TRADE

SERVICES
• Trade Finance is the science that describes the
management of money, banking, credit,
investments and assets for international trade
transactions.
• Trade Finance Services by Banks are the
services offered to traders when bank
executes payment on behalf of it’s client to
the seller’s bank, to pay seller for
Goods/Services received or to be received.
 International Trade

International trade

Flow Of Commodity Flow of Productive

Factors eg. Services
 EXPORT-IMPORT BANK OF INDIA

...... For providing financial assistance to exporters and importers, and

for functioning as the principal financial institution for coordinating the
working of institutions engaged in financing export and import of goods
and services with a view to promoting the country’s international
trade…”
“… shall act on business principles with due regard to public
interest”
Project & Services Exports
EXIM BANK

Promoting Project Exports

• Exports of projects and services, broadly categorised into Civil engineering construction
projects, Turnkey projects, Consultancy services.
• Over the past two decades, increasing number of contracts have been secured by Indian
companies in West Asia, North Africa, Sub Saharan Africa, South & South East Asia, CIS
and Latin America.
• Such projects have supplemented the efforts of the host country governments in
achieving their developmental objectives.

Projects Currently Under Execution with Exim Bank Support

No. of Contracts : 211 Value of Contracts : US$ 12.8 bn
No. of Countries : 38 No of Indian companies : 43
 IMPORTS
• Oversees exporter may require a client to pay
some of full amount in advance for goods to
be exported.
• This might be in Foreign Currency
• Exporter would dispatch goods only after he
receives payment.
 Services by Banks
• Advance Remittance
• Full Payment in advance
• Dispatch of goods only after payment
• Proof indicating cost of goods & insistence of
payment by Oversees Seller
• If cost is more than USD 100,000 then guarantee from
international bank or unconditional LOC is required
• Delivery within 6 months, if extended must furnish
documentary support with extended bank guarantee.
• Direct Remittance
• Dispatch of goods done first and then remit
payment for goods
• Once documents regarding shipping of goods
submitted to bank, payment is made.
• Import Collection
• Goods’ exporter sends shipment documents to
bank. Bank intimates client about this & takes
authorization for payment.
• Sight Bill :- Documents against Payment
See documents, give permission
for payment, take documents
• Usance Bill :- Documents against Payment
Acceptance letter from client is
taken & documents are released.
Payment is made on due date.
 EXPORTS
• Pre-shipment finance
• Post-shipment finance
 PRE-SHIPMENT FINANCE
Definition:

• “Financial assistance extended to the exporter from the date

of receipt of the export order till the date of shipment is
known as pre-shipment credit”.

• Such finance is extended to an exporter for the

purpose of procuring raw materials, processing,
packing, transporting, warehousing of goods meant
for exports.

• Maximum period of 180 days

• Exporter can obtain 90% of the FOB value of the

order or 75% of the CIF value of the order.
IMPORTANCE OF PRE-SHIPMENT
FINANCE
o Purchase raw material, and other inputs
o Assemble the goods in the case of
merchant exporters.
o Store the goods in suitable warehouses
till the goods are shipped.
o Packing, marking and labeling of goods.
o Pre-shipment inspection charges.
o Purchase of heavy machinery and other
capital goods
o Consultancy services.
o Export documentation expenses.
FORMS OR METHODS OF
PRE-SHIPMENT FINANCE

• Packing Credit
– Packing Credit in Indian Rupee
– Packing Credit in Foreign Currency (PCFC)

• Advance Against Hypothecation

• Advance Against Pledge
• Advance Against Red L/C
• Advance Against Back-To-Back L/C
• Advance Against Exports Through Export
Houses
• Advance Against Duty Draw Back (DBK)
 REQUIREMENTS FOR GETTING
PACKING CREDIT

This facility is provided to an exporter who satisfies the

following criteria:
• A ten digit Importer - Exporter Code ( IE Code ) number
allotted by DGFT.

• Exporter should not be in the caution list of RBI.

• If the goods to be exported are not under OGL (Open

General License), the exporter should have the required
license /quota permit to export the goods.
 POST SHIPMENT FINANCE

• Definition:

Post Shipment Finance is a kind of loan provided by

a financial institution to an exporter or seller against
a shipment that has already been made.

• Export finance is granted from the date of extending

the credit after shipment of the goods to the
realization date of the exporter proceeds. Exporters
don’t wait for the importer to deposit the funds.
TYPES OF POST SHIPMENT
FINANCE

• Export Bills Purchased / Discounted

• Export Bills Negotiated

• Advance Against
– Export Bills Sent On Collection Basis
– Export On Consignments Basis
– Un-drawn Balance
– Claims Of Duty Drawback
BENEFITS TO EXPORTERS

• Competitiveness – Exporter able to offer credit

terms to buyer

• Energized Cash flows – Producer receives cash

from export proceeds upfront and can continue
production activities.

• Expansion Of Client Base – Exporter able to

expand client base due to availability of
financing
 LETTER OF CREDIT
• Definition:
A formal document issued by a bank on behalf of
customer, stating the conditions under which the
bank will honour the commitment of the customer

• The letter of credit is also known as banker’s

commercial credit or documentary letter of
credit.

• L/C used in domestic trade are called inland

L/C’s.
PARTIES TO A LETTER OF CREDIT

• Importer or Applicant

• Issuing Bank

• Beneficiary

• Advising Bank

• Negotiating/ The Paying Bank.

 LETTER OF CREDIT – THE
PROCESS

Seller 1. Contract Buyer

(Beneficiary) Applicant

2. Documentary
4. Advice of credit Application
Documentay
credit

Advising Bank 3. Documentary credit ISSUING

BANK.
TYPES OF LETTER OF CREDIT

• Irrevocable L/C • Back To Back Credits

• Revocable L/C • Red Clause L/C

• Negotiation Credit • Transferable Credits

• Confirmed or • Traveller’s L/C

Unconfirmed credit
• Special Credits
• Revolving credits
FACTORING

• Definition –
“Financial transaction whereby a business sells
its accounts receivable to a third party called a
factor (financial institution) at a discount in
exchange for immediate money with which to
finance continued business.”

• Financial option for the management of

receivables
FLOW CHART OF FACTORING

(1) Credit Sale

of Goods

Customer Client
(2) Invoice

(5) Pays the amount (6) Pays

(In recourse type the (3)
customer pays balance Submit
through client) (4) Invoice
Payment Copy
upto 80%
initially
Factor