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• Role of ECGC – Primary goal is to support and strengthen the export promotion drive - provides a range of credit risk insurance covers to exporters against loss in export of goods and services as also by offering guarantee covers to banks and FIs
• Refinance • Different types of Export – Deferred Payment Export, Project Exports, Deemed Exports. • Different types of exporters • Trade Controls • Exchange Control
Export Finance • Pre-shipment Finance – packing credit.advance against duty drawback / incentives. last date of shipment . cheque purchase • Features of P/C • Who can avail P/C ? Basic eligibility criteria • Export Order – country of import.
Export Finance • • • • • Maximum period of finance Maximum amount of finance Type of account Repayment PCFC .
self liquidating in nature .Export Finance • Post-Shipment credit – • After shipment and submission of documents to bank • Against evidence of shipment of goods • From date of shipment till date of realisation • By way of purchase/discounting/negotiation of export bills .
Export Finance • Post – Shipment – quantum • Different types of Post-shipment finance – (1) Export Bills negotiated/purchased/discounted (2) Export Bills sent on collection (3) Export on consignment basis .
Export Finance – Post Shipment • Buyer’s Credit – a financial arrangement whereby a financial institution in the exporting country extends a loan to a foreign buyer to finance purchase of goods and services from the exporting country • Supplier’s Credit – a financing arrangement where exporter extends credit to the buyer in the importing country to finance the buyer’s purchase .
• Forfaiting provides a flexible. usually bills of exchange or other promissory notes. creative alternative to traditional international trade financing methods. • Forfaiting is the purchase. and is particularly useful for transactions with buyers in developing nations. and which arise from the provision of goods or services. on a non-recourse basis. of a series of notes. .• Forfaiting is used for international trade transactions. which are freely negotiable and transferable.
• The forfaiter deducts interest at an agreed rate for the full credit period covered by notes. • The guarantee will normally be issued by the importers bank. • The debt instruments are drawn by the exporter (seller) and accepted by the importer (buyer). and will bear an aval. or unconditional guarantee. .
FORFAITING – OPERATING PROCEDURE 7 3 EXPORTER’S BANK / NEGOTIATING BANK LC ISSUED NOTICE OF ASSIGNMENT IMPORTER’S BANK/ LC ISSUING BANK 1 APPLICATION FOR LC EXPORT DOCS/ ASSIGNMENT OF PROCEEDS 6 ASSIGNMENT OF PROCEEDS REPAYMENT AT MATURITY EXPORTER INLAND MOVEMENT OF GOODS 5 CONFIRMATION OF ASSIGNMENT 8 TRANSFER OF FUNDS 4 NOTICE OF ASSIGNMENT FORFAITING BANK IMPORTER 2 INLAND MOVEMENT OF GOODS EXPORT COUNTRY CUSTOMS / REGULATORY CLEARANCE IMPORT COUNTRY CUSTOMS/ REGULATORY CLEARANCE .
airway will. . or of its payment terms b) Copy of signed commercial invoice c) Copy of shipping documents including certificates of receipt. railway bill.What documents are required by the Forfaiter from the exporter? Usually required are: a) Copy of supply contract. or aval The aval is the Forfaiters' preferred form of security of payment of a bill or note. the avalizing bank must be internationally recognized and credit worthy. bill of lading or equivalent documents d) Letter of assignment and notification to the guarantor e) Letter of guarantee. For an aval to be acceptable.
• Bills of exchange (or drafts) .What are the commonly used debt instruments? • Letter of credit • Promissory notes.
and without recourse. • It is critical that the forfaiter be involved in the preliminary process. . to a financier. and at the beginning of the negotiation process. • Forfaiting technique starts at the beginning of the selling cycle. such as a Bill of Exchange. before a sale is concluded.Forfaiting as a Risk Mitigation and Sales Tool • Since there is a direct relationship between sales & financing many companies use Forfaiting as a means to grant credit terms to their foreign buyers. for cash. before any pricing discussions are held between the exporter and buyer. usually evidenced by a negotiable instrument. or a Promissory Note. the exporter sells his trade receivable. • In a forfaiting transaction .
