DEFINITION:

Funds to cover an exporters cost before goods are sent

overseas.
Pre shipment finance is issued by a financial institution when the seller
want the payment of goods before shipment.The main objectives are to
enable exporter to:
oProcure raw materials
oCarry out manufacturing process
oProvide a secure warehouse for goods & raw materials
oProcess & pack the goods
oShip goods to buyers
oMeet other financial costs of the business

Packing Credit A loan or advance granted or any other credit provided by a

bank to an exporter for financing the purchase, processing, manufacturing &

packing of goods before shipment.
Advance against cheques/drafts received as

advance payment where exporters receive direct payments from abroad by

means of cheques/drafts etc.

QUANTUM OF FINANCE:
It is granted to an exporter against the L/C or an export order. The only guideline
principle is the concept of need-based finance. Banks determine the percent of margin
depending on factors such as:
Nature of order
Nature of commodity
Capability of exporter to bring in the requisite contribution
Nature of Importer
Importers country profile

Pre shipment credit is issued to that exporter who has the export

order in his own name.

Repayment of packing credit advance can be only from the proceeds
of the bills drawn under the export order or L/C.
EXIM Bank has floated a new scheme with the approval of RBI for
Indian exporters to enable them to avail of pre shipment in foreign
currencies (PCFC)to finance cost of imported inputs for manufacture of
export products. PCFC is repaid only with proceeds of the export bill
tendered.
Finance is available from EXIM Bank for co. executing export
contracts involving cycle time exceeding 6 months
Export incentives take the form of cash assistance on export of certain
items & duty draw-backs i.e. a refund of central excise & custom duties
levied on raw materials & components used in the manufacture of
exports. Air freight subsidy on the export of certain products.
The credit limits for pre shipment advance are considered
simultaneously along with other facilities & generally made a sub-limit
within the overall cash credit limit sanctioned to the borrower.

RBI has instructed the banks to give concessional pre shipment finance as
under:
Up to the period of 180 days
:
at the rate of 10%
From 180 days to 27o days
:
at the rate of 13%
From 270 days to 360 days
:
subject to the bank

FREE ON BOARD (FOB):

"Free on board " means that the seller delivers when the goods pass the ship's rail at the
named port of shipment. This means that the buyer has to bear all costs and risks of loss of
or damage to the goods from that point. The FOB term requires the seller to clear the goods
for export.
COST, INSURANCE & FREIGHT(CIF):
"Cost, insurance and freight " means that the seller delivers when the goods pass the ship's
rail in the port of shipment. The seller must pay the costs and freight necessary to bring the
goods to the named port of destination but the risk of loss of or damage to the goods, as
well as any additional costs due to events occurring after the time of delivery, are
transferred from the seller to the buyer. However, in CIF the seller also has to procure
marine insurance against the buyer's risk of loss of or damage to the goods during the
carriage.