EXIM FINANCE FOR

INDIAN
EXPORTERS
By: Dr. Ram Singh
Professor & Head (MDPs)
Indian Institute of Foreign Trade
New Delhi
HISTORY OF EXIM FINANCING IN INDIA

 Export financing scheme by Reserve Bank of India was

first introduced in 1967 specifically for meeting the
exporter‟s credit requirements and helps this sector grow
faster.

 Prior to this, Indian exporters were compelled to avail

normal commercial loans from various banks to fund
their export operations, which not only used to attract
higher rate of interest but were tough to avail as well.

 With nationalization of Indian banks in 1969, the

landscape for export financing in India changed
significantly as exporters need not to approach the
private banks and money lenders which used to charge
exorbitant rate of interest from exporters.
HISTORY OF EXIM FINANCING IN INDIA

 RBI has systematically endeavored that its master

directive guide to commercial banks in India to design the
export credit products both for fulfilling the needs of
short-term export finances as well as long term finances.

 The nationalization of banks in 1969 provided further

leverage to RBI and government of India to devise the
schemes for exporters for export credit in liberal way in
order to enable them to remain competitive vis a vis their
competitors from other countries.

 Under the scheme, banks extend working capital loans to

exporters at pre and post shipment stages..
HISTORY OF EXIM FINANCING IN INDIA

 The credit limits sanctioned to

exporters are based upon the
financing bank‟s perception of the
exporter's creditworthiness and past
performance. Export Financing may
be denominated either in Indian
Rupees or in foreign currency.
 OVERVIEW OF EXIM FINANCING

 Export financing is one of the most important factors

for successfully engaging in international trade
operations.

 The need for export finance begins, the moment an

exporter gets an export order after successful
contract negotiation.

 As finances are life blood of any organization,

exporters are increasingly concerned for timely
export credit so as to execute international orders as
per agreed schedules.
 OVERVIEW OF EXIM FINANCING

 If the agreed payment terms extend credit to

importers in competitive markets, exporters
necessarily have to arrange the export credit so as to
procure the raw material for manufacturing and sale.

 Hence, an exporter should be fully aware about the

financing need of export transactions after factoring
the agreed payment terms in international sale.
DUE DILIGENCE WHILE AVAILING EXIM
FINANCING
 Need for Export Financing
 Tenure of Export Financing

 Cost of Export Financing

 Risks Associated with Export Financing

 Nature of Export Order

 DECLINING TREND OF EXPORT CREDIT IN
INDIA
Variation (Year-
on-Year)

Nov.24, Mar. 30, Nov.23, Mar.2 Nov.22, Nov.23, Nov.

2017 2018 2018 9, 2019 2018 / 22,
2019 Nov.24, 2019
2017 /
Nov.
23,
2018

% %
Export 41430 28305 18529 15566 13219 -55.3 -28.7
Credit
EXPORT FINANCING FACILITIES IN INDIA

Secured
Packing Credit /
Export Loan
Preshipment Finance in
Indian Rupees Unsecured
Advances Against
Pre-Shipment Incentives
Finance
Credit Against
Preshipment Finance in L/C Bills
Export L/C
Foreign Currency Negotiated
EXPORT
FINANCING
FACILITIES IN Bills Purchased
INDIA or Discounted
Post Shipment Finance Export Bills
in Indian Rupees Finance Advances Aginst
Post Shipment Undrawn
Finance Balances
Post Shipment Finance Advances Against
in Foreign Currency Incentives Advances Aginst
Collection Bills
 EXIM FINANCING : EXTERNAL BANK
LENDING RATES

A minimum margin to FIGURE 12.4:

