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I take this opportunity to express my deep sense of gratitude and
respect for my guide Mr. Arun Kumar Jain for her constant
interest, valuable encouragement and timely guidance during
completion of this project work.
I am also thankful to all my professors of Indira Gandhi National
Open University for their timely co-operation and helpful guidance.
I Would like to take this opportunity to specially thank Prof. Anurag
Singh, Faculty Delhi University & Dr. G.K.Varshney, Shyam Lal
College, Delhi University for their valuable guidance and timely
help and support for making this research study possible.
Last but not the least, I deeply express appreciation to all my
friends who directly or indirectly co-operated and helped me during
completion of my project.
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CONCLUSION DRAWN
FROM THE QUESTIONAIRE
The Basis of Analysis is on a Simple Questionnaire which covers
25 simple points which are necessary for every indian exporters
before coming to business of exports and for existing exporters.
After analyzing and examining questionnaire method, filled by
various exporters , we analyze that simple points which are
necessary for exports are not correctly filled by exporters. The
points which are not taken care by exporters are :-
1. Rate of Interest
2. Packing Credit
3. Pre-Shipment Export Credit In Foreign Currency
4. Service Charges Levied on Packing Credit
5. Packing Credit Advances Against Personal Car, House Etc.
6. Extension of Packing Credit Facility to Sub-Supplier.
7. Extension of ECGC Guarantee to Packing Advances.
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8. Export Advances Against Fixed Assets
9. Export Advances Against Claims of Duty Drawback.
10.Export Advances for Purchase of Fixed Assets.
11.Export Advances Against Goods Sent on Consignment
Basis.
12.Conversion of Credit Export Sale to Cash Sale.
13.Awareness of New Export Financing option.
14.Export Finance for Market Development, Product
Adaption, Training & R & D Support Etc.
15.Role of Exim Bank.
As we see that out of 25 points, only 10 points are correctly
approached by exporters i:e 40% are correctly approached,
remaining 60% points are incorrectly approached.
This clearly indicates, that exporters are not aware of export
finance. That is the basis I finally took this Export
Financing Documentation as my project as I am
already in this field for more than 5 years.
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REVIEW OF THE
QUESTIONAIRE
1. Rate of Interest
From this table, we analyse that the rate of interest prevailing
in the bank were not known by the exporters. Out of 13 only 9
exporters clearly mentioned Interest @ 11-12% p.a. ( For detail
please refer page )
2. Packing Credit
From this table we analyse that every exporter except one are
having knowledge of packing credit advances.
( For detail please refer page )
3. Pre-shipment export credit in foreign currency (PCFC)
After seeing questionnaire method analsis,we came to final
conclusion that only few exporters ( 3 out of 13) were having
knowledge about PCFC scheme. This is the scheme announced
by RBI in Nov 1993, in addition to normal packing credit
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schemes. In the project I simply explained all the options
available for availing export finance under PCFC scheme and the
formalities in terms of documents which are required to be
completed by the Indian exporters for availing export finance
under PCFC scheme.
4. SERVICE CHARGES LEVIED ON PACKING CREDIT
As mentioned in PCFC scheme only 3 out of 13 exporters clearly
mentioned that no service charged levied on packing credit
other than premium payable to ECGC scheme.
5. PACKING CREDIT ADVANCES AGAINST PERSONAL
CAR, HOUSE ETC.
9 out of 13 exporters clearly says no P/C advances against
personal car, house etc. ( For detail please refer page )
6. EXTENSION OF PACKING CREDIT FACILITY TO SUB-
SUPPLIER.
Every exporter except 2 , were knowledge about the extension
of packing credit facility to sub-supplier. This is the facility
extended to sub-suppliers of raw materials, components etc. to
the exporter goods. In the project I have explained what are
the detailed guidelines to be fulfilled for getting packing credit
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13. AWARENESS OF NEW EXPORT FINANCING OPTION.
Aleady explained in Point no. 12. or Refer page
14. EXPORT FINANCE FOR MARKET DEVELOPMENT,
PRODUCT ADAPTION,TRAINING & R & D SUPPORT ETC.
Exporters are not having knowledge about getting export
finance for market development , product adaption, training and
R & D support, by seeing questionnaire method analysis.
