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PROJECT REPORT

ON

EXPORT FINANCING
&
DOCUMENTATIONS

Submitted by :

School of Management Studies


Indira Gandhi National Open University
Maidan Garhi, New Delhi – 110068.

ACKNOWLEDGEMENT
I take this opportunity to express my deep sense of gratitude and
respect for my guide Mr. Arun Kumar Jain for her constant
interest, valuable encouragement and timely guidance during
completion of this project work.

I am also thankful to all my professors of Indira Gandhi National


Open University for their timely co-operation and helpful guidance.

I Would like to take this opportunity to specially thank Prof. Anurag


Singh, Faculty Delhi University & Dr. G.K.Varshney, Shyam Lal
College, Delhi University for their valuable guidance and timely
help and support for making this research study possible.

Last but not the least, I deeply express appreciation to all my


friends who directly or indirectly co-operated and helped me during
completion of my project.
CERTIFICATE OF ORIGINALITY

This is to certify that, K.Krishnan, student of MBA ( Finance) from


Indira Gandhi National Open University, has satisfactorily
completed his project work on “EXPORT FINANCING &
DOCUMENTATION” during academic year 2003-04.

The project work was done under my supervision and the views and
methodology adopted are original to the best of our knowledge and
belief.

(STUDENT) (PROJECT
GUIDE)

K.KRISHNAN, IGNOU
CONCLUSION DRAWN

FROM THE QUESTIONAIRE


The Basis of Analysis is on a Simple Questionnaire which covers

25 simple points which are necessary for every indian exporters

before coming to business of exports and for existing exporters.

After analyzing and examining questionnaire method, filled by

various exporters , we analyze that simple points which are

necessary for exports are not correctly filled by exporters. The

points which are not taken care by exporters are :-

1. Rate of Interest

2. Packing Credit

3. Pre-Shipment Export Credit In Foreign Currency

4. Service Charges Levied on Packing Credit

5. Packing Credit Advances Against Personal Car, House Etc.

6. Extension of Packing Credit Facility to Sub-Supplier.

7. Extension of ECGC Guarantee to Packing Advances.


8. Export Advances Against Fixed Assets

9. Export Advances Against Claims of Duty Drawback.

10.Export Advances for Purchase of Fixed Assets.

11.Export Advances Against Goods Sent on Consignment

Basis.

12.Conversion of Credit Export Sale to Cash Sale.

13.Awareness of New Export Financing option.

14.Export Finance for Market Development, Product

Adaption, Training & R & D Support Etc.

15.Role of Exim Bank.

As we see that out of 25 points, only 10 points are correctly

approached by exporters i:e 40% are correctly approached,

remaining 60% points are incorrectly approached.

This clearly indicates, that exporters are not aware of export

finance. That is the basis I finally took this “Export

Financing Documentation” as my project as I am

already in this field for more than 5 years.

K.KRISHNAN, IGNOU
REVIEW OF THE
QUESTIONAIRE

1. Rate of Interest

From this table, we analyse that the rate of interest prevailing

in the bank were not known by the exporters. Out of 13 only 9

exporters clearly mentioned Interest @ 11-12% p.a. ( For

detail please refer page )

2. Packing Credit

From this table we analyse that every exporter except one are

having knowledge of packing credit advances.

( For detail please refer page )

3. Pre-shipment export credit in foreign currency (PCFC)

After seeing questionnaire method analsis,we came to final

conclusion that only few exporters ( 3 out of 13) were having

knowledge about PCFC scheme. This is the scheme announced

by RBI in Nov 1993, in addition to normal packing credit


schemes. In the project I simply explained all the options

available for availing export finance under PCFC scheme and

the formalities in terms of documents which are required to be

completed by the Indian exporters for availing export finance

under PCFC scheme.

4. SERVICE CHARGES LEVIED ON PACKING CREDIT

As mentioned in PCFC scheme only 3 out of 13 exporters

clearly mentioned that no service charged levied on packing

credit other than premium payable to ECGC scheme.

5. PACKING CREDIT ADVANCES AGAINST PERSONAL

CAR, HOUSE ETC.

9 out of 13 exporters clearly says no P/C advances against

personal car, house etc. ( For detail please refer page )

6. EXTENSION OF PACKING CREDIT FACILITY TO SUB-

SUPPLIER.

Every exporter except 2 , were knowledge about the extension

of packing credit facility to sub-supplier. This is the facility

extended to sub-suppliers of raw materials, components etc.

to the exporter goods. In the project I have explained what

are the detailed guidelines to be fulfilled for getting packing

K.KRISHNAN, IGNOU
credit facility to sub-supplier. ( For detail please refer page )

7. EXTENSION OF ECGC GUARANTEE TO PACKING

ADVANCES.

Only 2 out of 13 exporters were not having knowledge about

extension about ECGC Guarantee to packing advances. It is

very important to each and every exporters to obtain this

information from the bank, as cost of additional premium for

individual guarantee may sometimes be quite heavy depending

upon the turnover in the account.

8. EXPORT ADVANCES AGAINST FIXED ASSETS

Out of 13, 7 Exporters mentioned about that no export

advances will be received against fixed assets and this is true

also. As we know that many advances will be received from

the bank against fixed assets and this will predict and

encourages some exporters to get export advances against

fixed assets.

9. EXPORT ADVANCES AGAINST CLAIMS OF DUTY

DRAWBACK.

Only 1 exporter wrongly tells that we cannot claim export


advances against claims of duty drawback.

10.EXPORT ADVANCES FOR PURCHASE OF FIXED

ASSETS.

As already mentioned in above point no. 8, that no export

advances will be received against fixed assets or purchase of

fixed assets.

11. EXPORT ADVANCES AGAINST GOODS SENT ON

CONSIGNMENT BASIS.

Out of 13, 2 exporters saying that no export advances will be

received against goods sent on consignment basis.

12. CONVERSION OF CREDIT EXPORT SALE TO CASH

SALE.

This is called Forfaiting finance ( A new mechanism of

financing exports).

From seeing the questionnaire method analysis, we find that

no exporters were having knowledge about forfating finance

expect one exporter i:e M/s S.D.International. This is new

financing option for Indian Exporters, under which an

exporters in India can convert their credit sale into cash sale

subject to quotes being available. Various formalities to be

K.KRISHNAN, IGNOU
fulfilled for getting this facility. ( For full details, explained in a

simplified manner, refer Page ).

13. AWARENESS OF NEW EXPORT FINANCING OPTION.

Aleady explained in Point no. 12. or Refer page

14. EXPORT FINANCE FOR MARKET DEVELOPMENT,

PRODUCT ADAPTION,TRAINING & R & D SUPPORT ETC.

Exporters are not having knowledge about getting export

finance for market development , product adaption, training

and R & D support, by seeing questionnaire method analysis.

Most exporters try to finance their exports through commercial

banks. To promote their exports some also take advantage of

the Government’s Marketing Development Assistance Scheme

through Ministry of Commerce. Yet, there are many exporters

who are ignorant of various funding schemes of other

organizations which could help them to finance their exports.

In the project, an effort has been made to identify such

schemes and highlight their specific requirements for the

benefit of the exporting community. This is explained in the

topic “ Non-conventional Avenues for Export Financing”.

( Page )
15. ROLE OF EXIM BANK.

Out of 13, only 8 exporters clearly mentioned about the role of

the EXIM Bank. The EXIM Bank provides financial assistance to

promote Indian exports through direct financial assistance,

overseas investment finance, term finance for export

production and export development, pre-shipment credit,

buyers credit, lines of credit, relending facility, export bills

rediscounting, refinance to commercial banks, finance for

computer software exports, finance for export marketing and

bulk import finance to commercial banks. This also extends

non-funded facility to Indian exporters in the form of

guarantees. Full details of financing programmes of EXIM Bank

explained in Page in the project.

K.KRISHNAN, IGNOU
CHAPTER SCHEME
T h e p ro jec t h el p s th e ex p o rt ers to kn o w abo u t v ari o us

m eth o d s and gu i d el i n es to be ad o p ted fo r av ai li n g

ex p o rt fi n a nc e wh i c h wi l l h el p th em to m an ag e th e

ri s ks a ss oc i a t ed wi th ex p o rti n g.

 Export Financing- Introduction

 Features of Export Financing

 Methods of Export Financing –

Pre-shipment finance

Post-shipment finance

 Forfaiting Finance – A new financing

option for Indian Exporters.

 Non-conventional avenues for Export

Financing
 Role of Exim Bank & other banks

K.KRISHNAN, IGNOU
Export Financing -

Introduction

F i n a n c i a l a s s i s t a n c e i s e x t e n d e d b y t h e b an k s t o t h e

e x p o r t e r s a t p r e - s h i p m e n t a n d p o s t- s h i p m e n t s t a g e s .

F i n a n c i a l a s s i s t a n c e e x t e n d e d t o t h e e x p o r te r p r i o r t o

s h i p m e n t o f g o o d s f r o m I n d i a f a l l s w i t h i n t h e s co p e o f

pre-shipment finance while that extended after

shipment of the goods falls under p o s t- s h i p m e n t

finance. While the pre-shipment finance is provided

f o r w o r k i n g c a p i t a l f o r t h e p u r c h a s e o f raw m a t e r i a l ,

processing, packaging, t ran s p o r t a t i o n , war e h o u s i n g

etc. o f t h e g o o d s m e an t f o r e x p o r t , p o s t- s h i p m e n t

f i n a n c e i s g e n e ra l l y p r o v i d e d i n o r d e r t o b r i d g e t h e

gap between shipment of goods and and the

realisation of proceeds.
Salient Features of

Export Financing

1. Export Finance is to constitute 12% of Net Bank

Credit as per RBI guidelines.

2. Interest is charged at concessional rates of interest

and for this purpose RBI provides refinance at Bank

Rate.

K.KRISHNAN, IGNOU
3. Credit Guarantee coverage by Export Credit

Guarantee Corporation.

4. Purpose oriented and need based finance.

5. Consists of two elements-pre-shipment & post-

shipment finance.

6. Linkage between pre-shipment and post-shipment

stages and desirability of treating the two as single

package is crucial.

7. Liberal approach in regard to margin requirements

subject to sanction by appropriate authority in the

bank.

8. No margin requirement against export receivable.

9. Export credit over and above MPBF.

10.Exemption for application of loan delivery system.


11. Letter of credit to an exporter may be provided for

a period of 3 yrs based on projections subject to

periodic review once in a period of 12 months.