Operati
Actual cover regulatory EXTERNAL
ng
cost of requirement of BANK
expense
funds, provisioning / capital LENDING
s and
charge and profit margin RATES
PRE-SHIPMENT
FINANCE FOR
EXPORTS IN
RUPEE
 OBJECTIVES OF PRE-SHIPMENT
FINANCE
 There is longer gestation period of manufacturing of
goods or rendering of services and firm need to fund the
manufacturing of such longer delivery of product or
services.
 Firm has to procure raw materials from various other
suppliers for subsequent processing and manufacturing.
The business is cyclical in nature and firm has to procure
such cyclical supply of raw material for executing the
export order.
 Pre-shipment credit is also required so as to pay the
expenses like payment of salary, labour wages, electricity
bills etc to carry-out other manufacturing activities.
 There is a need of fund for internal processing and
subsequent packing of goods for export consignment.
Additionally; the fund may be required so as to pay the
freight and carriage expenses for shipping the goods to
the buyers.
 OBJECTIVES OF PRE-SHIPMENT
FINANCE
 Exporter always need fund of buyers are unable to
make the payment in advance or have negotiated a
payment term with export credit. Export credit may
even be required in case of part payment in advance
necessitating the firm to raise funds to procure the
raw material for manufacturing the goods.
 Firms can use the pre-shipment finance as an
instrument to tide over the challenges of exchange
rate risks and exchange controls by availing the pre-
shipment export credit in foreign currency.
 Above all, export credit are offered at liberal rates,
so why to engage firm‟s own capital as it can be
used for further business expansion and
diversification
 ELIGIBILITY FOR AVAILING
PACKING CREDIT
 Exporter should have a bank account with the bank where he
wants such export credit and such branch of bank should be
authorised to deal in foreign exchange in compliance with
RBI/FEDAI rules and procedures.
 Exporter should have an Importer-Exporter Code (IE Code)
issued by Director General of Foreign Trade or regional
authority. I.E. Code has ten digits indicating that exporter has
been authorised to export and import goods and services from
and into India.
 Exporter should be having the „Registration cum Membership
Certificate‟ (RCMC) issued by concerned Export Promotion
Council or Commodity Board or Export Development
Authority. In case, exportable products does not fall with any of
above mentioned export promotion bodies, he should get
registered with Federation of Indian Exporters Organization.
Services exporters are mandatorily required to get registered
with Services Export Promotion Council.
ELIGIBILITY FOR AVAILING PACKING
CREDIT
 As part of bank due diligence for any credit, banks
examine that exporter should not be in the caution
list of Reserve Bank of India.
 Exporter should not be list of ECGC mandating for
„specific approval required‟ for extension of export
credit.
 In case the exportable goods are not under OGL
(Open General Licence), the exporter should have
the required Special Export License (SIL) issued for
this purpose by DGFT. In case of canalised items, he
should have the permit (No Objection Certificate)
from authorised State Trading Enterprise (STE)
clearly indicating the clearance for quantity and
value of goods to be exported and imported.
 PERIOD AND APPRAISAL FOR PRE-
SHIPMENT FINANCE

 Period of Advance: up to180 Days

 Appraisal and Sanction of Limits:
 The exporter is of goods track record or is regular
customer of the bank. He is a bona fide exporter and has
a good standing in the market vis a vis his
creditworthiness.
 Exporter has all necessary licenses /permits and volume
permit as mandated in Schedule II of the ITC (HS)
classification of Foreign Trade Policy for Export.
 The country to which the exports are to be made is not
under UN watch list or is not the Restricted Cover
Countries (RCC) or is not facing any kind of international
sanctions for transfer of funds like Iran/ Ivory Coast/
Somalia/Iraq/ Syria etc.
 QUANTUM OF FINANCE:
Pre-shipment export finance facility
in India is based on the principle of
“need based financing principle”.