Most exporters try to finance their exports through commercial
banks. To promote their exports some also take advantage of
the Governments Marketing Development Assistance Scheme
through Ministry of Commerce. Yet, there are many exporters
who are ignorant of various funding schemes of other
organizations which could help them to finance their exports. In
the project, an effort has been made to identify such schemes
and highlight their specific requirements for the benefit of the
exporting community. This is explained in the topic Non-
conventional Avenues for Export Financing.
( Page )
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15. ROLE OF EXIM BANK.
Out of 13, only 8 exporters clearly mentioned about the role of
the EXIM Bank. The EXIM Bank provides financial assistance to
promote Indian exports through direct financial assistance,
overseas investment finance, term finance for export production
and export development, pre-shipment credit, buyers credit,
lines of credit, relending facility, export bills rediscounting,
refinance to commercial banks, finance for computer software
exports, finance for export marketing and bulk import finance to
commercial banks. This also extends non-funded facility to
Indian exporters in the form of guarantees. Full details of
financing programmes of EXIM Bank explained in Page in the
project.
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CHAPTER SCHEME
The project helps the exporters to know about various
methods and guide lines to be adopted for ava il ing
export finance which will help them to manage the risks
associated with exporting.
Export Financing- Introduction
Features of Export Financing
Methods of Export Financing
Pre-shipment finance
Post-shipment finance
Forfaiting Finance A new financing
option for Indian Exporters.
Non-conventional avenues for Export
Financing
Role of Exim Bank & other banks
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Export Financing -
Introduction
Financia l assistance is extended by the banks to the
exporters at pre-shipment and post-shipment stages.
Financial assistance extended to the exporter prior to
shipment of goods from India fal ls within the scope of
pr e-shipment finance while that extended after
shipment of the goods f al ls under pos t- shipment
finance. While the pre-shipment finance is provided for
work ing cap ital for the purchase o f raw mater ia l,
processing, packaging, transportation, warehousing
etc. o f the goods meant for export , post-shipment
finance is generally provided in order to bridge the gap
between shipment of goods and and the real isat ion of
proceeds.
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Salient Features of
Export Financing
1. Export Finance is to constitute 12% of Net Bank
Credit as per RBI guidelines.
2. Interest is charged at concessional rates of interest
and for this purpose RBI provides refinance at Bank
Rate.
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3. Credit Guarantee coverage by Export Credit
Guarantee Corporation.
4. Purpose oriented and need based finance.
5. Consists of two elements-pre-shipment & post-
shipment finance.
6. Linkage between pre-shipment and post-shipment
stages and desirability of treating the two as single
package is crucial.
7. Liberal approach in regard to margin requirements
subject to sanction by appropriate authority in the
bank.
8. No margin requirement against export receivable.
9. Export credit over and above MPBF.
10.Exemption for application of loan delivery system.
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sanctioned as a continuous/running facil i ty whereas
packing credit advance is disbursed for a special purpose
to enable the exporter to meet a specific export
obligation. Every pre-shipment advance is, therefore,
considered as a separate loan account different from a
domestic advance or inter se.
The credit limits for pre-shipment advance are considered
s imul taneous ly along wi th other fac il it ies and it i s
generally made a sub-limit within the overall cash
credit l imit sanctioned to the borrower. However, for
those borrowers who are exclusively engaged in exports,
separate packing credit l imits are sanctioned by the
banks. The procedure and techniques adopted by the
bank are the same as in case of other advances.
However, the assessment of working capital requirement
may be based upon the export orders in hand with the
exporter besides his capacity to meet that commitment. A
very flexible approach in this regard is adopted by the
banks and adequate finance is available for every viable
export proposal. The purpose of the above discussion is
to emphasis the need to apply for total credit
requirements at one time with all the relevant details
made available to the bank in the beginning itself so that
suitable limits are sanctioned avoiding any request for ad
boc facil it ies at a later date. The general terms and
conditions of granting packing credit advances by banks
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are given below.
1. export form India is al lowed either against an export
L/C or against an export order. The bank may also
sanction packing credit which may be disbursed either
against an L/C or against an order. Correct position in
this regard must be explained to the bank to avoid any
difficulty later. It may be noted that if the limit by the
bank is sanctioned against LC, disbursement against
an order may not be allowed by the bank.