K.KRISHNAN, IGNOU
Methods of Export

Financing

PRE-SHIPMENT CREDIT

Pre-shipment Credit in Indian Rupees

The purpose of the advance includes purchase of raw

materials or the purchase of finished goods, their

manufacturing processing, packing, transporting,

warehousing, etc., for export. Once the goods are ready

for exporting some banks convert the packing

credit/pre-shipment finance into what are called

shipping loans. Shipping loans also form another type of

packing credit. Packing credit may be taken as

equivalent to 'cash credit' in domestic business except


that cash credit facility is sanctioned as a

continuous/running facility whereas packing credit

advance is disbursed for a special purpose to enable the

exporter to meet a specific export obligation. Every pre-

shipment advance is, therefore, considered as a

separate loan account different from a domestic advance

or inter se.

The credit limits for pre-shipment advance are

considered simultaneously along with other facilities and

it is generally made a sub-limit within the overall cash

credit limit sanctioned to the borrower. However, for

those borrowers who are exclusively engaged in exports,

separate packing credit limits are sanctioned by the

banks. The procedure and techniques adopted by the

bank are the same as in case of other advances.

However, the assessment of working capital requirement

may be based upon the export orders in hand with the

exporter besides his capacity to meet that commitment.

A very flexible approach in this regard is adopted by the

banks and adequate finance is available for every viable

export proposal. The purpose of the above discussion is

to emphasis the need to apply for total credit

requirements at one time with all the relevant details

made available to the bank in the beginning itself so

that suitable limits are sanctioned avoiding any request

for ad boc facilities at a later date. The general terms

K.KRISHNAN, IGNOU
and conditions of granting packing credit advances by

banks are given below.

1. export form India is allowed either against an export

L/C or against an export order. The bank may also

sanction packing credit which may be disbursed either

against an L/C or against an order. Correct position in

this regard must be explained to the bank to avoid

any difficulty later. It may be noted that if the limit

by the bank is sanctioned against LC, disbursement

against an order may not be allowed by the bank.

Even in case of reports under L/C, the exporter may

receive the L/C at a very late stage and may be

required to procure/manufacture the goods much

before the L/C is received. In this situation also some

difficulty may be faced in getting the packing credit

released from the bank. It would, therefore, be

necessary to discuss all these matters with the bank

at the time of sanctioning of limits.

2. All pre-shipment advances are to be liquidated from

the proceeds of export bills. Application of sanctioning

of suitable post-shipment facilities should, therefore,

be simultaneously made. Exporter may also be

entitled for duty drawback etc. and credit limits

against claims of such incentives shall also be

obtained at that time.


3. No other service charges are leviable on these

advances other than premium payable to ECGC on

their guarantees.

4. Sub-suppliers are also eligible for the packing credit

advances for which they should lodge to the banks a

letter from the Export House/Merchant Exporter

incorporating details of the goods to be supplied and

confirming that they (export house etc.) have not

availed of any packing credit advances for which they

should lodge to the bank a letter from house etc.)

have nor availed of any packing credit from any other

bank/source against the same contract/L/C.

5. Packing credit is normally given and adjusted L/C/

contract wise. However, the finance is now permitted

to be given on running account basis. For details see

under para "Submission of Export Order/L/C".

6. In case of cancellation of export order, facility of

substitution of contracts is also available.

7. The finance is also available for undertaking

preliminary arrangements in respect of consultancy

services.

8. The finance is also available for export of goods of

exhibition and sales, imports under advance import

licences.

K.KRISHNAN, IGNOU
9. Except a certain cases, pre-shipment finance granted

tot he exporter does not exceed FOB value of the

goods or domestic market value of the goods

whichever is less.

Pre-shipment Credit in Foreign (PCFC)

With a view to providing pre-shipment credit to Indian

exporters at internationally competitive rates of

interest, Reserve bank of India announced a new scheme

of providing Pre-shipment Credit in Foreign

Currency (PCFC) by the banks in India in November

1993. The PCFC scheme will be in addition to normal

packing credit schemes in Indian rupees presently

available to Indian exporters. The exporter will now

have the following two options for availing export

finance.

a) To avail packing credit in rupees and then avail post

shipment credit in rupees or under PCFC or by

discounting/rediscounting of export bills abroad.

b) To avail packing credit in foreign currency and

discounting / rediscounting of export bills in foreign

currency abroad., in India rupees or under PCFC. The

broad aspects of PCFC scheme are given below:

i) Packing credit under foreign currency is available

to cover both the domestic and imported inputs of


goods to be exported from India.

ii) PCFC can be availed in any convertible foreign

currency.

iii) Banks will grant PCFC out of foreign currency

resources available with them under EEFC account,

FCNR accounts and RFC accounts and may also

negotiate required lines of credit from their foreign

branches/correspondents.

iv) PCFC will be available for an initial period of 180

days as incase of rupee credit: The extension in

period of PCFC for further 90 days may be granted

at an interest rate which will be higher by 2% of

the normal rate as in case of rupee credit.

Extension of PC upto 360 days and rate of interest

on such extension will be as per discretion of the

bank.

v) The running A/c facility will be permitted under

PCFC on the same lines as in case of packing credit

in rupees. However, packing credit advance already

permitted in rupees will not be converted to PCFC.

vi) PCFC will be available only for cash exports and

will not cover "Deferred Payment Exports'.

vii) The lending rate to exporter will be linked to 6

months LIBOR (London Inter Bank Offer Rate) rate

K.KRISHNAN, IGNOU
and the

a) Indian banks having branches aborad] - 20% over,

LIBOR and foreign banks in India.

b) Indian banks not having branches - 2 1 / 2 % over LIBOR

abroad. The above rates are excluding withholding

tax. The banks are, however, free to quote better

rates depending upon the availability of foreign

exchange resources available with them and/or the

terms of line of credit arranged by these banks with

their foreign branches/correspondents.

viiiWithholding tax as per applicable rates will be

payable rates will be exporter in addition to

interest as above.

ix In case full amount of PCFC or part thereof is

utilised to finance domestic inputs, the foreign

currency amount will be converted to Indian rupees

at appropriate exchange rates.

x PCFC will be available within 'MPBF'/credit limits

sanctioned in favour of exporter.

xi ECGC cover will be available in rupees only,

whereas PCFC is in foreign currency.

xii PCFC will be self-liquidating in nature. PCFC should

be liquidated by submission of export documents


for discounting/rediscounting. PCFC will not be

allowed to be liquidated with foreign exchange

acquired from other sources.

PCFC can be extended for exports to ACU 1 Countries

w.e.f.1.1.1996. PFC can also be extended for deemed

exports.

Sharing of Export Credit under PCFC Scheme

PCFC can now be availed by the manufacturer on the

basis of disclaimer from the export order holder in the

same way as permitted under rupee credit scheme. PCFC

granted to the manufacturer will be adjustd by

transferring foreign currency from the export order

holder.

PCFC for supplies from one EOU/EPZ Unit to

another EOU/EPZ Unit

Supplier made to EOUs/EPZ units are treated as Deemed

Exports and Reserve Bank has permitted granting PCFC

both in the supplier EOU/EPZ unit and the receiver

EOU/EPZ unit. PCFC for supplier EOU/EPZ unit will be for

supply of raw material components for goods which will

be further processed and finally exported by receiver

EOU/EPZ unit. The PCFC extended in a supplier EOU/EPZ

unit will have to be liquidated by receipt of foreign

exchange from the receiver EOU/EPZ unit, for which a

K.KRISHNAN, IGNOU
supplier EOU/EPZ unit purpose, the receiver EOU/EPZ

unit can avail of PCFC. The stipulation regarding

liquidation of PCFC by payment in foreign exchange will

be met in such cases not by notation of exporter

documents but by transfer of foreign exchange from the

bankers of the receiver EOU/EPZ unit to the banker of

supplier EOU/EPZ unit.

PCFC ranted to receiver EOU/EPZ unit will be liquidated

by discounting of export bills as per general procedure

in this regard. Furthermore such transaction will be

treated as exports for the supplier unit and import for

the receiving unit.

Importer Exporter Code Number

No commercial export from India is permitted on behalf

of a person/firm/company who has not been allotted an

Importer Exporter Code Number. A few firms may be

completing exports through registered Export/Trading

Houses and are eligible to avail packing credit limits

from the banks. Such firms may not be required to

obtain the code number.

Application for Packing Credit

Application for Packman Credit should be accomplished

by the following documents:

i) Confirmed export order/contract or L/C, etc. in


original.(Where it is not available, an undertaking

to the effect that the same will be produced to the

bank within a reasonable time for verification and

endorsement. This undertaking is required where

the exporter wants to avail himself of packing

credit advance against preliminary information of

contract where by at the later stage the contract or

L/C, as the case may be, will be received by him.

ii) An undertaking that the advance will be utilised for

the specific purpose of procuring / manufacturing /

shipping etc. of the goods meant for export only as

stated in the relative confirmed export order or the

L/C.

iii) Where the exporter/application asking for the

packing credit is a sub-supplier and wants to

supply the goods to Export/Trading/Star.

Trading/Super Star Trading House or merchant

exporter, an undertaking from the merchant

exporter or Export/Trading/Star Trading/super Star

Trading House stating that they have not will not

avail themselves of packing credit facility against

the same transaction for the same purpose till the

original packing credit is liquidated.

iv) Copies of Income Tax/Wealth Tax Assessment Order

for the past 2/3 years in the case of sole

K.KRISHNAN, IGNOU
proprietary and partnership firm.

v) Copy of RBI's (Exporter's) Code Number (CNX).

vi) Copy of a valid RCMC (Registration-cum-

Membership Certificate) help by the exporter

and/or the Export/Trading Star Trading House

Certificate.

vii) Appropriate policy/guarantee of the ECGC.

viii) Any other document required by the bank.

A packing credit limit (PCL) is sanctioned by the

appropriate authority in the bank. It is fixed either as an

annual overall limit or as ad hoc specific limit.

Usually, the trade/manufacturer/export who seeks a

packing credit limit also required foreign bills purchase

limit negotiation/purchase/discount of bills, drawn under

leter of credit and/or without letter of credit.

All such limits together are generally reviewed by the

appropriate authority in the bank and separate limits are

purpose wise and security wise for the packing credit

loan and foreign bills purchased within the total limit.

