IMPORT FINANCING

Meaning of Import Financing

From

the management point of view, it means making decision regarding terms of payment (i.e. choosing one among various alternatives), arranging funds , involving choice of financial institutions and the instrument to be used for making payment and involving choice of intermediary, through whom the payment is to be made.

Methods of Import Finance

1.Financing Imports under Letter of Credit 2.Financing under bills of collection 3.Financing Imports against deferred payment 4.Financing under Foreign credit 5.Import loans by Export-Import Bank of India

1.Financing Imports under L/C

Letter

of Credit can be defined as a commitment of bank to pay the seller of goods or services a certain amount provided he presents stipulated documents evidencing the shipment of goods or the performance of services within a prescribed period of time

Stages involved in Import L/C Financing

1.Requesting bank to open a L/C 2.Retiring documents under L/C 3.Import Trust Receipt facility

2.Financing Against Bills under Collection

In this case the documents are forwarded by a bank in the supplier country known as collecting bank, for collection of proceeds from the importer and payment to the suppliers through the remitting bank

3.Financing Imports against Deferred Payment

Imports under deferred payment implies that the supplier has agreed to supply goods on credit terms extending beyond 6 months. In such cases authorised dealer has to refer each payment case to RBI for prior approval of advance payment, bank guarantee and installments with documents

4. Financing under Foreign Credit

Government of India gets assistance in the form of loans and development credits from international financial institutions as also from foreign governments. These Loans are of 2 types 1. Tied Loans 2. Loans in free foreign currencies

Continued
Payment under Foreign credit may be made under 1.Letter of commitment method 2. Reimbursement method

5. Import Loans by EXIM

Bank

finances imports from third countries required for executing projects overseas for which contracts have been won by Indian exporters Regarding imports into India ,Exim Bank finances such imports which are export related Exim bank also finances imports of consumable inputs and canalized items