Even in case of reports under L/C, the exporter may
receive the L/C at a very late stage and may be
required to procure/manufacture the goods much
before the L/C is received. In this situation also some
diff iculty may be faced in getting the packing credit
released from the bank. I t would, therefore, be
necessary to discuss all these matters with the bank at
the time of sanctioning of limits.
2. All pre-shipment advances are to be l iquidated from
the proceeds of export bills. Application of sanctioning
of suitable post-shipment facilities should, therefore,
be simultaneously made. Exporter may also be entitled
for duty drawback etc. and credit limits against claims
of such incentives shall also be obtained at that time.
3. No other service charges are leviable on these
advances other than premium payable to ECGC on their
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guarantees.
4. Sub-suppliers are also eligible for the packing credit
advances for which they should lodge to the banks a
letter from the Export House/Merchant Exporter
incorporating details of the goods to be supplied and
confirming that they (export house etc.) have not
availed of any packing credit advances for which they
should lodge to the bank a letter from house etc.)
have nor availed of any packing credit from any other
bank/source against the same contract/L/C.
5. Packing credit is normally given and adjusted L/C/
contract wise. However, the finance is now permitted
to be given on running account basis. For details see
under para "Submission of Export Order/L/C".
6. In case of cancel lation of export order, facil ity of
substitution of contracts is also available.
7. The finance is also available for undertaking
preliminary arrangements in respect of consultancy
services.
8. The f inance is also available for export of goods of
exhibition and sales, imports under advance import
licences.
9. Except a certain cases, pre-shipment finance granted
tot he exporter does not exceed FOB value of the
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goods or domestic market value of the goods
whichever is less.
Pre-shipment Credit in Foreign (PCFC)
With a view to providing pre-shipment credit to Indian
exporters at internationally competitive rates of interest,
Reserve bank of India announced a new scheme of
providing Pre-shipment Credit in Foreign
Currency (PCFC) by the banks in India in November 1993.
The PCFC scheme wil l be in addition to normal packing
credit schemes in Indian rupees presently available to
Indian exporters. The expor ter will now have the
following two options for availing export finance.
a) To avail packing credit in rupees and then avail post
shipment credit in rupees or under PCFC or by
discounting/rediscounting of export bills abroad.
b) To avail packing credit in foreign currency and
discounting / rediscounting of export bills in foreign
currency abroad., in India rupees or under PCFC. The
broad aspects of PCFC scheme are given below:
i) Packing credit under foreign currency is available to
cover both the domestic and imported inputs of
goods to be exported from India.
ii) PCFC can be availed in any convertible foreign
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currency.
iii) Banks will grant PCFC out of foreign currency
resources available with them under EEFC account,
FCNR accounts and RFC accounts and may a lso
negotiate required lines of credit from their foreign
branches/correspondents.
iv) PCFC wi ll be ava ilable for an in itial per iod of 180
days as incase of rupee credit: The extension in
period of PCFC for further 90 days may be granted
at an interest rate which will be higher by 2% of the
normal rate as in case of rupee credit. Extension of
PC upto 360 days and rate of interest on such
extension will be as per discretion of the bank.
v) The running A/c facility will be permitted under
PCFC on the same lines as in case of packing credit
in rupees. However, packing credit advance already
permitted in rupees will not be converted to PCFC.
vi) PCFC wil l be available only for cash exports and wi ll
not cover "Deferred Payment Exports'.
vii) The lending rate to exporter wil l be linked to 6
months LIBOR (London Inter Bank Offer Rate) rate
and the
a) Indian banks having branches aborad] - 20% over,
LIBOR and foreign banks in India.
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b) Indian banks not having branches - 21/2% over LIBOR
abroad. The above rates are excluding withholding tax.The banks are, however, free to quote better rates
depending upon the availabil ity of foreign exchange
resources available with them and/or the terms of line
of credit arranged by these banks with their foreign
branches/correspondents.
vii iWithholding tax as per applicable rates wil l be
payable rates will be exporter in addition to interest
as above.
ix In case ful l amount of PCFC or part thereof is
uti lised to f inance domest ic inputs, the foreign
currency amount will be converted to Indian rupeesat appropriate exchange rates.
x PCFC wi ll be available with in 'MPBF'/credit l imits
sanctioned in favour of exporter.
xi ECGC cover will be available in rupees only,
whereas PCFC is in foreign currency.
xii PCFC will be self-liquidating in nature. PCFC should
be liquidated by submission of export documents for
discounting/rediscounting. PCFC will not be allowed
to be liquidated with foreign exchange acquired from
other sources.