These limits are reviewed at the end of the period for

which they are sanctioned and they are

renewed/revised/canceled depending on the merits of

each case.
Submission of Export Order/L/C

The exporter has to produce a confirmed export order or

L/C as per the terms of sanction at the time of

disbursement of packing credit. In the absence of an

export order/L/C, the bank accept some other

communication form the overseas buyer provided it

contains minimum details giving the name of the buyer,

the value of the order, quantity and particulars of the

goods to be exported, date of shipment and terms of

payment. Even in such cases final sales contract/L/C will

be required to be submitted to the bank at a later stage.

Sometimes an export order is received by an export

hose/trading hose or an merchant exporter who may

pass on this order to sub-supplier who is not directly

exporting. Such sub-supplier may also avail packing

credit facility from the bank. The packing credit in such

cases can be granted after getting a letter from the

exporter house/trading house giving details of the

ord3er and also confirming that he (export

house/trading house) has not availed any packing credit

against that order.

The repayment of such advance should be from the

proceeds of bills drawn under inland L/C (back to back

L/C) opened by the export house/merchant exporter in

favour of the sub-supplier. Where such an L/C is not

K.KRISHNAN, IGNOU
opened, the sub-supplier may draw export

house/merchant exporter would be necessary to the

effect that the goods have actually been exported.

Extension of Pre-shipment Credit - 'Running

Account' facility

The requirement of prior lodgment of letters of credit or

firm orders had been waived by Reserve Bank of India

respect of exports of certain commodities where banks

were authorised to grant running account facility.

Reserve baks has now with effect from 14 t h March, 1992

waived this requirement for all commodities and banks

have been permitted to grant pre-shjipment advances

for exports of any commodity without insisting on prior

lodgment of letter of credit/firm export orders. Granting

of such facility may be subject to the following general

conditions.

i) The facility will be allowed to only those exporters

whose trace record has been good. New exporters

may not for obvious reasons be allowed this

facility.

ii) The exporters to whom this facility is allowed will

be required to produce letters of credit/firm export

orders within a reasonable period of time. In case

of export of commodities covered under "Selective

Credit Control', letters of credit/firm orders should


be produced within a period of one month from the

date of advance.

iii) The banks shall mark off individual export bills, as

and when they are received for negotiation /

purchase / collection, against the earliest

outstanding pre-shipment credit on 'First In First

Out' (FIFO) basis.

iv) In respect of export of any commodity where the

amount of pre-shipment credit is in excess of

export value, excess amount should be adjusted

either in cash or by sale of non-exportable by

product, as soon as the extraction/segregation of

by product is completed, within a period of 30 days

from the date of advance.

v) The facility will not be allowed for inventory build

up and only need based limits will be allowed.

vi) The benefit of confessional rate of interest will be

permitted up to 180/270 days in respect of each

pre-shipment credit.

vii) If any exporter is found abusing the facility or does

not comply with the above terms and conditions,

the facility of running account will be withdrawn.

Pre-shipment Advance

K.KRISHNAN, IGNOU
It can also be given on production of sufficient evidence

i.e. cable and telex/fax, the L/C or firm export order

received by the exporter and lodged with the bank

within a reasonable time (as agreed upon by the bank)

of the grant of such advance. Moreover, the

cable/telex/fax messages should reveal quantity and

particular of goods, value of order, date of

shipment/delivery period, terms of payment and name of

buyer.

It can also be given under the 'Red Clause' letter of

credit i.e. at the instance and responsibility of the

foreign bank establishing L/C.

In a Red Clause L/C, the packing credit advance is made

against a simple receipt and is unsecured whereas

packing credit in normal course (i.e. not against Red

Clause) is made against the deposit of L/C and execution

of letter of pledge/hypothecation/trust receipt and other

loan documents.

Exporter who do not receive the export order in their

name such as suppliers to merchant exporter and

Export/Trading Houses are also eligible provided:

i) The produce a letter from the concerned merchant

exporter/Export Trading House that a portion of the

'Order' has been allotted to them, detailing the

goods to be supplied.
ii) The merchant exporter or Export Trading House

neither has availed nor wish to seek packing credit

in respect of the apportioned order, from any other

bank/source,

iii) The letter from the merchant exporter or Export

Trading House is countersigned by the bank

advising the letter of credit.

Sub-contractors or sub-suppliers supplying goods for

exports under a consortia arrangement are also eligible

for packing credit.

Where the goods are to be manufactured by the

manufacturer and processed/packed etc. Export Trading

House/Merchant-Exporter before making the shipment

finance can be availed by both the parties i.e. the

supplier as well as Export/Trading House or Merchant

Exporter for the required period, subject to the condition

that the total period of well as Export/Trading house or

Merchant Exporter for the required period, subject to the

condition that the total period of facility availed by both

does not exceed the maximum period permitted for

confessional finance.

The pre-shipment credit is required to be liquidated from

the proceeds of the relative export bills when purchased,

negotiated or discounted. However, the RBI has relaxed

this condition. For instance, if for any reason an

K.KRISHNAN, IGNOU
exporter negotiated or discounted. However, the RBI has

relaxed this condition. For instance, if for any reason an

exporter who has availed of pre-shipment credit, is

confronted with the cancellation of the export order and,

hence, unable top adjust the credit against relative

export bill proceeds, the wiping off such outstanding

through export bills drawn on the importers, either in

the same country, or in any other country is permitted,

provided the relative bills are in respect of the very

goods for which credit was originally granted.

Period of Advance

The packing credit advance is granted up to the last

date of shipment as per the underlying sale

contract/export L/C to a maximum of 180 days. If the

export order cannot be executed by that time, a further

extension of 90 days may be permitted. Such extension

would be considered by ranks only if they are satisfied

that reasons for extension are due circumstances

beyond the control of the exporter.

Banks may also consider to extend pre-shipment credit

for a longer period ab into up to a maximum of 270

days in respect of export of any commodity if the banks

are satisfied about the need for longer duration of

credit, depending upon seasonality of commodity, its

manufacturing cycle, time normally taken for shipment,


etc. the exporter must clearly out a case for availing

packing credit for longer period and obtain necessary

sanction from their banks.

Exporters are, however, under an obligation to complete

the export within a reasonable time which has now been

fixed as 180 days after completion of initial period of

180 days i.e. the export must be completed within 360

days of granting o packing credit as otherwise it will

loose the benefit of confessional rate of interest.

Rates of Interest

Pre-shipment advances are granted to the exporters at

the following concessional rate of interest:

Pre-shipment advance up to initial 180 PLR – 2.5%

days

Pre-shipment advance for a further PLR - +0.5%

period of 90 days

Pre-shipment advance beyond 270 days Banks are free


to determine
up to 360 days the rates

Pre-shipment advance against PLR – 2.5%

incentives receivable from Government

covered by ECGC guarantees (up to 90

days)

The other important points as regards rates of interest

K.KRISHNAN, IGNOU
on packing credit advances are given below:

 If the export is not completed within 360 days from

the date of original advance, no benefit of

concessional rate of interest will be available from the

1 s t day of advance itself i.e. interest at the normal

rate shall be payable from the day one the export is

completed. The difference of interest less charged by

the bank will be recovered.

 If the export does not materialise at all and packing

credit advance is to be adjusted from local funds, the

entire advance will not be considered as an export

credit from the date of original advance itself and

interest at the commercial lending rate may be

charged by the rank from the date of original

advance.

 No other service charges are payable by the exporters

except guarantee fee on packing credit guarantee of

ECGC obtained by the bank.

Quantum of Advance

The advance granted to exporter is restricted to the

FOB value of goods or domestic value of goods

whichever is less except in the following cases:

1) For a few items, particularly engineering goods which

are backed by export incentives of Government of


India the domestic value of goods exceeds FOB value.

Advance up to the domestic value may be permitted

in such case provided these are covered under ‘Export

a production Finance Guarantee’ of ECGC. The

packing credit allowed to these cases will be adjusted

partly by export proceeds and the remaining amount

from the claims of export incentives payable to the

exporter.

2) For exports of HPS ground-nuts and de-oiled and

defeated cakes, packing credit can be granted up to

the cost of raw material required even through the

value of advance exceeds the value of export order.

The advance in excess of export order must be

adjusted either in cash or by selling residual ground

nuts or by products oil product oil as soon as possible

but within 15 days in case of HPS ground-nuts and 30

days in case of de-oiled and defatted cakes. The

balance amount in the packing credit account will be

adjusted by proceeds of export bills drawn under the

export order in a usual manner. This provision has

been brought in because raw material requirement to

such exports is very high in comparison to the value

of export order.

Security of Packing Credit Advance

The goods meant for export form the primary security

K.KRISHNAN, IGNOU
for the bank granting packing credit advance. The form

of charge may, however, change on different stages

depending upon the nature of reports. The packing

credit may initially be clean at the time of disbursement;

may be covered by hypothecation charge over the raw

materials, semi-finished and finished goods later;

hypothecation charge be converted to pledge of finished

goods meant for exports or may even be covered by

document of title to goods (LR/RR) if the goods are sent

for shipment to a port city. This aspect of security must

be discussed in details in the initial stages itself so that

operation in the account are convenient.

Margin

The concept of margin in case packing credit is actually

linked with the value of order/L/C and/or with value of

security and different banks have their own standard in

this regard. The most accepted concept of margin in

these accounts is as under:

1) Margin on export order/L/C: This margin is applied on

the value of export order/letter of credit at the time

of initial disbursement when the packing credit may

not be backed by security of goods. Usually a high

margin is stipulated in such cases.

2) Margin on security: This is usual margin as applicable

to other advances backed by security of goods such as


cash credit accounts etc.

K.KRISHNAN, IGNOU
ECGC Guarantee

Most of the banks cover their packing credit advances

under ‘Packing Credit Guarantee” of Credit and

Guarantee Corporation (ECGC). ECGC issues packing

credit guarantees on each exporter individually and also

has the system of issuing a guarantee in favour of the

bank on whole turnover basis.

Premium on the guarantee is generally recovered from

the exporter. The rates of premium on individual

guarantees are higher in comparison to rates on ‘Whole

Turnover Packing Credit Guarantee’ issued to banks. It is

necessary to obtain this information from the bank as

cost of additional premium for individual guarantee may

sometimes be quite heavy depending upon the turnover

in the account. Guarantees issued by ECGC are in

addition to various policies issued by ECGC in favour of

exporters to cover the risk of non-payment or other

political risk involved in export trade. Full details of

these policies are given in Chapter on Export Credit

Insurance.

Exim Bank’s Scheme for grant of Foreign Currency

Pre-shipment Credit to Exporters (CFPC Scheme

Export Import Bank of India (Exim Bank) has floated a

scheme for Indian exporters to enable them to avail of


pre-shipment credit in foreign currencies to finance cost

of imported inputs for manufacture of export products.

