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EXPORT FINANCE Businessmen, industrialists and others require finance for their day-to-day activities.

In export business also finance plays an important role. Export finance starts as soon as the exporter gets an order to export. An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export, Pre- shipment finance is provided to the exporter to meet such requirements. After the shipment is made exporter will have to give credit the exporter has to wait till the documents reach the importer and he makes the payment. It will take some more time before the advice of payment is finally, communicated to the exporter. Post-shipment finance is therefore provided to the exporter to meet his needs for funds during the intervening period between the shipment of the goods and the receipt of payment therefore. 1. PRE-SHIPMENT CREDIT OR PACKING CREDIT Export packing credit is a loan or any other credit given by a bank to an exporter for financing (a) procuring raw materials and components to manufacture the product or (b) processing or assembling or packing the goods for export. The banks on the basis of the following give the packing credit. A letter of Credit (L/C) opened in favour of the exporter by the importer's bank: A confirmed or irrevocable order for the export of goods from India having been placed on the exporter, or Any other evidence of an order for exports of goods from India having been placed on the exporter or Relevant policy issued by the ECGC; or Personal bond in the case of party's already known to the exporter.

COSTS COVERED BY PRE-SHIPMENT FINANCE Pre-shipment finance would normally cover the following costs; Cost of purchase or production (ii) Discounting of bills drawn against shipment of goods-discounting of usance bills (D/A Bills ) drawn against shipment of goods- discounting of bills is usually done under limits sanctioned to different customers, and

(iii) An advance against bills under collection. Banks usually charge a commission according to the rates prescribed by the Foreign Exchange Dealer's Association of India. The rate of interest on post-shipment credit is also charged at concessional rate. TYPES OF POST -SHIPMENT CREDIT Post shipment credit may be of three types: (i) Short term: The short term credit is usually for 6 months and provided by banks. (ii)Medium term: Medium term loans are offered for a period beyond 6 months and up to 5 years. These loans are also provided by commercial banks in collaboration with EXIM Bank of India. Medium term loans are provided for in the case of durable consumer goods and light capital goods. (iii) Long term: Long term loans are provided in the case of sale of capital goods complete plants and turnkey jobs. The period of credit is usually more than 5 years. Banks enjoy certain benefits for advancing loans to exporters, They are as follows. (i) Refinance by EXIM Bank of India. (ii) Guarantees provided by ECGC where a substantial part of the risk is covered by the ECGC. 3. FORFAITING Forfaiting enable an exporter to convert an overseas credit sale into a cash sale through the process of discounting of export receivables. The bill of exchange accepted by the importer is surrendered to the forfeiting agency which pays him in cash after deducting a fee. The understanding is that the agency will collect the dues from the importer on expiry of the said period.

4.FINANCE FOR EXPORTS ON DEFERRED PAYMENT TERMS Our exchange control regulations stipulate that exporter should realize the foreign exchange for their exports within 180 days from the date of shipment. Contracts for export of goods against payment to be received fully or partly after the expiry of the stipulated period for the realization of export proceeds are treated as deferred payment export contract. Extension of long term export credit has become an accepted export market strategy and therefore, provision has been made for the extension of medium and long term credit to finance the sale of Indian capital goods and related services.

FREE TRADE ZONE (EXPORT PROCESSING ZONES) These are also referred to as Export Processing Zones, are set up with the intension of providing an internationally competitive duty free environment for export production, at low cost. This enables the products of EPZ to be competitive, both quality wise and price wise, in the international market. India has seven EPZ at different parts of our country. EPZ operating units broadly under the product groups of electronics, engineering items, chemicals and allied products, gems and jewellery, textiles, garments, plastics and rubber products. The objectives of these units are: 1. 2. 3. 4. To earn foreign exchange To generate employment opportunities To facilitate transfer of technology by foreign investment and other means. To contribute to the overall development of the economy.

Entitlement for EPZ Units: Each of the zones provides basic infrastructure such as developed land for construction of factory sheds, standard design factory buildings, roads, power, water supply and drainage. In addition customs clearance is arranged within the zone at no extra charge. Provision is made for locating banking\post office facilities and offices of clearing agents in the service centers located in each of the zones. Foreign equity up to 100% is permissible in the case of EPZ units Procurement of raw materials, components and consumables and export of finished products shall be exempt from central levies. Exemption from industrial licensing for manufacture of items reserved for SSI sector

Packing including any special packing for export Costs of special inspection or tests required by the importer Internal transport costs Port, customs and shipping agent's charges Freight and insurance charges if the contract is either CIF contract or C&F contract and Export duty or tax, if any.

2.POST SHIPMENT CREDIT Post-shipment finance is required by the exporters to bridge the gap between the time of shipment of goods and the actual payment for the goods exported. Post - shipment credits are given by commercial banks Against the security of approved shipping documents tendered against-letters of credit or otherwise. It is also provided at concessional rate of Interest. The banks normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit

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