COMMERCIAL BANKS / EXIM BANK

FINANCIAL INSTITUTIONS

Export Finance

a. What is financed ?

1. Cost of input, ci&f (not

profit)
2. Receivables from the
Government - DDB

b. Two stages

1. Pre- shipment
2. Post- shipment

c. Two types

1. Indian Rs
2. Foreign currency

d. Registration requirement

DIFFERENT STAGES OF EXPORT FINANCE

1. Pre Shipment Finance

2. Post Shipment Finance

Pre- shipment finance

PRE-SHIPMENT FINANCE
a. working capital
b. in anticipation of exports
PERSONS ELIGIBLE
Merchant exporter
Manufacturer exporter
Manufacturer s supplying goods to EH , TH or merchant exporters
Conditions Attached
Not on the caution list of RBI
Should have a license if the goods are on restricted list

TYPES OF PRE SHIPMENT FINANCE

1. Packing Credit

2. Advance against receivables from Govt

Pre- shipment finance

BASIS FOR GRANTING
A confirmed export order /contract orLetter of credit
In case of sub suppliers
A letter from the main exporter
a undertaking from the main exporter that he has not
availed packing credit from any other bank

PURPOSE
a. purchasing raw materials
b. manufacturing
c. processing
d. transporting
e. warehousing
f. packing, and
g. shipment

Pre- shipment Finance

QUANTUM OF FINANCE
Concept of need based finance
Margin requirement
Credit rating of the exporter
Receivables on account of DDB

PERIOD OF ADVANCE
a. Product cycle
b. 180 days plus extension of 90 days
c. In case of DDB 90 days

Pre- shipment Finance

Rate of Interest
Not exceeding Base Rate minus 2.5% for 270 days
Above 270 days .no cap from RBI
DDB.upto 90 DAYS Base Rate minus 2.5%
Above 90 days no cap from RBI

END USE
Payment to be released only for designated purposes

LIQUIDATION OF FINANCE
a. Export Bill
b. Fresh credit
c. DDB
d. substitution of contract/ buyer/ commodity etc allowed

PACKING CREDIT IN EXCESS OF EXPORT VALUE

1. Where by- product can be exported eg agro

product raw cashew nut( cashew shell oil)

2. Where partial domestic sale is involved eg

tobacco, pepper ( for gradation into exportable
/non exportable)
3. Export of deoiled/defatted cakes

4. Where DDB is the part cost quoted

Post- shipment Finance

WHO IS ELIGIBLE
Merchant/Manufacturer exporters/ Export /Trading
Houses
Manufacturer supplying goods to EH/TH or Merchant
Exporter

BASIS
PURPOSE

QUANTUM

TYPES OF POST SHIPMENT FINANCE

1. Export bills purchased/negotiated /discounted

2. Advances against bills sent on collection basis

3. Advance against exports on consignment basis

4. Advance against undrawn balances
5. Advance against Duty Draw Back receivables
from Government

Post- shipment Finance

NTF
PERIOD OF FINANCE
at concessional rate
at overdue rate

END USE

CHANGE OF TENOR

NDD

Export credit in foreign currency

AVAILABLE FOR EXPORTS MADE ON CASH BASIS ONLY

Pre-shipment IRS
Post-shipment IRS

Pre-shipment FC
Post-shipment FC

CHOICE OF CURRENCY - $, , ,
change of currency is allowed
RATE OF INTEREST is LIBOR + 350% max , overdue rate is +2%
GOOD FOR IMPORT BASED INDUSTRY
NO PREMIUM BENEFIT

Merchanting trade
Transactions where goods are either DIRECTLY SHIPPED to the country
of the buyer or TRANSHIPPED at an Indian port under customs
supervision, but not the cases where goods are imported into India for
re-export after processing, re-labeling etc.

BUYER

SELLER
2

LC Order
Or
Adv. Payment

TRADER
INDIA

LC Order
Or
Adv. Payment

Contd..
1.For genuine traders, not for financial intermediaries.

2. Import should be possible in importing country and payment should be

forthcoming
3. No foreign exchange involved for maximum 3 month.
Drafts should be of same tenor
4. Total transaction should be within 6 months of LC date or date of
approval from AD (advance payment)

6. Transaction should leave reasonable profit

FORFEITING- An Export financing

option
Forfeiting is a mechanism of financing
exports
1. By discounting export receivables
2. Evidenced by BOE /DPN
3. Without recourse to the seller
4. Carrying medium to long term maturities
5. On a fixed rate basis ( discount)
6. Upto 100% of contract value

FORFEITING- An Export financing

option
Type of exports eligible for F
Capital goods and other goods made on
medium to long term credit
How does F works

co-accepted BOE

endorsed by exporter in favour of Factor ,

without recourse in exchange of discounted

cash proceeds

FORFEITING- An Export financing

option
Benefits

Converts Deferred Payment exports into a cash transaction

Exporter is free from credit administration and collection problems

No cross border political or commercial risk

Forfeiting represents an additional source of funding as it is not on

the balance sheet of the exporter

On a fixed rate basis..hedges against interest and exchange risks

Upto 100% of contract value as compared to 80 to 85% under

conventional export credit programmes

Forfeiting- An Export financing option

Benefits
Forfeiting is transaction specific and
hence long term relationship with the
forfaiter is not pre requisite.

Saves on insurance cost(ECGC)

Simple documentation

Factoring

Factoring is for short term receivables(

under 90 days)
Related to receivables against commodity
sales
With recourse or without recourse
Maintenance of accounts relating to the
account receivables
Collection of account receivables
Credit protection against default in
payment by the buyer