The scheme is operated through authorized dealers who

are granted refinance by Exim Bank in foreign currency

out of credit lines arranged by Exim Bank. Salient

features of the scheme are given hereunder:

i) Exim Bank will arrange short-term lines of credit in

foreign currencies from foreign lending agencies.

ii) Exim Bank will allocate bank-wise limits in foreign

currencies out of funds so raised for lending by

those banks to Indian exporters.

iii) The following categories of exporters will be

eligible to obtain finance under the scheme:

a) Export House/Trading Houses with annual

turnover exceeding Rs. 10 crores.

b) Manufacturing units with minimum export

orientation of 25% of production or export

turnover of Rs. 50 crores should be made either

directly or through Trading Houses.

c) Exporters should have satisfactory track record.

iv) Pre-shipment credit will be made available in any

of the major international currencies in which Exim

Bank raises funds.

K.KRISHNAN, IGNOU
v) The packing credit granted under the scheme

should be within the permissible bank finance

sanctioned by banks under the existing credit

policy norms laid down by Reserve Bank.

vi) The credit risk arising in the transaction will be

borne by banks through whom foreign currency

funds will be disbursed

vii) The outstanding under the facility should always be

covered by firm orders/letters of credit or export

receivables.

viii) Financing banks should obtain credit reports and

satisfy themselves about the means and standing of

the overseas buyers.

ix) the foreign currency loans to be extended by banks

to their exporters should be covered with ECGC.

The total interest spread will be restricted to 2% over

the interest rate at which the funds are raised by the

Exim Bank. This two per cent will be shared by Exim

Bank and the bank as under:

0.5%
Share of Exim Bank
1.5%
Share of Bank

Any commitment fee and/or management fee, if

applicable will also be payable by the exporter.


The repayment of pre-shipment credit will be made out

of sale proceeds off export shipments in respect of

which the facility was availed by the exporters.

The export will be subject to normal exchange/trade

control regulations. As against the rupee interest rate of

3%, the credit under the scheme is going to be cheaper.

The exact rate of interest will, however, depend on the

foreign currency in which credit is availed. For instance

approximate rate in US $ should be around 7 per cent.

However, exchange rate for such transactions will be

fixed at the time of taking advance and benefit of any

appreciation in the value of foreign currency vis-a-vius

Indian rupee will not be available.

Relaxation’s granted in the area of Export Packing Credit

Reserve Bank has announced a few relaxations in

operational aspects of export packing credit as under:

i) The stipulation of repayment a few relaxations in

operational aspects of export packing credit as

under: Substitution of commodity of export may

also be granted by the bank. In other works

packing credit availed by an exporter can now be

liquidated by export documents relating to any

export done by that exporter.

ii) The existing packing credit may also be marked off

K.KRISHNAN, IGNOU
with export proceeds of documents against which

no packing credit has been drawn by the exporter.

iii) The relaxation’s as above are available both under

packing credit availed in rupees or in foreign

currency.

iv) The relaxation as above is, however, not extended

to transactions of sister/associate/group concerns.

Extension of Packing Credit Facility to Sub-Supplier

As per existing guidelines the packing credit is allowed

to be shared between an Export Order Holder including

trading house and a manufacturer of goods exported.

This facility is now extended to sub-suppliers of raw

materials, components etc. to the exported goods. The

detailed guidelines in this regard are as under:

i) The packing credit facility for the sub-supplier will

be available only on the basis of an export order or

letter of credit L/C in the name of Export Order

Holder. No running A/c facility will be permitted to

sub-supplier.

ii) The Export Order Holder may open inland L/C

through his banker in favour of his supplier/s on

the basis of the export order or L/C received by

him. On the basis of such inland L/C the bank can

grant packing credit to sub-supplier. Such packing


credit will be liquidated from the proceeds of the

bills drawn under L/C. The L/C opening bank will

grant packing credit to the Export Order Holder at

this stage.

iii) Export Order Holder can open any number of L/Cs

for the various components required within the

overall value limit of the order L/C.

iv) The scheme will cover only the rupee packing

credit. The finance given to both the sub-supplier

and Export Order Holder will be eligible for export

packing credit at interest rates as per RBI’s

interest rate directive for the specified period as

announced from time to time.

v) The charges for opening inland L/Cs will be as per

FEDAI (Foreign Exchange Dealers Association of

India) rules.

vi) The Export Order Holder will be responsible for

exporting the goods as per export order or L/C and

any delay with process will subject him to the

penal provisions as applicable once the sub-

supplier makes available the goods as inland L/C

terms to the Export Order Holder, his obligation of

performance under the scheme will be treated as

complex and penal provisions will not be applicable

to him for any delay by Export Order Holder.

K.KRISHNAN, IGNOU
vii) The scheme will cover only the first stage of

production cycle. In other words a manufacturer

exporter will be allowed to open inland L/C in

favour of this immediate suppliers of raw material/

components etc. that are required for manufacture

of exported goods. The scheme will not be

extended to cover suppliers of raw material /

components etc. to such immediate suppliers. In

case Export Order Holder is only a trading house,

the facility will be available commencing from the

manufacturer to whom the order has been passed

on by the trading house.

viii) EOUs/ EPZ units supplying goods to another

EOU/EPZ unit for export purposes are also eligible

for rupeepre-shipment export credit under this

Scheme. However, the supplier EOU/EPZ unit will

not be eligible for any post-shipment facility either

in rupees or under PSCFC scheme as the scheme

does not cover sales of goods on credit terms.

ix) The scheme does not envisage any change in the

total quantum of advance or period of advance.

Accordingly, the credit extended under the system

will be treated as export credit from the date of

advance to the sub-supplier to the date of

liquidation by Export Order Holder under the inland

export-L/C system and upto the date of liquidation


of packing credit by shipment of goods by Export

Order Holder.

x) The position regarding interest- tax on export

packing credit granted to sub-supplier is not clear

and interest-tax may be payable for the time being.

Credit against proceeds of Cheques, Drafts, etc.

received directly towards advance payment for

Exports

Banks can grant export credit at concessive interest rate

in such cases subject to the following conditions being

fulfillment.

i) Accommodation is granted for the transit period

stipulated by FEDAI for collection of the instrument

or till the of realization of proceeds thereof which

ever is earlier.

ii) The bank gets satisfactory evidence that the

instrument represents advance remittance against

an export order.

iii) The Bank’s past experience with the borrowers and

the latters track record are good

iv) The trade practices suggest the possibility of such

instrument etc., being received towards advance

payments are the exporters are able to satisfy the

K.KRISHNAN, IGNOU
Bank with reason for receiving payment directly.

v) Exchange Control Department of Reserve Bank has

agreed to treat the direct inward remittance as an

approach method of realization of export proceeds.

vi) It is ensured by the Bank in due course that the

goods have been shipped.

Packing Credit for Imports against entitlements

under advance licence

Concessive packing credit can be granted to

manufacture –exporters for financing of such imports

against advance licence etc. as are meant for

manufacture of goods to be exported by them even if

they are not in a position, at the time availing of credit,

to produce letter of credit or firm order for export of the

manufactured items. This will be subject to the following

conditions:

i) The bank has satisfied itself by referring to the

conditions stipulated in the import licence that the

imported material will be utilised for the items to

be exported abroad.

ii) Letter of credit/firm order is produced with in a

reasonable time which should not exceed 60 days

from the date of advance failing which commercial

rate of interest will be charged ab initio.


Extension of Packing Credit etc. for Deemed

Exports

Banks can grant export credit at concessional rates both

for pre-shipment (supply) in respect of deemed exports.

All categories of supply of goods regarded as deemed

export under paragraph 0.2 o EXIM Policy 997-2002 are

eligible to avail the concessional finance.

K.KRISHNAN, IGNOU
POST-SHIPMENT CREDIT

Post-shipment finance means any advance granted to an

exporter after shipment of goods. At the post-shipment

stage.

a) advances against shipping documents;

b) advances against duty drawback.

The need for post-shipment finance arises because

exporters who sell goods abroad have to wait for a long

time before payment is received from overseas buyers.

The period of waiting will depend upon th terms of

payment. Based on different types of terms of payment

different methods of financing are being devised. Most

of the provisions of Exchange Control Manual are by and

large applicable to all these methods of post-shipment

finance except few special provisions applicable to the

individual methods of finance.

Negotiations of Export Documents Drawn under

Foreign L/Cs

This has been thoroughly discussed in Chapter on

‘Negotiations under Documentary Credits’.


Purchase of Export Bills drawn under Confirmed

Contracts

Purchase or discount facilities in respect of export bills

drawn under confirmed export order are generally

granted to customers who are enjoying Bill

Purchase/Discounting limits sanctioned by the Bank.

Since in case of purchase of discounting of export

documents drawn under export order the security

offered under L/C by way of substitution of credit-

worthiness of the buyer i.e. the importer as well as that

of the exporter or beneficiary. The documents drawn on

DP basis are parted with through foreign correspondent

only when payment is received while in case of DA bills

documents (including that of title to the goods) are

passed on the overseas importer against the acceptance

of the draft to make payment on maturity. DA bills are

thus unsecured. The bank financing against export bills

is open to the risk of non-payment on maturity. DA bills

are thus unsecured. The bank financing against export

bills is open to the risk of non-payment. Banks, in order

to enhance security generally, opt for ECGC policies and

guarantees which are issued in favour of the

K.KRISHNAN, IGNOU
exporter/banks to protect their interest on percentage

basis in case of non-payment or delayed payment which

is not on account of mischief, mistake or negligence on

the part of exporter. Within the total limit of policy

issued to the customer, drawee-wise limits are generally

fixed for individual customer. At the time of purchasing

the bill bank has to ascertain that this drawee limit is

not exceeded so as to make the bank ineligible for claim

in case of non-payment.

Advances against Export Bills Sent on Collect ion

It may sometimes be possible to avail advance against

export bills sent on collection. In such cases the

exporter bills will be sent by the bank on collection basis

and will not be purchased/discounted. Advance such bills

will be granted by way of a ‘separate loan’ usually

termed as ‘post-shipment loan’. This facility is, in fact

other form of post-shipment advance and will be

sanctioned by the bank on the same terms and

conditions as applicable to the facility of

Negotiation/Purchase/Discount of export bills. A margin

of 10 to 25% is, however, stipulated in such cases. The

rates of interest etc., chargeable on this facility are also

governed by the bank by way of

negotiation/purchase/discount.
Advances against Claims of Duty Drawback

Duty drawback is permitted against export of different

categories of goods under the ’Customer and Central

Excise Duty Drawback Rules, 1995. ‘Drawback in relation

to goods manufactured in India and exported means a

rebate of duties chargeable under Central Excises and

Salt Act, 1944 on certain specified goods. The Duty

Drawback Scheme is administered by Directorate of Duty

Drawback in the ministry of Finance. The claims of duty

drawback are settled by Customs House at the rates

determined and notified by the Directorate.

