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They will not be in a position to book large export order if they don’t have sufficient financial funds. advertising etc. Liberal payment terms usually score over the competitors not only of capital equipment but also of consumer goods. . cost and the period at pre-shipment and post-shipment stage. Export finance is short-term working capital finance allowed to an exporter. The payment terms however depend upon the availability of finance to exporters in relation to its quantum. Concept of Export Finance: The exporter may require short term. The exporter may also require “term finance” for medium and long term financial needs such as purchase of fixed assets and long term working capital. price or delivery schedules of the products but are extended to payment terms offered by exporters. The short-term finance is required to meet “working capital” needs. Even merchandise exporters require finance for obtaining products from their suppliers. medium term or long term finance depending upon the types of goods to be exported and the terms of statement offered to overseas buyer. Production and manufacturing for substantial supplies for exports take time. It is more important in the case of export transactions due to the prevalence of novel non-price competitive techniques encountered by exporters in various nations to enlarge their share of world markets.Introduction to Export Finance Credit and finance is the life and blood of any business whether domestic or international. The working capital is used to meet regular and recurring needs of a business firm like purchase of raw material. the schemes implemented by ECGC and EXIM for export promotion and the recent developments in this field. Finance and credit are available not only to help export production but also to sell to overseas customers on credit. payment of wages and salaries. This term paper is an attempt to throw light on the various sources of export finance available to exporters. The selling techniques are no longer confined to mere quality. in case finance is not available to exporter for production. expenses like payment of rent.
Objectives of Export Finance: To cover commercial & Non-commercial or political risks attendant on granting credit to a foreign buyer. floods etc.e. • Appraise should have the Exim code number allotted by the Director General of Foreign Trade. Obligations to the RBI under the Exchange Control Regulations are: • Appraise to be the bank’s customer. which considers the ensuing factors: a) Availability of the funds at the required time to the exporter. then a valid license should be there which allows the goods to be exported. • Appraisal: Appraisal means an approval of an export credit proposal of an exporter. not falling under the negative list. obligation to the following institutions or regulations needs to be adhered to. If it falls under the negative list. • Country with whom the Appraise wants to trade should not be under trade barrier. . • Party’s name should not appear under the caution list of the RBI. b) Trade control regulations. Guidelines for banks dealing in Export Finance: When a commercial bank deals in export finance it is bound by the ensuing guidelines: a) Exchange control regulations. Obligations to ECGC are: • Verification that Appraise is not under the Specific Approval list (SAL). • Sanction of Packing Credit Advances. • To cover natural risks like an earthquake. b) Affordability of the cost of funds. Obligations to the Trade Control Authority under the EXIM policy are: • Appraise should have IEC number allotted by the DGFT. While appraising an export credit proposal as a commercial banker. An exporter may avail financial assistance from any bank. • Goods must be freely exportable i.
The financial assistance provided by the EXIM Bank widely includes the following: • Direct financial assistance • Foreign investment finance • Term loaning options for export production and export development • Pre-shipping credit • Buyer’s credit • Lines of credit • Re-loaning facility • Export bills rediscounting • Refinance to commercial banks The Export-Import Bank also provides non-funded facility in the form of guarantees to the Indian exporters. financial institutions. It is managed by the Board of Directors with repatriation from Government. Export-import bank of India (EXIM Bank) The Export-import bank of India (EXIM Bank) was set up in January 1982 as a statutory corporation wholly owned by central government. Guidelines of Foreign Exchange Dealers Association of India.c) d) e) Reserve Bank’s directives issued through IECD. The main objective of Export-Import Bank (EXIM Bank) is to provide financial assistance to promote the export production in India. • Development of export makers • Expansion of export production capacity • Production for exports • Financing post-shipment activities • Export of manufactured goods • Export of projects . Export Credit Guarantee Corporation guidelines. banks and business community.
