export finance.pptx

7/27/2019 export finance.pptx

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Export Finance


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Pre shipment Finance

Pre Shipment Finance is provided by financial institutions when the

exporter wants the payment of the goods before shipment.

The objectives of pre shipment finance is to enable the exporter to:

Procure raw materials

Carry out manufacturing process.

Provide a secure warehouse for goods and raw materials.

Process and pack the goods.

Ship the goods to the buyers.

Meet other financial cost of the business.


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Methods in Pre shipment Finance

Packing Credit

Advance against Cheques /Draft etc representing

advance Payments.

Forms:

Packing Credit in Indian Rupee

Packing Credit in Foreign Currency (PCFC)


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Packing Credit- Stages

Appraisal and Sanction of Limits

Disbursement of Packing Credit Advance

Follow up of Packing Credit Advance:

Liquidation of Packing Credit Advance

Overdue Packing:


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Packing credit in foreign currency

Authorized dealers are only permitted

The rate of interest on PCFC is linked to LIBOR

The exporter has freedom to avail PCFC in convertible currencieslike USD, Pound, Sterling, Euro, Yen etc.

However, the risk associated with the cross currency transaction is

that of the exporter.

Sources of funds for the banks for extending PCFC facility include

the Foreign Currency balances available with the Bank in Exchange.


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Advance against Cheque/Drafts received as

advance payment

Where exporters receive direct payments from abroad

by means of

cheques/drafts etc. the bank may grant export credit at

concessional rate to the exporters, till the

time of realization of the proceeds of the cheques or

draft etc


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Post-shipment Credit

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.


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Post.-shipment Credit- Types

Export Bills purchased/discounted.

Export Bills negotiated

Advance against export bills sent on collection basis.

Advance against export on consignment basis

Advance against un-drawn balance on exports

Advance against claims of Duty Drawback.


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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.

Banks may allow advance against these collection bills to anexporter with concessional rates depending

upon the transit period in case of DP Bills and transit period

plus usance period in case of usance bill.


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Advance Against Export on Consignments Basis

Bank may finance goods exported on consignment basis at the

risk of the exporter.

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.


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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,

subject

to a maximum of 10 percent of the export value against an

undertaking from the exporter


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Advance Against Claims of Duty Drawback

This credit is given only if the in house cost of production is higher in

relation to export price due to the existing duty structure.

Banks grant advances at lower rate of interest for a period of 90 days and

only if other types of export finance are extended to the exporter by the

same bank.

After the shipment the exporters lodge their claims to the relevant

government authorities.

The bank is authorized to receive the claim amount directly from the

concerned government authorities.


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Forfaiting

Forfaiting refers to non-recourse discounting of export receivables. The

exporter surrenders, without recourse to him, his rights to claim for payment

on goods delivered to an importer.

EXIM bank plays intermediary role between exporter and the overseas

forfaiting agency.

The bank arranges for the discounted proceeds to be remitted to the Indianexporter. The bank issues appropriate certificates to enable exporters to remit

commitment fees and charges.

RBI has allowed Authorised dealers to undertake forfaiting of medium term

export receivables.

Involves two cost elements: Commitment fee, payable by the exporter to the forfaiter

Discount fee payable by the exporter for the entire period of credit

involved


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Forfaiting- Benefits

Benefits to Exporter

100 per cent financing : Without recourse and not occupying exporter's credit line

Improved cash flow : Receivables become current cash in flow

Reduced administration cost : By using forfeiting the exporter will reduce the relevant

management costs.

Advance tax refund: the exporter can make the verification of export and get tax refund in

advance just after financing.

Risk reduction : enables the exporter to transfer various risk resulted from deferred payments,

such as interest rate risk, currency risk, credit risk, and political risk to the forfeiting bank.

Increased trade opportunity : With forfaiting, the exporter is able to grant credit to his buyers

freely, and thus, be more competitive in the market.


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Benefits to Banks

Banks can offer a novel product range to clients,

which enable the client to gain 100% finance, as

against 80-85% in case of other discounting

Bank gain fee based income.

Lower credit administration and credit follow up.


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export finance.pptx

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