As per the present procedure, no separate claim of duty

drawback is to be filed by the exporter. A copy of the

shipping bill presented by the exporter at the time of

making shipment of goods serves the purpose of claim of

duty drawback as well. This claim is provisionally

accepted by the customs at the time of shipment and

the shipping bill is duly verified the claim is settled by

customs office later.

As a further incentive to exporters Customs Houses at

Delhi, Mumbai, Calcutta, Chennai, Chandigarah,

Hyderabad have evolve a simplified procedure under

which claims of duty drawback are settled immediately

after shipment and no funds of exporter are blocked.

However, where settlement is not possible under the

K.KRISHNAN, IGNOU
simplified procedure exporters any obtain advances

against claims of duty drawback as provisionally

certified by customs. The New Delhi Customs has gone a

step further by introducing EDI system of Indian

Customs and now w.e.f. 1.11.1996 drawback claims are

settled under computerized system.

Advance against Goods sent on Consignment Basis

When the goods are exported on consignment basis at

the risk of the exporter for sale and eventual remittance

of sales proceeds to him by the agent/consignee, bank

may finance against such transaction subject to the

customer enjoying specific limit to that effect. However,

the bank should ensure that while forwarding shipping

documents to its overseas branch/correspondent to

instruct the latter to deliver the documents only against

Trust Receipt/Undertaking to deliver the sale proceeds

by specified date, which should be within the prescribed

date even if according to the practice in certain trades a

bill for part of the estimated value is drawn in advance

against the exports.

Advance against Undrawn balance

In certain lines of export it is the trade practice that

bills are not to be drawn for the full invoice value of the

goods but to leave small part undrawn for payment after

adjustment due to difference in rates, weight, quality


etc., to be ascertained after approval and inspection of

the goods. Banks do finance against the undrawn

balance if undrawn balance is in conformity with the

normal level of balance left undrawn in the particular

line of export subject to a maximum of 10% of the value

of export and an undertaking is obtained from the

exporter that he will, within 6 months from the date of

shipment of the goods surrender balance proceeds of the

shipment. Against the specific prior approval from

Reserve Bank of India the percentage of undrawn

balance can be enhanced by the exporter and the

finance can be made available accordingly at higher

rate. Since the actual amount to be realized out of the

undrawn balance may be less than the undrawn balance

it is necessary t keep margin on such advance.

Advance against retention money

In certain lines of export it is the trade practice that

bills are not to be drawn for the full invoice value of the

goods but to leave small part undrawn for payment after

adjustment due to difference in rates, weight, quality

etc., to be ascertained after approval and inspection of

the goods., banks do finance against the undrawn

balance if undrawn balance is in conformity with the

normal level of balance left undrawn in the particular

line of export subject to a maximum of 10% of the value

of export and an undertaking is obtained from the

K.KRISHNAN, IGNOU
exporter that he will, within 6 months from the date of

shipment of the goods surrender balance proceeds of the

shipment. Against the specific prior approval from

Reserve bank of India the percentage of undrawn

balance can be enhanced by the exporter and the

finance can be made available accordingly at high rate.

Since the actual amount to be realized out of the

undrawn balance may be less than the undrawn balance

it is necessary to keep margin on such advance.

Advance against Retention money

Banks also grant advances against retention money,

which is payable within one year from the date of

shipment at confessional rate of interest i.e., 13% upto

90 days. If such advances extend beyond one year, they

are treated as deferred payment advances which are

also eligible for concessive rate of interest.

Treatment for Overdue foreign currency Bills

Many a time bills remain outstanding for long after the

transit period or the due date, for some reason or the

other. If the bill is not paid within 30 days after its due

date and the relative credit advice not received by the

concerned bank within this period, the foreign currency

amount of the bil is to be converted into rupees at the

prevailing. T.T. selling rate and the liability will be held

in rupees in the books of the negotiating bank.


Thereafter, the bill with be treated as on collection

basis. As and when the credit advice is finally received,

the foreign currency amount of the bill will be purchased

afresh by the bank at the prevailing T.T. buying rate.

The difference between the rupees amount arrived at on

the 30 t h day after due ar on the bais of T.T. selling rate

and the rupees amount arrived at one the date of final

payment at the T.T. buying rate will be debited/credited

to the exporter. Barring exceptional cases, the exporter

is bound to suffer a loss on account of the inherent

difference between the T.T. selling T.T. buying rates on

any currency. Again, interest would be recovered on the

overdue export bill after the due date upto the date of

realization.

K.KRISHNAN, IGNOU
Forfaiting finance ( A

new financing option for

Indian Exporter)

Definit ion

Forfaiting is a mechanism of financing exports.

• By discounting export receivables

• Evidenced by bills of exchange or promissory notes

without recourse to the seller (viz. Exporter)

• On a fixed rate basis (discount)

• Upto 100 per cent of the contract value.

The word ‘forfait’ is derived from the French word ‘a

forfait’ which means the surrender of rights.

Simply speaking, forfaiting is the non-recourse

discounting of export receivables. In a forfaiting

transaction the exporter surrenders, without recourse to


him, his rights to claim payment on goods delivered to

an importer, in return for immediate cash payment from

a forfaiter. As a result an exporter in India can convert a

credit sale into a cash sale, with no recourse to the

exporter or his banker.

Eligibility

All goods exported on credit terms are eligible for

forfaiting, subject to quotes being available.

How forfaiting works?

Receivables under a deferred payment contract for

export of goods, evidenced by bills of exchange or

promissory notes, can be forfaited.

Bills of exchange or promissory notes, backed by co-

acceptance from a bank (which would generally be the

buyer ’s bank), are endorsed by the exporter, without

recourse, in favour of the forfaiting agency in exchange

for discounted cash proceeds. The banker ’s co-

acceptance is known as availisation. The co-accepting

bank must be acceptable to the forfaiting agency.

Prescribed formats

The bills of exchange or promissory notes should be in

the prescribed format.

K.KRISHNAN, IGNOU
Role of Exim bank

The role of Exim bank will be that of a facilitator


between the Indian exporter and the overseas forfaiting
agency. On a request from an exporter, for an export
transaction which is eligible to be forfaited, exim bank
will obtain indicative and firm forfaiting quotes-discount
rate, commitment and other fees-from overseas
agencies.

Exim bank will receive availised bills of exchange or


promissory notes,m as the case may be, and send them
to the forfaiter for discounting and will arrange for the
discounted proceeds to be remitted to the Indian
expoter.

Exim Bank will issue appropriate certificates to enable


Indian exporter.

Exim Bank will issue appropriate certificates to enable


Indian exporters to remit commitment fees and other
charges. Exim bank has been authorized by the Reserve
Bank of India vide AD (GP Series) Circular No. 3 dated
February 13, 1992, to facilitate export financing through
forfaiting.

Forfaiting costs

A forfaiting transaction has typically three cost


elements:

• Commitment free,
• Discount fee,

• Documentation fee.

Commitment fee

A commitment fee is payable by the exporter to the


forfaiter for the latter’s commitment to execute a
specific forfaiting transaction at a firm discount rate
within a specified time (normally not more than one
year). The commitment fee generally ranges between
0.5 per cent and 1.5 per cent per annum of the utilized
amount to be forfaited and is charged for the period
forfait contract, whichever is earlier. The commitment
fee is payable regardless of whether or not the export
contract is ultimately executed.

Discount fee

Discount fee is the interest cost payable by the exporter


for the entire period of credit involved and is deducted
by the forfaiter from the amount paid to the exporter
against the avalised promissory notes or bills of
exchange. The discount fee is based on the relevant
market interest rates as reflected by the prevailing
London Inter-Bank Offered Rate (LIBOR) for the credit
period and currency involved, plus a premium for the
risks assumed by the forfaiter. The discount rate is
applied to the aggregate principal and interest due on
the debt instrument on its maturity to arrive at the
payout to the exporter. The discount rate is established
at the time of executing a forfait contract between the

K.KRISHNAN, IGNOU
exporter and the forfaiting agency.

Documentation Fee

Generally, no documentation fee is incurred in

straightforward forfait transactions. However, if

extensive documentation and legal work is necessary a

documentation fee may be charged.

Other Costs

Exum Bank will charge a service fee for facilitating the

forfaiting transaction which will be payable in India

rupees, there may be additional costs levied by a

forfaiter, such as handling charges, penalty etc.

However, these costs are transaction-specific and will be

specified and will be specified, where applicable.

Transferability of cost

As per Reserve Bank of India's AD (GP Series) Circular

No. 3dated February 13, 1992, discount fee,

documentation fee and any other costs levied by a

forfaiter must be transferred toi the overseas buyer.

Commitment fee should also be passed on to the

overseas b over to the extent possible.

The exporter should finalise the export contract in a

manner which ensures that the amount received in


foreign exchange by the exporter after payment of

forfaiting discount and other fees is equivalent to the

price which he would obtain of gods were sold on cash

payment terms.

Computation of Duty Drawback

Duty drawback will be computed only on FOB cost of

goods i.e invoice value less freight, insurance, if any,

and forfait discount and other related fees.

The Forfaiting Benefits

 Concerts a deferred payment export into a cash

export into a cash transaction, improving liquidity and

cash flow.

 Frees the exporter from cross-border political or

commercial risks associated with export receivables.

 Finance upto 100 per cent of the export value is

possible as compared to 80-85 per cent financing

available from conventional export credit

programmes.

 As forfaiting offers without recourse finance to an

exporter, it does not impact the exporter's borrowing

limits. Thus forfaiting represents an additional source

of funding, contributing to improved liquidity and cash

flow.

K.KRISHNAN, IGNOU
 Provides fixed rate finance; hedges against interest

and exchange risks arising from deferred export

credit.

 Exporter is freed from credit administration and

collection problems.

 Forfaiting is transaction specific. Consequently, long

term banking relationship with the forfaiter is not

necessary to arrange a forfaiting transaction.

 Exporter saves on insurance costs as forfaiting

obviates the need for export credit insurance.

 Simplicity of documentation enables rapid conclusions

of the forfaiting arrangement.