The capability of
The nature exporter to realise FIGURE 12.5
The nature of the the export proceeds FACTORS
Operatin
of Order commodity from the importer FOR
g Profit
whether including including his risk SANCTIONI
Margin
long term cyclical bearing capacity, NG PRE-
of
or short patterns of promptness to handle SHIPMENT
Exporter
term supply & business and EXPORT
demand. enthusiasm to work CREDIT
against odds.
DISBURSEMENT OF PACKING CREDIT:
 RBI master circular provides for guidelines to be followed in
disbursal of credit wherein the guidance to banks is that banks
should maintain as separate account for each account of pre-
shipment credit extended so as to monitor the period of sanction
and end-use of funds. Banks should ensure that funds so
allocated should only be used for meeting the financing
requirements of export transactions by exporters.
 This special facility is known as Running Account Packing.
Banks use specifically check for the following particulars while
processing the running account facility to the exporter.
 Name of buyer
 Commodity to be exported
 Quantity
 Period of Credit
 International demand of the product
 Value (either CIF or FOB)
 Last date of shipment / collection/ negotiation.
 Any other terms to be complied with
 INTEREST RATES FOR PRE-SHIPMENT
PACKING CREDIT UNDER RUPEE

Table 12.6: Pre-Shipment Credit In Indian

Rupee From The Date Of Advance
1. Up to 365 days Base Rate or over &
above Base Rate
2. Against incentives Base Rate or above
receivable from Base Rate
Government covered by
ECGC Guarantee up to
90 days
PRESHIPMENT
CREDIT IN
FOREIGN
CURRENCY
 ELEGIBILITY FOR PCFC
 Pre-shipment Credit in Foreign Currency(PCFC)
can be availed in any of the following business
scenarios by an exporter.
 Exporter is allowed to avail of pre-shipment credit in
rupees and then the post-shipment credit either in
rupees or discounting/ rediscounting of export bills
abroad scheme (EBR Scheme).
 Exporter is allowed to avail of pre-shipment credit in
foreign currency and discount/ rediscounting of the
export bills in foreign currency under EBR Scheme.
 Exporter is allowed to avail of pre-shipment credit in
rupees and then convert withdrawals into PCFC at the
discretion of the bank.
 PERIOD AND RATE OF INTEREST ON
PCFC

Table 12.7: Pre-Shipment Credit In Foreign

Currency
1. Up to 360 days Not exceeding 200 basis points
over
LIBOR/EUROLIBOR/EURIBOR
2. up to 360 days Rate for initial period of 180
days prevailing at the time of
extension plus 150 basis points
i.e. (i)(a) above plus 150 basis
points
 SPECIAL CASES OF PRE-
SHIPMENT FINANCING
 Packing Credit to Sub Supplier
 Running Account Facility

 Packing Credit Facilities to Deemed Exports

 Advance Against Cheque/Drafts Received As

Advance Payment
 Pre-shipment Credit to Floriculture, Grapes and
Other Agro-based Products
 Export Credit to Processors/Exporters in Agri-
Export Zones
 Packing Credit for Export of Services
 AREAS OF CONSIDERATION FOR DUE
DILIGENCE WHILE GRANTING PACKING
CREDIT TO SERVICES EXPORTERS
The proposal is a genuine case of export of services. and The item of service export is covered under Appendix
10 of HBPv1.

The exporter is registered with the Electronic and software EPC or Services EPC or with Federation of Indian
Export Organisations, as applicable.

There is an Export Contract for the export of the service. Invoices are raised and Inward remittance is received
in Foreign Exchange.

There is a time lag between the outlay of working capital expense and actual receipt of payment from the
service consumer or his principal abroad.There is a valid Working Capital gap i.e. service is provided first while
the payment is received some time after an invoice is raised.

Banks should ensure that there is no double financing/excess financing and the export credit granted does not
exceed the foreign exchange earned less the margins if any required, advance payment/credit received.

Company will raise the invoice as per the contract. Where payment is received from overseas party, the service
exporter would utilize the funds to repay the export credit availed of from the bank.
POST SHIPMENT
FINANCE
SCHEME
 EXIM FINANCING FOR EXPORT
TRANSACTIONS
 An exporter has to finance the procurement of
raw material and other inputs at pre-shipment
stage and extend credit to buyer or to wait for
payment as export realisations takes time due to
longer distance, different banking procedure and
invoiced different foreign currency.
 UNDERSTANDING POST
SHIPMENT FINANCE
 Once goods are dispatched out of India, banks
extend post-shipment credit in lieu of „trade
documents’ submitted by an exporter and adjust the
loan of pre-shipment finance.