What information does a Forfaiter need? • The Forfaiter needs to know : – – – – – who the buyer is and his nationality. . what goods are being sold. and – the identity of the guarantor of payment (or avalor). the credit period and number and timing of payments (including any interest rate already agreed with the buyer). detail of the value and currency of the contract. bills of exchange. letters of credit). the date and duration of the contract. – what evidence of debt will be used (either promissory notes.
Forfaiting eliminates: • COUNTRY / POLITICAL RISK • CURRENCY / TRANSFER RISK • FINANCIAL / COMMERCIAL RISK .
.• Export-Import Bank of India (Exim Bank) and AD Banks have been permitted to undertake forfaiting. • Remittance of commitment fee / service charges. for financing of export receivables. . etc. payable by the exporter as approved by the Exim Bank/ AD Banks concerned may be done through an AD Bank. • Such remittances may be made in advance in one lump sum or at monthly intervals as approved by the authority concerned.
3) The Forfaiter will also charge for 'x' days grace and a fee for committing himself to the deal. 2) If the transaction is worth $1M. This period will allow the exporter to ship his goods and get his bills/notes avalized and to present them for discounting. and will quote a discount rate of 'n' per cent. so that after discounting the exporter will receive $1M. 4) The Forfaiter will stipulate an expiry date for his commitment (that is. the sequence is as follows: 1) The exporter approaches a Forfaiter who confirms that he is willing to quote on a prospective deal. covering the export in x months' time bearing the aval of XYZ Bank. when the paper should be in his hands). worth 'y‘ per cent per annum computed only on the actual number of days between commitment and discounting. the Forfaiter will calculate the amount of the bills/notes. .How does Forfaiting work in practice? In a typical Forfait transaction.
6) 7) 8) . can assure the exporter of competitive rates on a timely and cost effective basis. Brokers typically charge a nominal 1% fee to arrange the commitment. The broker frequently consults with the exporter to structure the transaction to fit the Forfait market. because they deal with a large number of Forfait houses. and the importer is then liable for the cost of the contract and receives credit for 'z‘ years at 'n' per cent interest. Many exporters prefer to work with Forfait brokers who.5) The exporter gets immediate cash on presentation of relevant documents. This is a onetime fee on the principal amount and frequently is added to the selling price by the exporter.
• Agreement by one nation to buy a product from another subject to the purchase of some or all of the components and raw materials from the buyer of the finished product. or the assembly of such product in the buyer nation .• Countertrade is exchanging goods or services that are paid for. in whole or part. with other goods or services.
• Counter purchase : Sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country. . or other services to the country and agrees to take a certain percentage of the plant's output as partial payment for the contract.or supplies technology. training. equipment. • Offset : Agreement that a company will offset a hard . • Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country.There are five main variants of countertrade: • Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment.currency purchase of an unspecified product from that nation in the future. • Buyback occurs when a firm builds a plant in a country .
1999 and the Rules and Regulations made there under.S. . (ii) Application for permission for opening an Escrow Account may be made by the overseas exporter/organisation through his AD Banks to the concerned Regional Office of the Reserve Bank. (i) All imports and exports under the arrangement should be at international prices in conformity with the Foreign Trade Policy and Foreign Exchange Management Act.Counter-Trade Arrangement • Counter trade proposals involving adjustment of value of goods imported into India against value of goods exported from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party through an Escrow Account opened in India in U. dollar is considered by the Reserve Bank.
. (iv) No fund based/or non-fund based facilities would be permitted against the balances in the Escrow Account.e.(iii) No interest will be payable on balances standing to the credit of the Escrow Account but the funds temporarily rendered surplus may be held in a short-term deposit up to a total period of three months in a year (i. in a block of 12 months) and the banks may pay interest at the applicable rate..
• In 2001.• In 2000. subject to UN approval under Article 50 of the UN Gulf War sanctions. India agreed to swap 1. . India and Iraq agreed on an "oil for wheat and rice" barter deal.000 barrels of oil delivered daily to India at a price of $6.85 a barrel while Iraq oil sales into Asia were valued at about $22 a barrel. that would facilitate 300.5 million tonnes of Iraqi crude under the oil-for-food program.
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