PCFC can be extended for exports to ACU1 Countries
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w.e.f.1.1.1996. PFC can also be extended for deemed
exports.
Sharing of Export Credit under PCFC Scheme
PCFC can now be availed by the manufacturer on the
basis of disclaimer from the export order holder in the
same way as permitted under rupee credit scheme. PCFC
granted to the manufacturer will be adjustd by
transferring foreign currency from the export order
holder.
PCFC for supplies from one EOU/EPZ Unit to
another EOU/EPZ Unit
Supplier made to EOUs/EPZ units are treated as Deemed
Exports and Reserve Bank has permitted granting PCFC
both in the suppl ier EOU/EPZ unit and the receiver
EOU/EPZ unit. PCFC for supplier EOU/EPZ unit will be for
supply of raw material components for goods which will
be further processed and finally exported by receiver
EOU/EPZ unit. The PCFC extended in a supplier EOU/EPZ
unit wi ll have to be l iquidated by receipt of foreign
exchange from the receiver EOU/EPZ unit, for which a
supplier EOU/EPZ unit purpose, the receiver EOU/EPZ unit
can avail of PCFC. The stipulation regarding liquidation of
PCFC by payment in foreign exchange will be met in such
cases not by notat ion of exporter documents but by
transfer of foreign exchange from the bankers of the
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receiver EOU/EPZ unit to the banker of supplier EOU/EPZ
unit.
PCFC ranted to receiver EOU/EPZ unit will be liquidated
by discounting of export bills as per general procedure in
this regard. Furthermore such transaction will be treated
as exports for the suppl ier uni t and import for the
receiving unit.
Importer Exporter Code Number
No commercial export from India is permitted on behalf
of a person/firm/company who has not been allotted an
Importer Exporter Code Number. A few f irms may be
completing exports through registered Export/Trading
Houses and are eligible to avail packing credit limits from
the banks. Such firms may not be required to obtain the
code number.
Application for Packing Credit
Application for Packman Credit should be accomplished by
the following documents:
i) Confirmed export order/contract or L/C, etc. in
original.(Where it is not available, an undertaking to
the effect that the same wil l be produced to the
bank within a reasonable time for verification and
endorsement. This undertaking is required where
the exporter wants to avail himself of packing credit
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advance against preliminary information of contract
where by at the later stage the contract or L/C, as
the case may be, will be received by him.
i i) An undertaking that the advance wi ll be ut il ised for
the specific purpose of procuring / manufacturing /
shipping etc. of the goods meant for export only as
stated in the relative confirmed export order or the
L/C.
iii) Where the exporter/application asking for the
packing credit is a sub-supplier and wants to supply
the goods to Export/Trading/Star. Trading/Super
Star Trad ing House or merchant exporter, an
undertaking from the merchant exporter or
Export/Trading/Star Trading/super Star Trading
House stating that they have not wil l not avail
themselves of packing credit facil i ty against the
same transaction for the same purpose t il l the
original packing credit is liquidated.
iv) Copies of Income Tax/Wealth Tax Assessment Order
for the past 2/3 years in the case of sole proprietary
and partnership firm.
v) Copy of RBI's (Exporter's) Code Number (CNX).
vi) Copy of a valid RCMC (Registrat ion-cum-Membership
Certificate) help by the exporter and/or the
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Export/Trading Star Trading House Certificate.
vii) Appropriate policy/guarantee of the ECGC.
viii) Any other document required by the bank.
A packing credit limit (PCL) is sanctioned by the
appropriate authority in the bank. It is fixed either as an
annual overall limit or as ad hoc specific limit.
Usual ly, the trade/manufacturer/export who seeks a
packing credit limit also required foreign bills purchase
limit negotiation/purchase/discount of bills, drawn under
leter of credit and/or without letter of credit.
All such l imits together are generally reviewed by the
appropriate authority in the bank and separate limits are
purpose wise and security wise for the packing credit
loan and foreign bills purchased within the total l imit.