Import Bank of India (Exim Bank) provides financial assistance to promote Indian exports through direct financial assistance. export bills rediscounting. The Bank is involved in promotion of two-way technology transfer through the outward flow of investment in Indian joint ventures overseas and foreign direct investment flow into India. Loans to Indian Entities: • Deferred payment exports: Term finance is provided to Indian exporters of eligible goods and services. EXIM INDIA operates a wide range of financing and promotional programs. The Bank provides competitive finance at various stages of the export cycle covering. and consultancy and technology services on deferred payment terms. technology and other services. refinance to commercial banks.• Export of technology and software’s Export financing programmes provided by EXIM Bank India EXIM INDIA offers a range of financing programs that match the menu of Exim Banks of the industrialized countries. manufactured goods. • . Commercial banks participate in this program directly or under risk syndication arrangements. pre-shipping credit. overseas investment finance. EXIM INDIA also seeks to co-finance projects with global and regional development agencies to assist Indian exporters in their efforts to participate in such overseas projects. The facility also enables provision of rupee mobilization expenses for construction/turnkey project exporters. Pre-shipment credit: finance is available from Exim Bank for companies executing export contracts involving cycle time exceeding six months. The Export. term finance for export production and export development. EXIM INDIA is also a Partner Institution with European Union and operates European Community Investment Partners’ Program (ECIP) for facilitating promotion of joint ventures in India through technical and financial collaboration with medium sized firms of the European Union. which enables them to offer deferred credit to overseas buyers. relending facility. Deferred credit can also cover Indian consultancy. lines of credit. The Bank finances exports of Indian machinery. buyer’s credit.
helps exporters implement their export market development plans.• Term loans for export production: Exim Bank provides term loans/deferred payment guarantees to 100% export-oriented units. In collaboration with International Finance Corporation. for an unexpired usage period of not more than 90 days. Overseas Investment finance: Indian companies establishing joint ventures overseas are provided finance towards their equity contribution in the joint venture. The Industrial Development Bank of India. Refinance of Export Credit: Authorized dealers in foreign exchange can obtain from Exim Bank 100% refinance of deferred payment loans extended for export of eligible Indian goods. The Government of India has . insurance companies. • • Industrial Finance Corporation of India (IFCI) Government of India came forward to set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a Special Act. Guaranteeing of Obligations: Exim Bank participates with commercial banks in India in the issue of guarantees required by Indian companies for the export contracts and for execution of overseas construction and turnkey projects. Exim Bank provides loans to enable small and medium enterprises to upgrade their export production capability. Finance for export marketing: This program. investment trusts and cooperative banks are the shareholders of IFCI. • • Loans to Commercial Banks in India: • Export Bills Rediscounting: Commercial Banks in India who are authorized to deal in foreign exchange can rediscount their short term export bills with Exim Banks. units in free trade zones and computer software exporters. Washington. which is a component of a World Bank loan. scheduled banks.
1068 crores. Insurance Companies and Co-operative Societies were holding the shares of IFCI. IDBI normally nominates three outside persons as directors who are experts in the fields of industry. The chairman is the ex-officio member of all Advisory Committees. RBI. 5. The Board acts as per the instructions received from the government and IDBI. The Board meets once in a month. jute. investment trusts. The Chairman is appointed by Government of India after consulting Industrial Development Bank of India. The experts in different fields appointed on Advisory Committees. commerce and general public. the corporation has been converted into a company and it has been given the status of a Ltd. Before July I.000 each. Since July I. the fourth nominee is the Central Manager of IDBI. The Central Government reserves the power up to the Board and appoints a new one in its place. 1956. This capital was later on increased at different times and by March. a) Share Capital: The IFCI was set up with an authorized capital of Rs. 2003 it was Rs. IFCI has got itself registered with Companies Act. sugar. etc.guaranteed the repayment of capital and the payment of a minimum annual dividend. Out of the 12 directors. Management of IFCI: The corporation has 13 members Board of Directors. IFCI also has Standing Advisory Committees one each for textile. engineering and chemical processes and allied industries. . hotels. Scheduled Banks. 1993. 10crores consisting of 20. two by scheduled banks. general public was not permitted to hold shares of IFCI. It frames policies by keeping in view the interests of industry. two by co-operative banks and two by other financial institutions like insurance companies. Company with the name Industrial Finance Corporations of India Ltd. All applications for assistance are first discussed by Advisory Committees before they go to Central Committees. including Chairman. 1993. labour and economics. He works on a whole time basis and has tenure of 3 years.000 shares of Rs. only Government of India. four are nominated by the IDBI. Financial Resources of IFCI: The financial resources of the corporation consist of share capital bonds and debentures and borrowings.