Other Important Factors

Currency in which contract must be executed to vbe

eligible for forfaiting: the export contract can be execute

din any of the major convertible currencies e.g. US

Dollar, Deutsche Mark, Pound Sterling, Japanese Yen.

Minimum value: The minimum value of an export

contract eligible for forfaiting and acceptable to a

forfaiting agency will generally be the equivalent of $

500,000.

Eligibility: Eligibility of an export transaction for

forfaiting can be determined when the forfaiting agency


is approached for a forfait quote. The availability of a

forfaiting quote for a particular country will depend on

the forfaiting agency's perception of risk quality of

export receivables from that country. The forfaiting

agency will indicate the maximum amount and the

period of discount while giving quote for forfaiting.

In case exporters wisdh to forfait their export

receivables, Exim Bank can be contracted with these

details:

 Name and address of foreign buyer

 Country to which exports are to be made

 Name of the guarantor bank (i.e. aval), if known to

the exporter

 Nature of goods

Operating mechanism

1. Indian exporter initiates negotiations with prospective

overseas buyer with regard to order quantity, price,

currency of payment, delivery period and credit

terms.

2. Exporter approaches Exim bank to obtain an

indicative foraiting quote from the forfaiting agency.

For this purpose, the exporter is required to provide

the following information-

K.KRISHNAN, IGNOU
 Name and address of foreign buyer

 Country to which exports are to be made

 Name of the guarantor bank (i.e. aval), if known to

the exporter

 Nature of goods

 Order quantity

 Amount of order base price, interest rate

 Delivery period and repayment schedule

 Name of the authorised dealer who will handle the

export transaction for the exporter in India.

3. Exim Bank obtain indicative quotes of discount,

commitment fees and documentation fees, if any, and

communicates these to the exporter.

4. Exporter finalises the terms of the contract with the

buyer. The final export offer must be structured in a

manner which ensures that the amount received in

foreign exchange by the exporter after payment of

forfaiting discount and other fees is equivalent to the

price which he would obtain if goods were sold on

cash payment terms.

5. If the terms are acceptable ot the overseas buyer, the

Indian exporter informs Exim Bank accordingly and


requests the Bank to obtain a firm quote form the

forfaiting agency.

6. Exim Bank obtains a firm quote form the forfaiting

agency and conveys this information to the exporter

and his authorized dealer, with a request to the

exporter to confirm acceptance of the forfaiting terms

within a specified time limit.

7. Indian exporter confirms acceptance of forfaiting

terms of Exim Bank. The exporter will enter into a

commercial contract with the overseas buyer and also

execute a forfaiting contract with the forfaiting

agency through Exim Bank.

8. On execution of the forfaiting contract. Exim Bank

issues:

 A certificate to the exporter with a copy to the

authorised dealer, regarding the commitment fee to

be paid by the exporter to the forfaiting agency. This

certificate will enable to exporter to remit

commitment fees to the forfaiting agency, in

accordance with the schedule indicated in the

forfaiting contract in terms of the Reserve Bank of

India guidelines governing forfaiting contracts,

commitment fees will be regarded as being analogous

to bank charges, and will not be required to be

mentioned in the GR form or shipping bill prepared by

K.KRISHNAN, IGNOU
the exporter, subject to the commitment fee not

exceeding 1.5 per cent of the contract value.

 A certificate to the exporter detailing the discount

payable to the forfaiting agency, to enable the Indian

Customs authorities to verify deductions towards

discounts declared by the exporter on the GR form

and shipping bill.

9. The Indian exporter ships the goods as per the

schedule agreed with the overseas buyer. The

forfaiting transaction will be reflected in the following

three documents associated with an export

transaction, in the manner suggested below:

Invoice

Forfaiting discount, commiment fees, etc. need not be

shown separately; instead, these could be built into the

FOB price, stated on the invoice.

Shipping Bill and GR form

Details of the forfaiting costs will be included along with

the other details, such as FOB price, commission

insurance, normally included in the "Analysis of Export

Value" on the Shipping Bill. The claim for duty drawback,

if any, will be certified only with reference to the FOB

value of the exports states on the shipping bill.


In case of exports covered under the scheme of

forfaiting, the following procedure should be followed for

filling up the various columns relating to the FOB value

in the Shipping Billl and the GR form.

i) the column "Total f.o.b. value in words" will reflect

the total invoice value inclusive of the forfaiting

discount.

ii) Under the column "Analysis of export value," the

actual f.o.b. value, exclusive of the forfaiting

discount should be indicated against the sub-

column "FOB value". The forfaiting discount will

however, have to be shown separately under the

sub-heading "Other Deductions", on he basis of

Exim Bank's certificate which is to be submitted by

exporters to the Customs authorities.

iii) The column "Full export value or where not

ascertainable the value which exporter expects to

receive on the sale of goods" should indicate the

total invoice value inclusive of the forfaiting

discount.

iv) Under the column "Assessable Value under section

14" the actual f.o.b. value, net of the forfaiting

discount will have to be shown.

v) On the reverse of the Shipping Bill, the figures to

K.KRISHNAN, IGNOU
be indicated against the column "Value on which

Drawback Claim" should be the f.o.b. value after

deduction of the formatting discount.

vi) These instructions have been communicated to All

Collectors of Customs by Ministry of Finance,

Department of Revenue in terms of Notification

F.No. 605/26/91-DBK dates march 1,1993.

10.The export contract will provide for the overseas

buyer to furnish avalised bills promissory notes.

11.If the contract for bills of exchange, the exporter

will draw a series of bills of exchange and send them

along with shipping documents to his banker for

presentation to importer for acceptance through

latter's banker. Importer's banker will hand and over

shipping documents to importer against acceptance

of bills of exchange by the importer and signature of

avail. Avalised and accepted bills of exchange with

the words "Without Recourse" and forward them

through his banker to Exim Bank, which in turn will

send to the forfaiting agency.

12.If promissory notes are provided for in the export

contract, then the exporter will require the importer

to prepare a series of avalised promissory notes, as

agreed.
On shipment, the exporter's bank sends the shipping

documents to the importer's bank for transmission to

the overseas buyer. Importer's banker will hand over

shipping documents to importer against avalised

promissory notes issued by the importer.

Avalised and accepted promissory notes will be

forwarded to the exporter through his banker.

The Indian exporter endorses the avalised promissory

notes with the worlds "Without Recourse" and forwards

them through his bank to Exim Bank, which in turn will

send them to the forfaiting agency.

13.The forfaiting agency effects the payment of the

discounted value, in accordance with Exim Bank's

instructions, after verifying the aval's signature,

and other particulars.

Normally, Exim Bank will direct the forfaiter to credit

the payment to the nostro account of the exporter's

bank in the country where the forfaiter is based. The

bank receiving the discounted proceeds will arrange to

remit the funds to India. The exporter will be issued a

Certificate of Foreign Inward Remittance. The GR form

will also be released.

14.An export contract which provides for more than

one shipment can also be forfaited under a single

K.KRISHNAN, IGNOU
forfaiting contract. However, where the export is

effected in more than one shipment, availsed

promissory notes/bills of exchange in respect of

each shipment could be forfaited, subject to the

minimum value requirements laid down by the

forfaiter.

15.On maturity of the bills of exchange/promissory

notes, the forfaiting agency presents the

instruments to the aval for payment.

1. Customs Public Notice on Forfaiting discount and

commitment fees - Certificate of net realisable value

of exports by Customs The Export Import Bank of

India (Exim Bank), in consultation with the Reserve

Bank of India, have decided to introduce the Scheme

of Forfaiting as an instrument of financing exports.

The scheme is being introduced initially of a period of

three years.

2. Forfaiting, which is an instrument of export

financing, involves purchase of invoices, bills of

exchange, promissory notes etc. by certain forfaiting

Agencies abroad at a discount from the exporters in

different Countries of the world without recourse to

such exporters. The objecive of the scheme is

essentially to help out exporters overcome he

problems of delay in the repatriation of the export


sale proceeds. Under the scheme, the exporter

forfaits his right to futue payment in return for

immediate cash. In other worlds int converts credit

shale into a scahs transaction the considration being

discount that the exporters/his bank will have to

bear. Forfaiting is without further recourse to the

exporters i.e. of forfaiting bank/financial institution

is unable to realise the amount frojm the purchasers

of the goods, they cannot come back to the exporters

for recovery of the amount. In such a transaction,

the Forfaiting Agencies normally charge forfaiting

discount (which varies from country to country and

from transaction to transaction) and a committeemen

fee which is payable till such period as the discount

is allowed. The Indian exporters opting for the

Scheme will have to charge their foreign buyers with

these two elements of costs over and above the

contractual base price agreed upon. All transactions

under the forfaiting scheme will be through the Exim

Bank of India which will act as intermediary.

3. As clarified by the Exim Bank, the commitment fees

would be payable at a specified rate on the contract

value for the period commencing from the date of

acceptance of the offer, till the date of disbursals of

the amount by the Forfaiting Agency (which will take

place after shipment and presentation of documents).

K.KRISHNAN, IGNOU
Accordingly, it would not be possible to quantity this

fee at the time of shipment. The commitment fees

will be analogous to the bank charges. Since bank

charges are now being allowed to be included in the

F.O.B. value declared by the exporters it has been

decided that this fee should also be included for

arriving a the value under section 14 of the customs

act. In all cases where the commitment fees do not

exceed 1.5% of the contract value, the Reserve Bank

of India have permitted remittance of such fees in

terms of their AD (GP Series) Cicular No. 3 dated

13.2.1992. Prior approval of the RBI would, however,

be required in cases where the commitemnt fee

exceed 1.5% of the contract value.

4. Regarding the forfaiting discount, which is payable

by the exporters to the overseas Forfaiting Agency, it

has been decided that the Exim Bank of India will

issue a certificate, shipment-wise, showing the

forfaiting discount payable and this certificate will be

submitted by the exporter along with the Shipping

Bills of scrutiny of the Assessing Officer in the

Customs House. The forfaiting discount should be

deducted from the total invoice value, for arriving at

the assessable value under section 4 of the Customs

Act. The assessable value, after deduction of the

forfaiting discount will comprise of the F.O.B. price


and the commitment fees.