 Hence; post shipment credit refers to an „advance or

a loan’ that is extended to the exporter by a
scheduled bank in India after the goods have been
shipped to the importer.
 FOREIGN TRADE TRANSACTION CYCLE

Flow of Goods & Services

Raw Material Suppliers Exporter Buyers

Exporter needs pre-shipment credit to finance to Exporter needs post-shipment credit to offer export credit
suppliers
 UNDERSTANDING POST SHIPMENT
FINANCE
 Post shipment credit may take different form, for
example, it can happen either through discounting of
trade documents or by purchase or by negotiation.

 Post shipment credit is occasionally executed by any

scheduled bank in lieu of full of set „trade documents’
including the transport document (as a proof of
shipment), commercial invoice, packing list, certificate of
insurance and letter of credit or draft (as applicable).

 Any Indian exporter, availing pre-shipment finance, can

approach his bank for extending the post shipment
finance so as to fulfil his working capital needs until the
payment is received from an overseas importer.
 UNDERSTANDING POST
SHIPMENT FINANCE
 Post shipment credit is very popular in international
trade transactions as an exporter is entitled to get
assured export credit at very liberal rate of interests.

 Post-shipment credit can be extended „with recourse’

or „without recourse’. When it is extended as „without
recourse‟ banks keep the trade documents as
collateral for non-funded limits or pre-approved
credit lines.

 Post shipment finance is extended in both Indian

Rupee and freely convertible foreign currency to an
exporter.
NEED FOR POST SHIPMENT
FINANCE
 Post shipment finance enables an exporter to pay to
agents or distributors or anybody other in export
chain for their services.
 Post shipment finance help Indian exporter to pay for
publicity/ sales promotion and advertising
expenditures in the overseas markets.
 Post shipment credit facility help exporter to pay for
post shipment expenditures like terminal handling
charges, port charges, customs fee and shipping
agents charges.
 NEED FOR POST SHIPMENT
FINANCE
 Exporter can pay export duty and other taxes if any
through post shipment finance. Exporter can also
cover all expenditure at destination of goods through
post shipment credit.
 Post shipment credit help Indian exporter pay the
ECGC premium in order to save him from credit risks
if any.
 Post shipment credit help Indian exporter pay to his
freight charges, freight forwarder fee and other
shipping expenses.
 NEED FOR POST SHIPMENT
FINANCE
 Exporter can pay his marine insurance premium
under CIF/DAT/DAP and DDU terms through post
shipment credit extended by Bank.
 Exporter can meet the expenditures relating to
“After Sale Service” through post shipment credit.
 Post shipment help exporters pay towards
expenditures like participation in exhibitions and
trade fairs in India and abroad.
 Exporter can pay for expenditures relating to
representatives abroad in connection with their stay
abroad.
 POST SHIPMENT FINANCES
SCHEME

Export bills purchased/discounted

Advances against the negotiated Letter of Credit

Types of Advances against bills for collection

Post-
Shipment
Credits Advances against duty drawback receivable from
Government

Advance against Export on Consignments Basis

Advances against undrawn Balances

 • Post shipment finance can be extended to the
Physical actual exporter of goods or to the exporter in whose
Exports name the trade documents are prepared or
transferred.

• Post shipment finance can be extended to the

Deemed supplier of the goods which are supplying the
goods to designated agencies / bodies / organization
Export as allowed in chapter 8 of Foreign Trade Policy
2015-20.