2003 aggregated Rs. or debentures to be disposed off within 7 years. 2 crores because up to project cost of Rs. Acting as an agent of the Central Government or the World Bank in respect of loans sanctioned to the industrial concerns. Total assets of IFCI as on March 31. While approving a loan application.e. Guaranteeing of loans raised by industrial concerns from scheduled balls or state co-operative banks. Underwriting the issue of industrial securities i. The most of the assistance . 2. 3. 5. c) Borrowings: The corporation is authorized to borrow from government IDBI and financial institutions. shares.b) Bonds and Debentures: The corporation is authorized to issue bonds and debentures to supplement its resources but these should not exceed ten times of paid-up capital and reserve fund. Also it can convert part of such loans or debentures into equity share capital at its option. 4. However. 2 crores various state level institutions (such as Financial Corporations. of India were Rs. bonds. stock. social and economic viability. its importance to the nation. The bonds and debentures stood at a figure of Rs. Subscribing directly to the shares and debentures of public limited companies. now-a-days. 6.15366. Guaranteeing of deferred payments for the purchase of capital goods from abroad or within India.6 crore on March 31. Its borrowings from IDBI and Govt. development of the backward areas. it entertains applications from those industrial concerns whose project cost is about Rs. IFCI provides financial assistance to eligible industrial concerns regardless of their size. 2003. etc. IFCI gives due consideration to the feasibility of the project.5 crores as on 31st March 2003. 1. SIDCs and banks) are expected to meet the financial requirements of viable concerns. 22866 crore. Functions of IFCI: Granting loans or advances to or subscribing to debentures of industrial concerns repayable within 25 years. 975.
The corporation has diversified not only merchant banking but also Financing of leasing and hire purchase companies. (b) Promotional Schemes:. paper. encouraging the adoption of new technology. Nearly 50 per cent of total lending of IFCI has been to develop backward areas. It has sanctioned nearly 49 per cent of its assistance for projects in backward districts. formulation. Another scheme was framed for the self-employment of unemployed young persons. 3. were the other new activities of the corporation in the last few years. 2. equipment leasing etc. (a) Development of Backward Areas: –IFCI introduce a scheme of confessional finance for projects set up in backward areas. All these categories were eligible for concessional finance. etc. Promotional Activities: The promotional role of IFCI has been to fill the gaps. implementation and operation. either in the institutional infrastructure for the promotion and growth of industries. to the new tiny. 4.sanctioned by IFCI has gone to industries of national priority such as fertilizers. tackling ‘the problem of sickness and promoting opportunities for self development and Self employment of unemployed persons etc. hospitals. These schemes are as such: 1. small-scale or medium scale entrepreneurs or in the efforts at improving the productivity of human and material resources. Subsidy for Adopting Indigenous Technology Meeting Cost of Market Studies Meeting Cost of Feasibility Studies Promoting Small Scale and Ancillary Industries Revival of Sick Units Self-development and Self employment Scheme . broadening the entrepreneurial base. industrial machinery etc. 5. IFCI introduced a scheme for sick units also. The backwarddistricts were divided into three categories depending upon the state of development there. 6.IFCI has been operating six promotional schemes with the object of helping entrepreneurs to set up new units. or in the provision of the much needed guidance in project intensification. power generation. cement. The scheme was for the revival of sick units in the tiny and small scale sectors.
the GOI set up the Export Risks Insurance Corporation (ERIC) in July. . The ECGC with its headquarters in Bombay and several regional offices is the only institution providing insurance cover to Indian exporters against the risk of non-realization of export payments due to occurrence of the commercial and political risks involved in exports on credit terms and by offering guarantees to commercial banks against losses that the bank may suffer in granting advances to exports. Since 1983. It was transformed into export credit guarantee corporation limited (ECGC) in 1964. non-repayment by buyers • To protect the banks against losses due to non-repayment of loans by exporters Covers issued by ECGC: The covers issued by ECGC can be divided broadly into four groups: STANDARD POLICIES: issued to exporters to protect them against payment risks involved in exports on short-term credit. i. SPECIFIC POLICIES: Designed to protect Indian firms against payment risk involved in (i) exports on deferred terms of payment (ii) service rendered to foreign parties. It functions under the administrative control of the Ministry of Commerce and is managed by a Board of Directors representing government.e. Trade and Industry. 1957.Export Credit Guarantee Corporation of India (ECGC) In order to provide export credit and insurance support to Indian exporters. ECGC is a company wholly owned by the Government of India. it is now know as ECGC of India Ltd. Banking. Insurance. and (iii) construction works and turnkey projects undertaken abroad. Objectives of ECGC: • To protect the exporters against credit risks. in connection with their export transactions.