5. In case of exports under the Scheme of Forfaiting,

the following procedure should be followed for filling

up the various columns relating the FOB value in the

Shipping Bill and the G.R. Form:

i) the column "Total F.O.B. value in the Shipping Bill

and the G.R. Form:

ii) under the column 'Analysis of export value', the

actual F.O.B. value, exclusive of the forfaiting

discount should be indicate against the sub-column

'FOB Value'. The forfaiting discount will, however,

have to be shown separately under the sub-

heading "Other Deductions", on the basis of Exim

Bank certificate submitted by the individual

exporter.

iii) The column "full export value or where not

ascertainable the value which exporter to receive

on the sale of goods" should indicate the total

invoice value, inclusive of the forfaiting discount.

iv) Under the column 'Assessable Value under Section

14' the actual F.O.B. value, net oof the forfaiting

discount will have to be shown.

v) On the reverse of the S/Bill the figures to be

indicated against the column. Value on which

K.KRISHNAN, IGNOU
Drawback Claim' should be the F.O.B. Value after

deduction of the forfaiting discount. The drawback

amount and other export incentives will have to be

calculated with reference to the value shown after

the requisite deductions and should match with the

figures shown as FOB value as indicated in (ii)

above.

vi) The entries in the GR from with regard to the

break-up of the value should be verified by the

Customs authorities on the basis of the EXIM Bank

certificate before acceptance. The certificate to be

issued by the EXIM Bank should be endorsed by

the Customs Officials with the shipping bill number

and date and after completion of the Customs

formalities should be forwarded to the Reserve

bank of India with the GR form.


Non-Conventional

Avenues for Export

financing

Most exporters try to finance their exports through

commercial banks. To promote their exports some also

take advantage of the Government’s Marketing

Development Assistance Scheme through the Ministry of

Commerce. Yet, there are many exporters who are

ignorant of various funding schemes of other

organizations which could help them to finance their

exports. In the following paragraphs, an efforts has

been made to identify such schemes and highlight their

specific requirements for the benefit of the exporting

community.

Exim Bank

The financing schemes of Exim-Bank have been

discussed later in this Chapter.

Industrial Credit and Investment Corporation of

India Ltd. (ICICI)

K.KRISHNAN, IGNOU
All the financial institutions (namely IDBI, IFCI and

ICICI) give priority to financing projects involving export

possibilities. However, ICICI has separate fund for

financial assistance to Industrial Export Projects. Under

this scheme, ICICI provides assistance under two

schemes (i) Productivity Fund (for market development);

and (ii) Term Loans.

Productivity Fund

Financial assistance is available by way of a grant for

upgrading export marketing (through market research,

product adaptation, training etc.) and for improvement

in productivity (through introduction of process/product

technology) which would increase export

competitiveness.

Eligible Companies

Private/Joint Sector companies having comprehensive

productivity scheme with a view to enhancing

exportability of its products. Priority is given to

companies manufacturing products with identified export

prospects, preferably in the thrust industries like

engineering, electronics, chemicals, pharmaceuticals,

textiles, apparel, leather, food processing and packaging

and computer software.


Eligible Activities

Product ivity Improvement Act ivities

i) for cost reduction and quality improvement, choice

of process/product technology options, R&D effort

towards production quality / efficiency/ volume

improvement and establishing productivity cells

with measurable achievements. Given to

Productivity consultants and technicians.

ii) For identifying products suitable for ancillaries or

selecting appropriate ancillary for modernizing, etc.

Available to Ancillary Development Consultants.

iii) For development and implementation of training

programs, including trainers and training materials

required to improve productivity. Available to

supervisor training.

iv) Design and product adaptation (for constancy

and/or expenditure incurred in response to

identified export market opportunities).

v) Visits to plants in competing countries/plants

operated with collaborators assistance, with a view

to adopting their production practices.

vi) Workships/Seminars with institutions or potential

collaborators for productivity and technology

K.KRISHNAN, IGNOU
improvement.

vii) For upgrading product/process technology through

induction of technical know-how.

Export Market Development Activities

i) Desk Research to focus on promising markets.

ii) Overseas Market Research for evaluating product

specifications identifying market segments,

distribution channels, buyer profiles etc.

iii) Overseas travel for appointing agents/distributors,

direct selling and for keeping abreast with product

developments.

iv) Product inspectively /certification services.

v) Training of export marketing personnel.

vi) Travel to India by potential buyers.

vii) Sampling, Advertising etc. required for product

launch an international markets.

Quantum of Assistance

Grants upto 50% of the cost of the productivity scheme,

subject to a maximum of US$ 4,00,000.


Term Loans for Export Oriented Industrial Projects

ICICI also provides term loans to enable the industry to

increase its quality and cost competitiveness in the

international market.

Eligible Companies

Private/Joint sector companies manufacturing products

having long term export potential and economic

advantage. The companies should have a strategic

export plan striving to reach international price/quality

standards, incorporating expanded exports as an

important element of corporate strategy and marketing

and technological arrangements which are consistent

with significant export expansion.

Priority is given to companies manufacturing products in

the thrust areas (explained earlier) and those proposing

ancillary development and productivity improvement

plans.

Eligible Activities

Cost of plant, equipment jigs, fixtures, tools, drawings,

know-how etc. for technology upgradation,

modernization, balancing, expansion and new projects.

K.KRISHNAN, IGNOU
Terms of Loan

Repayment : Repayment in 5 to 10 years with

schedule grace period of 1 to 3 years-

depending on the expected cash

generations.
None, as even the foreign
Exchange Risk :
currency loan (if any) is
denominated in Indian Rupees on
disbursement

ICICI does not retain the option


Conversion :
of converting the loan to equity.
Option

Agricultural Commercial and Enterprise (ACE)

project

ACE is funded by USAID, ICICI is the implementing

agency for the project.

Objectives

The main objectives of the project are:

- To increase private investment in the agro-business

sector.

- To improve linkages between horticulture producers,

processors and traders.

- To increase flow of fresh and processed horticulture

products to targeted domestic and export markets.

- To increase rural incomes.


Eligible Organizations

Private commercial venture and co-operatives in the

State of Maharashtra will be eligible to receive

assistance under ACE.

Type of ACE activities

Thee groups of activities have been identified:

- Loans to private sector

- Technical assistance

- Trade and investment tours

Loans to Private Sector Agro-Business

All types of agro-business entrepreneurs in Maharashtra

will be eligible for ACE assistance.

Technical Assistance

Chemonics International, which has its headquarters in

Washington, D.C. and field offices in Miami, Budapest

and Warsaw, will be providing Technical Assistance (TA)

to private firms in designing and/or implementing

innovative projects related to post-farm agriculture

development.

K.KRISHNAN, IGNOU
Trade and Investment Tours

ACE will organise and finance about 15 Trade and

Investment (TI)m tours for entrepreneurs to visit firm in

USA/India for building commercial linkages. The request

for TI should meet the objective of the ACE programme

and preferably result in an ACE project.

Main Terms of Assistance

LOANS TO PRIVATE SECTOR

Promoters Atleast 255 of the project cost.

contribution
Upto 50% of the project cost
ACE Assistance
subject to a maximum of US $
7,50,000 or its reupee equivalent,
and balance 25% through
loans/equity from other financial
institutions/banks.

Upto seven years including suitable


Repayment period
moratorium

Technical Assistance

Promoter’s contribution atleast 25% of the TA cost and

the balance as grant from ACE funds.

The maharastra Chamber of Commerce and Industries

(MCCI), Pune would be assisting ICICI for promotion of


the ACE project.

Project proposals submitted by the entrepreneurs will be

evaluated by ICICI for approval. ICICI has formed an

ACE Group in its technology division for implementing

the ACE project.

For further information please contact:

Mr. Arjan Advani, General Manager

The Industrial Credit and Investment Corpn. Of India

Ltd.

Scindia House, 5 t h Floor, N.M. Marg,

Ballard Estate, Bombay – 400 038.

Tel No. 2618251

Telex No.011-84458 ICIC IN

Gram: CREDCORP Bombay

Fax: 022-2625444

Department of Scientific and Industrial Research

(D.S.I.R.)

The DSIR operates a scheme called Transfer and Trading

in Technology (TATT) under which it can grant assistance

for technology exports. Apart from financial assistance,

the prospective technology/service exporters can also

identify possible export opportunities by studying the

K.KRISHNAN, IGNOU
technology profiles of various developing countries,

which have been prepared with the support of DSIR to

identify the technology needs of those countries.

Scheme of Transfer and Trading in Technology (TATT)

Under this scheme, the DSIR provides support by way of

grant, to finance exports. The quantum of grant and

eligibility is determined case-to-case, but grant can

extend to 100% of the eligible expense.

Eligible Activities

i) Preparation of reports/films regarding capabilities

and experience of Indian industrial units and other

concerned organisations in export of technologies

and services.

ii) Preparation of technology profiles having export

potential.

iii) Training programmes for potential foreign clients.

iv) Preparation and dissemination of publicity and

market promotion materials like technology

catalogues, brochures, video films, audio-visuals

etc.

v) Participation in technology trade fairs, exhibitions

etc. (including participation fee, cost of display

etc.).
vi) Setting up demonstration plants/plot plants

projecting Indian technology, either in India or

abroad (in such cases, the grant is usually

restricted to about 205 of the cost of the pilot

plant).

vii) Documentation expense for delegations (for

example brochures, pamphlets, advertisement

materials, etc.) provided the delegation also

includes technology exports.

Procedure

As explained earlier, a grant under the TATT scheme is

sanctioned on a case-to-case basis. The details of the

proposal may be sent to DSIR, Technology Transfer

Division, Technology Bhawan, New Mehrauli Road, New

Delhi-110 016.

Role of Exim Bank

Finance

EXIM BANK FINANCE

The export-import Bank of India (Exim Bank) provides

financial assistance to promote Indian exports through

direct financial assistance, overseas investment finance,

K.KRISHNAN, IGNOU
term finance for export production and export

development, pre-shipment credit, buyers credit, lines of

credit, relending facility, export bills rediscounting,

refinance to commercial banks, finance for computer

software exports, finance for export marketing and bulk

import finance to commercial banks. Th Exim Bank also

extends non-funded facility to Indian exporters in the

form of guarantees. The diversified lending progrmme of

the Exim Bank now covers various stages of exports,

i.e. from the development of export markets to

expansion of production capacity for exports, production

for exports and post shipment financing. The Exim Banks

focus is on export of manufactured goods, project

exports, exports of technology services and export of

computer software.

FINANCING PROGRAMMES

Loans to Indian Companies

Deferred payment exports: Terms finance is provided to

Indian exporters of eligible goods and services which

enables them to offer deferred credit to overseas

buyers. Deferred credit can also cover Indian

consultancy, technology and other services, Commercial

banks participate in this programme directly or under

risk syndication arrangements.


