EXPORT FINANCE

Definition
Concept & Types
Pre-Shipment Finance
 What is it?
E po t o pe ish
Our imports are more than exports.
Hence there is a necessity to encourage
exports.
Govt. and RBI extend various concessions to
boost exports.
 DEFINITION
The edits e ui ed e po te s fo
financing their export transactions from the
time of getting an export order to the time of
full realization of the payment from the
impo te s.
INDIAN BANKING SYSTEM
 VARIOUS DEPARTMENTS

Personal Banking Forex Department.

Department. Business Banking
Priority Banking. Department.
NRI Banking Corporate Banking
Department. Department.
Securities. Credit Laundering
Insurance. Department.
Investment Solutions.
 INTRODUCTION TO EXPORT FINANCE
It means selling goods abroad. International market
being a very wide market, huge quantity of goods
can be sold in the form of exports.

Success or failure of any export order mainly

depends upon the finance available to execute the
order.
 CONCEPT OF EXPORT FINANCE
The exporter may require short term, medium
term or long term finance depending upon the
types of goods to be exported and the terms
of statement offered to overseas buyer.
Export finance is short-term working capital
finance allowed to an exporter. Finance and
credit are available not only to help export
production but also to sell to overseas
customers on credit.
 PURPOSE OF EXPORT FINANCE
An exporter may avail financial assistance
from any bank, which considers the ensuing
factors:
Availability of the funds at the required
time to the exporter.
Affordability of the cost of funds.
 EXPORT FINANCE
Some of the concessions include:
1. Cheap credit to exporters.
2. Minimum of 12% of net credit should go to exports.
3. Refinance to Banks on eligible portion of export credit
outstanding.
4. Export Credit Guarantee Corp ECGC guarantee for export credits
5. No margin requirements for advance against export receivables.
6. Flexible approach to export lending and norms of lending.
7. Time norms for disposal of application for export credit.
8. Rejection with the concurrence of next higher authority
9. Bifurcation of Working Capital limits into loan and cc component
after excluding export limits.
10. Issue of Gold Card to exporters with good track record.
 TYPES OF EXPORT FINANCE
Export finance is classified into two types viz.

Pre-shipment finance.(180 days-270 days)

Post-shipment finance. (180 days)
 MAJOR INSTITUTIONS INVOLVED
IN EXPORT FINANCE
Reserve Bank of India (RBI)- The RBI with its head
quarters in Mumbai and several regional offices is the central
banks of our country to authorize extend and regulate export
credit and transaction including foreign exchange affairs. RBI
does not directly provide export finance to the exporters, but
it adopts policies and initiates measures to encourage
commercial banks and other financial institutions to provide
liberal export finance.
Two Departments- i) Industrial and Credit Department
ii)Exchange Control Department
 Exim Bank- Set up by an Act of Parliament in September
1981.
Wholly owned by the Government of India.
Exim is the principal financial institution in the country for
coordinating working of institutions engaged in financing
exports and imports.
Offices
Head office Mumbai
A network of 13 offices in India and Overseas.
Domestic Offices - Ahmedabad, Bangalore, Chennai,
Hyderabad, Kolkata, Mumbai, New Delhi, Pune.
Overseas Offices - Budapest, Johannesburg, Milan, Singapore,
Washington DC.
 Functions of EXIM Bank
From financing Facilitating India
foreign trade and promoting Foreign
trade.

To creating export capability by

arranging competitive financing at
various stages of export cycle.

Providing Consultancy and high range of

services to exporters.
 ECGC- EXPORT CREDIT GUARANTEE
CORPORATION OF INDIA LTD.
ECGC is a company wholly owned by the GOI. It
functions under the administrative control of the
Ministry of Commerce and is managed by a Board of
Directors representing government, Banking,
Insurance, Trade and Industry.
OBJECTIVES OF ECGC:
To protect the exporters against credit risks, i.e. non-
repayment by buyers
To protect the banks against losses due to non-repayment of
loans by exporters.
 PRE-SHIPMENT FINANCE-Pre-shipment is also
referred as packi g credit . It is working
capital finance provided by commercial banks
to the exporter prior to shipment of goods.
The finance required to meet various
expenses before shipment of goods is called
pre-shipment finance or packing credit.
Pre-shipment finance refers to finance
extended to purchase, processing or packing
of goods meant for exports.
IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:

To purchase raw material, and other inputs to

manufacture goods.
To assemble the goods in the case of merchant
exporters.
To store the goods in suitable warehouses till the
goods are shipped.
To pay for packing, marking and labelling of goods.
 FEATURES OF PRE-SHIPMENT
1. Eligibility
2. Documentary Evidence
3. Purpose
4. Amount of finance
5. Period of credit & Rate of interest
6. Disbursement of Packing Credit Advance
7. Maintenance of Accounts, Monitoring &
Repayment
 ELIGIBILITY
Merchant exporters
Manufacturer exporters
Export and Trading houses
Manufacturers supplying good to Export
Houses
Trading Houses or merchant exporters.
 PACKING CREDIT
.As loan or cash credit against pledge or hypothecation.
.Verification of Exporter-Importer Code No. issued by
DGFT.
.Party should not be in RBI Caution list or ECGC Special
Approval List.
.Export is not to a listed country
.Verify order/LC
.Outer Port Limit (OPL) on the buyer
.Up-to date knowledge of export policy
.Commodity should not be in the negative list.
.Commodity should have a good market
.Terms of contract
.No FEMA violation
.Borrower should be credit worthy
 DOCUMENTARY EVIDENCE
Confirmed export order/contract ; and/ or
An irrevocable letter of credit opened in favor
of the exporter
Original message exchanged between exporter
and buyer
 PURPOSE
Acquire raw materials for export production
Improve quality of goods to conform to
international standers
To adapt product to foreign markets, product
addition and extension
To store the goods in warehouses before
shipment
To pay for internal transportation and marine
freight
To pay for export documentation
AMOUNT OF FINANCE AND PERIOD
OF INTEREST & RATE OF CREDIT
Need Based Finance, on three factors-
The nature of order
The nature of the commodity
The capability of exporter to bring in the
requisite contribution
Maximum duration 180 days. Extension upto
90 days.
Concessional rates of interest Features of pre-
shipment finance
Disbursement of Packing Credit
Advance
Loan agreement

Maintenance of Accounts, Monitoring

and Repayment:
Separate accounts
Strict use for the purpose which it is granted
finance
TYPES OF PRE-SHIPMENT FINANCE
Extended Packing Credit Loan
Packing Credit Loan (Hypothecation)
Packing Credit Loan (Pledge)
Secured Shipping Loan
Advances against Red Clause L/C
Advance against Cheque or Draft
Packing Credit Facilities for Consultancy
Services Packing Credit Facilities to Deemed
Exports Pre-Shipment Credit in Foreign
Currency (PCFC)
SOME SCHEMES IN PRE-SHIPMENT STAGE OF FINANCE

I. DEFERRED CREDIT-Consumer goods are normally

sold on short term credit, normally for a period up
to 180 days. However, there are cases, especially, in
the case of export of capital goods and
technological services; the credit period may
extend beyond 180 days. Such exports were longer
credit terms (beyond 180 days) is allowed by the
exporter is called as deferred credit or deferred
pay e t ter s .
 REDISCOUNTING OF EXPORT BILLS ABROAD
(EBRD) SCHEME-This facility will be an additional
window available to exporter along with the exiting
rupee financing schemes to an exporter at post
shipment stage. This facility will be available in all
convertible currencies. This scheme will cover
export bills upto 180 days from the date of
shipment (inclusive of normal transit period and
grace period) .
DISCUSSIONS