Commercial Risks a) Insolvency of the buyer b) Buyer’s protracted default to pay for goods accepted by him c) Buyer’s failure to accept goods subject to certain conditions 2. FINANCIAL GUARANTEES : Issued to banks in India to protect them from risk of loss involved in their extending financial support to exporters at pre-shipment and post-shipment stages.to cover only political risks from the date of shipment • Contracts (comprehensive risks) Policy:. etc. Political risks a) Imposition of restrictions on remittances by the government in the buyer’s country or any government action which may block or delay payment to exporter. Cancellation of a valid import license or new import licensing restrictions in the buyer’s country after the date of shipment or contract.to cover both political and commercial risks from the date of shipment. • Shipments (political risks) Policy:. STANDARD POLICIES ECGC has designed 4 types of standard policies to provide cover for shipments made on short term credit: • Shipments (comprehensive risks) Policy:.to cover both commercial and political risk from the date of contract • Contracts (Political risks) Policy :.to cover only political risks from the date of contract RISKS COVERED UNDER THE STANDARD POLICIES: 1. revolution or civil disturbances in the buyer’s country. Insurance cover for Buyer’s credit. as applicable. SPECIAL SCHEMES: such as Transfer Guarantee meant to protect banks which add confirmation to letters of credit opened by foreign banks. . c) Cancellation of export license or imposition of new export licensing restrictions in India after the date of contract (under contract policy). b) War.
RISKS NOT COVERED UNDER STANDARD POLICIES: a) Commercial disputes including quality disputes raised by the buyer. unless the exporter obtains a decree from a competent court of law in the buyers’ country in his favour b) Causes inherent in the nature of the goods. SPECIFIC POLICIES The standard policy is a whole turnover policy designed to provide a continuing insurance for the regular flow of exporter’s shipment of raw materials. c) Buyer’s failure to obtain import or exchange authorization from authorities in his county d) Insolvency or default of any agent of the exporter or of the collecting bank. e) Any other cause of loss occurring outside India. 1) Specific policy for Supply Contracts: Specific policy for Supply contracts is issued in case of export of Capital goods sold on deferred credit. . e) loss or damage to goods which can be covered by commerci8al insurers f) Exchange fluctuation g) Discrepancy in documents. not normally insured by commercial insurers and beyond the control of the exporter and / or buyer. transport or insurance charges occasioned by interruption or diversion of voyage that cannot be recovered from the buyer. consumable durable for which credit period does not normally exceed 180 days. Services Abroad and Construction Work Abroad. Specific policies are issued in respect of Supply Contracts (on deferred payment terms).d) Payment of additional handling. unless the exporter obtains a decree from a competent court of law in the buyer’s country in his favour. It can be of any of the four forms: a) Specific Shipments (Comprehensive Risks) Policy to cover both commercial and political risks at the Post-shipment stage b) Specific Shipments (Political Risks) Policy to cover only political risks after shipment stage.
c) Specific Contracts (Comprehensive Risks) Policy to cover political and commercial risks after contract date. Such risks are covered by ECGC under this policy. Export Finance (Overseas Lending) Guarantee. This policy covers 85% of loss suffered on account of contracts with government agencies and 75% of loss suffered on account of construction contracts with private parties. 3) Construction Works Policy: It covers civil construction jobs as well as turnkey projects involving supplies and services Of both with private and foreign government. Packing Credit Guarantee (ii). The policy covers 90%of the loss suffered. hiring or leasing to foreign parties (private or government). The ECGC charges a premium for its services that may vary from 5 paise to 7. Export Finance Guarantee (iv). FINANCIAL GUARANTEES Exporters require adequate financial support from banks to carry out their export contracts. Export Production Finance Guarantee (iii). Where Indian firms render such services they would be exposed to payment risks similar to those involved in export of goods. 2) Service policy: Indian firms provide a wide range of services like technical or professional services. Export Performance Guarantee (vi).5 paise per month for . d) Specific Contracts (Political Risks) Policy to cover only political risks after contract date. The guarantees protect the banks from losses on account of their lending to exporters. Post Shipment Export Credit Guarantee (v). Six guarantees have been evolved for this purpose:(i). These guarantees give protection to banks against losses due to non-payment by exporters on account of their insolvency or default. ECGC backs the lending programmes of banks by issuing financial guarantees.
ABM-502 ON EXPORT FINANCING IN INDIA SUBMITTED TO: SUBMITTED BY: Dr.K.E. The premium charged depends upon the type of guarantee and it is subject to change. V. 100/-.I Harveer Singh Iti Jain Jasvindar Kaur .Gangal Faculty of Commerce D. if ECGC so desires.Rs.
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