Term loans for export production: Exim Bank provides

term loans/deferred payment guarantees to 100% export

oriented units, units in free trade zones and computer

software exporters. In collaboration with International

Finance Corporation, Washington, Exim Bank provides

loans to enable small and medium enterprises upgrade

export production capability.

Facilities for deemed exports: Deemed exports are

eligible for funded and non-funded facilities from Exim

Bank.

Finance for export marketing: This programme, which is

a component of a World Bank loan, helps exporters

implement their export market development plans.

Loans to Foreign Government, Companies And Financial


Institutions

Overseas Buyers Credit: credit is directly offered to

foreign entities for import of eligible goods and related

services, on deferred payment.

Lines of Credit: Besides foreign governments, finance is

available to foreign financial institutions and government

agencies to on-lend in respective country for import of

goods and services from India.

Relending Facility to Banks Overseas: Relending facility

is extended to banks overseas to enable them to provide

K.KRISHNAN, IGNOU
term finance to their clients world-wide for imports

from India.

Loans to Commercial Banks in India

Export Bills Rediscounting: Commercial banks in India

who are authorised to deal in foreign exchange can

rediscount their short term export bills with Exim Bank,

for an unexpired usance period of not more than 90

days.

Refinance of export credit: Authorised dealers in foreign

exchange can obtain from Exim Bank 100% refinance of

deferred payment loans extended for export of eligible

Indian goods.

Guaranteeing of Obligations

Exim Bank participates with commercial banks in India

in the issue of guarantees required by Indian companies

for export contracts and for execution of overseas

construction and turnkey projects.

ORGANISATION

Exim Bank is fully owned by the Government of Indian

and is managed by a Board of Directors with repatriation

from Government, financial institutions, banks, business

community. The operations are grouped into Project

Finance, Trade Finance, Overseas Investment finance


supported by Planning and Co-ordination Groups.

FINANCE FOR EXPORT ORIENTED UNITS

Introduction

Exim Bank seeks to create and enhance export capability

of Indian Companies. Under the Lending Programme for

Export Oriented Units, the Bank addresses the term

finance requirements of export oriented units.

Eligibility

Company with a minimum export orientation (present or

targetted) of 10% of net sales or export sales of Rs. 5

crores, per year, whichever is lower.

Focus

Units set up/proposed to be set up in Export Processing

Zones or under the 100% Export Oriented Units Scheme.

Also, expansion / modernization/ upgradation/

diversification programmes of existing export oriented

units, importing capital goods under Export Promotion

Capital Goods Scheme.

What is on offer

Terms loans in Indian Rupees or in foreign currency.

Deferred Payment Guarantee for imports and guarantee

in favour of Government of India for imports under

Export Promotion Capital Goods Scheme.

K.KRISHNAN, IGNOU
Rate of Internet

On rupee terms loans-liked to Bank’s minimum lending

rate; on foreign currency loans-all floating or fixed

interest rates. Guarantee commission in line with

industry practice.

Service Fee

1% of loan amount payable up front.

Repayment

Over a period upto ten years, determined on the basis of

projected cash flows with suitable moratorium.

Security

Appropriate charge on fixed assets of the

company/project plus any other security acceptable to

Exim Bank.

Appraisal focus

Track record of the company/promoters financial of the

company/project, competitive strength of the

product/industry, both in domestic as well as in export

markets, appropriateness of the technology, export

marketing arrangements, Exim Bank’s industry/company

exposure.
How to apply

Applications may be made to any of the Bank’s offices in

India, Prior to receiving an application, the Bank

welcomes preliminary discussions with the promoters to

determine scope for Exim Bank’s term finance and also

identify Exim Bank’s export services that could

supplement the finance.

General

Indian promoters requiring additional information or

clarifications are welcome to contract any of Exim Bank’s

offices in India.

FINANCE EXPORT OF COMPUTER SOFTWARE

With further liberalisation in the export import policy,

projects, going in for development and export of

software can now approach the Export Import Bank Of

India (Exim Bank) for indirect financing of their term

loan requirements.

The broad parameters of the scheme are as follows:

• A rupee term loan should be sanctioned by a

scheduled commercial bank to the software

developing and exporting units (this loan will be fully

refinanced by the exim Bank. The commercial bank

will have a 2% interest spread).

K.KRISHNAN, IGNOU
• The proposed unit should be located in an export

processing zone.

• The term loan sought, should be for acquisition of

project related fixed assets, including imported and

indigenous computer systems.

• Units/projects undertaking export obligation under

Government of India’s Software Export Policy (1986)

are also eligible. The scheme is also extended to

existing units with minimum export orietnation at 255

of the annual sales.

• New units/projects with minimum 25% export

orientation backed by firm export market

arrangements are also eligible.

• The project cost should not exceed Rs. 5 crore.

• The debt-equity ratio for the project should not be

more than 2:1.

• The promoters contribution should not be less than

17.5%

• There should be no default in respect of any term

loan availed of earlier.

• The maximum period of financing will be 10 years.

Including 3 years moratorium.


Any existing unit or an entrepreneur setting up a new

unit and fulfilling the above mentioned parameters can

approach a scheduled commercial bank for obtaining a

term loan for the said project.

It may be mentioned here that irrespective of the fact

that the cost of equity and debt is almost the same for

an 100% EOU (as there is zero tax liability for such

units) the advantage of term loan financing is that the

interest rate can be capitalised during the construction

period and built into the project cost.

PRE-SHIPMENT EXPORT CREDIT IN FOREIGN CURRENCY

Export-Import Bank of India (Exim Bank) has

introduced, for the first time ever in India, Pre-shipment

Export Credit in Foreign Currency. Such credit will

finance the foreign exchange costs of imported inputs

for export production such as raw materials,

components, consumables. The finance will be repayable

in foreign currency from the proceeds of the relative

exports. Hence, the Indian exporter is unlikely to bear

any foreign currency. Fluctuation risks. Such

transactions will also be self-liquidating in nature.

Foreign Currency Pre-shipment Credit (FCPC) envisages

Exim Bank raising short-term foreign currency funds on

a revolving basis from one of more syndicate of overseas

lenders. Exim Bank will fund commercial banks in India

K.KRISHNAN, IGNOU
who opt to avail of FCPC for on-lending to eligible

exporter customers for import of eligible items.

Commercial banks in India will, in turn, allocate FCPC

limits to their customers on the basis of their

assessment of import requirement for export

production. The advances granted under FCPC to the

exporters will be fully liquidated from the export

proceeds of the relative export bill. The maximum period

of an advance under FCPC will not generally exceed 180

days.

CO N SULTAN C Y AN D TE C HN O LO G Y SE R VI C E S FI AN C NE PRO GR AMME

Introduction

Indian Exporters, executing overseas contracts involving

consultancy and technology services, can avail of Exim

Bank’s financing programme, to offer deferred payment

terms to their clients, thereby enlarging the market for

Indian consultancy exports.

Who can use the facility?

Indian exporters, having corporate status or otherwise,

who have secured a contract for export of services

wherein deferred payment terms need to be offered to

the client, can utilise the facility.

Nature of Credit

The credit may be extended to the Indian Exporter


either by Exim Bank in participation with commercial

banks or directly by commercial banks, who could seek

refinance from Exim Bank. The Indian Exporter would,

in turn, offer deferred payment terms to the client.

Scope

Technology and Cnsultancy services including

a) Providing personnel (including skilled or unskilled

workmen and persons for rendering technical or other

services).

b) Transfer of technologic, know how expertise of other

skills;

c) Furnishing any information, blue prints, plans or

advice.

d) Operation, maintenance and supervision of

manufacturing plants, buildings and structures.

e) Management contracts for commercial concerns;

f ) Any other activity considered acceptable by Exim

Bank.

Amount of Credit

Exporter is normally expected to obtain an

advance/down payment of 25% of contract value and

remaining portion would be covered by credit under the

K.KRISHNAN, IGNOU
programme. The value of the contract should not be less

than Rs. 20 lakhs, if deferred payment terms are to be

offered.

Currency of credit

Normally India rupees, Loans in other currencies can

also be considered, if required.

Repayment

Credit is repayable, by the India Exporter, in half yearly

installments, over period not exceeding 5 years, with a

suitable grace period. Interest should be payable even

during the grace period.

Security

Guarantee of foreign government or a

guarantee/irrevocable letter of credit of an acceptable

bank would need to be obtained. Indian Exporter would

also be required to obtain ECGC insurance cover and

assign the same in favour of Banks.

Documentation

The Exporter would enter into an agreement with Exim

Bank/participating bank(s) and would be required to

execute documents as may be prescribed by Exim Bank.

Procedures
 In case deferred credit terms are to be offered the

Indian Exporter makes an application as per format

(available on request from Exim Bank) and submits it

to his banker, at bid submission stage.

 The bank forwards the application, with its documents

to all the members of the Working Group, i.e. Exim

Bank, Reserve Bank of India (Exchange Control

Department)and Export Credit Guarantee Corporation

of India Ltd. (ECGC).

 Bid clearance for proposals on cash payment terms

upto bid value of Rs. 5 crores and Rs. 10 crores is

delegated to the Authorized Dealers and Exim bank,

respectively, while bid clearance for proposals

exceeding Rs. 10 crores in value are considered by

the Working Group. All proposals on deferred payment

terms irrespective of bid value are considered by the

Working Group.

 Exim Bank calls for additional information/clarification

and convenes a Working Group meeting to discuss the

as applicable, for post award clearance.

 Disbursements would be made under the terms of

letter of credit opened by the overseas client or

under any agreement between client and Indian

exporter or against invoices accepted by the overseas

client.

K.KRISHNAN, IGNOU
Glossary of Terms

Term Definition
EXIM Export Import

PCFC Pre-shipment export Credit in Foreign Currency

ECGC Export Credit Gurantee Corporation

P/C Packing Credit

L/C Letter of Credit

FOB Freight on Board

LIBOR London Inter Bank offer Rate

EOU Export Oriented Unit

EPZ Export Processing Zone

IEC Importer Exporter Code

PLR Prime Lending Rate

PCL Packing Credit Limit

CFPC Foreign Currency Pre-shipment Credit

ACE Agricultural Commercial and Enterprise

BIBLIOGRAPHY
• Exporters manual and documentation ‘A Nabhi

Publication’.

• Export financing and documentation ‘A.K. Tandan’

• www.exportersindia.com
• www.eximbank.com

• Business India

• Industry Trade Association Manual Rajasthan

• Magazines

K.KRISHNAN, IGNOU