Capital • Post shipment finance; in cases of capital goods

Goods & and project exports; can be extended in the name of
overseas buyer. However; the disbursal of post
Project shipment credit is directly made to the domestic
Exports exporter.
POST-SHIPMENT CREDIT IN INDIAN RUPEE
FROM THE DATE OF ADVANCE
1. On demand bills for transit period As specified by
FEDAI
2. Usance bills (for total period comprising usance As specified by
period of export bills, transit period FEDAI, and
a. Up to 180 days grace period,
b. Up to 365 days for exporters under the Gold Card
wherever
Scheme.
applicable

3. Against incentives receivable from Govt. (covered by

ECGC Guarantee)
up to 90 days
4. Against undrawn balances (up to 90 days)
5. Against retention money (for supplies portion only)
payable within one year from the date of shipment
(up to 90 days)
 MECHANISM OF DISBURSAL
POST SHIPMENT FINANCE
Export Bills purchased/discounted.

Export Bills negotiated

Mechanism Of Advance against export bills sent on

Disbursal Post collection basis.
Shipment
Finance Advance against export on consignment basis

Advance against undrawn balance on

exports

Advance against claims of Duty Drawback.

 SPECIAL CASES OF POST-
SHIPMENT FINANCING
 Supplier's Credit
 Export of Goods for Exhibition and Sale

 Export Credit for Export DTA unit to SEZ Unit

 Deemed Exports Credit

GOLD CARD SCHEME FOR
EXPORTERS
All credit worthy exporters with good track record

Exporters whose accounts have been classified as „Standard‟ continuously

for a period of three years

There are no irregularities / adverse features in the conduct of the accounts

Exporters who are not blacklisted by ECGC or included in RBI‟s defaulter‟s

list/ caution list

Exporters who are not making losses for the past 3 years

Exporters who are not having overdue export bills in excess of 10 per cent
of the current year‟s turnover.

A General preference to small and medium sectors exporters

PERIOD FOR ISSUANCE OF GOLD
CARD TO INDIAN EXPORTERS

For disposal of •25 Days

fresh applications

•15 Days
Renewal of limits

Sanction of ad •07 Days

hoc limits
INTEREST EQUALIZATION
SCHEME
 This scheme offers the interest equalisation
to Indian exporters availing rupee credit at
the rate of 3% per annum at both Pre
Shipment Rupee Export Credit and Post
Shipment Rupee Export Credit.
 Government of India has decided that scheme

will be in force for the period of 5 years

beginning April 1st, 2015 however
government of India reserves the right to
modify or amend the Scheme at any time so
as to make it more relevant with changing
geo-economic realities in dynamic trade
environment.
INTEREST EQUALIZATION
SCHEME
 . Interest equalization scheme has been
extended to 416 tariff lines of International
Trade Classification (ITC-HS) at 4 digit level
( Heading Level) as per Annexure A as
notified by Reserve Bank of India. However,
exports made by Micro, Small & Medium
Enterprises (MSMEs) across all ITC (HS)
codes shall be entitled to interest equalization
scheme.
 It is further decided that benefits of export

must percolate to manufacturer‟s exporters

Scheme and accordingly the scheme would
not be available to merchant exporters.
INTEREST EQUALIZATION
SCHEME
 .Scheduled banks in India are mandated to extend the
benefits of interest equalization of notified eligible exporter‟s
in-toto and as applicable and submit the claims to Reserve
Bank of India (RBI) for reimbursement. These claims should
be duly certified by the external auditor as per procedure laid
down by RBI.
 This scheme will be funded by Ministry of Commerce and

Industry from the funds of consolidated funds of India

wherein ministry will place funds in advance with RBI for a
requirement of one month. Reserve Bank of India will release
these funds to scheduled banks so as to reimburse Indian
exporters for interest equalization with their counterparts in
competitor‟s countries. This mechanism has been agreed
between Ministry of commerce and RBI and will operate on
monthly basis through a revolving fund system.
INTEREST EQUALIZATION
SCHEME
 Exporters, routed as transhipment or
merchandizing shall not be eligible for this
facility. Hence; all eligible exports under the
scheme would have to meet the criteria of
minimum processing for the goods to be
called as Originating from India. Criteria
and compliance for rules of origin for
originating from India is laid down in
Handbook of Procedures of Foreign Trade
Policy 2015-2020.
 Thank You
धनयवाद
Merci

Gracias Danke
Schon

Thank You 谢谢