These l imits are reviewed at the end of the period for
which they are sanctioned and they are
renewed/revised/canceled depending on the merits of
each case.
Submission of Export Order/L/C
The exporter has to produce a confirmed export order or
L/C as per the terms of sanction at the time of
disbursement of packing credit. In the absence of an
export order/L/C, the bank accept some other
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communication form the overseas buyer provided i t
contains minimum details giving the name of the buyer,
the value of the order, quantity and particulars of the
goods to be exported, date of shipment and terms of
payment. Even in such cases final sales contract/L/C will
be required to be submitted to the bank at a later stage.
Sometimes an export order is received by an export
hose/trading hose or an merchant exporter who may pass
on this order to sub-supplier who is not directl y
exporting. Such sub-suppl ier may also avail packing
credit facility from the bank. The packing credit in such
cases can be granted after getting a letter from the
exporter house/trading house giving details of the ord3er
and also confirming that he (export house/trading house)
has not availed any packing credit against that order.
The repayment of such advance should be from the
proceeds of bills drawn under inland L/C (back to back
L/C) opened by the export house/merchant exporter in
favour of the sub-suppl ier. Where such an L/C is not
opened, the sub-supplier may draw export
house/merchant exporter would be necessary to the
effect that the goods have actually been exported.
Extension of Pre-shipment Credit - 'Running
Account' facility
The requirement of prior lodgment of letters of credit or
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f irm orders had been waived by Reserve Bank of India
respect of exports of certain commodities where banks
were author ised to grant running account facil ity .
Reserve baks has now with effect from 14 th March, 1992
waived this requirement for all commodities and banks
have been permitted to grant pre-shjipment advances for
exports of any commodity without insist ing on prior
lodgment of letter of credit/firm export orders. Granting
of such facility may be subject to the following general
conditions.
i ) The fac il ity wi ll be al lowed to only those exporters
whose trace record has been good. New exporters
may not for obvious reasons be allowed this facility.
i i) The exporters to whom this facil i ty is al lowed wil l be
required to produce letters of credit/firm export
orders within a reasonable period of time. In case of
export of commodities covered under "Select ive
Credit Control', letters of credit/firm orders should
be produced within a period of one month from the
date of advance.
i ii ) The banks shall mark off indiv idual export b il ls, as
and when they are received for negotiation /
purchase / collection, against the earliest
outstanding pre-shipment credit on 'First In First
Out' (FIFO) basis.
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i v) In respect of export o f any commodity where the
amount of pre-shipment credit is in excess of export
value, excess amount should be adjusted either in
cash or by sale of non-exportable by product, as
soon as the extraction/segregation of by product is
completed, within a period of 30 days from the date
of advance.
v) The facil ity w il l not be a llowed for inventory build
up and only need based limits will be allowed.
vi) The benef it of confessional rate of interest wil l be
permitted up to 180/270 days in respect of each
pre-shipment credit.
vi i) If any exporter is found abusing the facility or does
not comply with the above terms and conditions, the
facility of running account will be withdrawn.
Pre-shipment Advance
It can also be given on production of sufficient evidence
i.e. cable and telex/fax, the L/C or f irm export order
received by the exporter and lodged with the bank within
a reasonable time (as agreed upon by the bank) of the
grant of such advance. Moreover, the cable/telex/fax
messages should reveal quantity and particular of goods,
value of order, date of shipment/delivery period, terms of
payment and name of buyer.
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It can also be given under the 'Red Clause' letter of
credit i.e. at the instance and responsibility of the foreign
bank establishing L/C.
In a Red Clause L/C, the packing credit advance is made
against a s imple receipt and is unsecured whereas
packing credit in normal course (i.e. not against Red
Clause) is made against the deposit of L/C and execution
of letter of pledge/hypothecation/trust receipt and other
loan documents.
Exporter who do not receive the export order in their
name such as suppl iers to merchant exporter and
Export/Trading Houses are also eligible provided:
i) The produce a letter f rom the concerned merchant
exporter/Export Trading House that a portion of the
'Order' has been allotted to them, detai ling the
goods to be supplied.
ii) The merchant exporter or Export Trading House
neither has availed nor wish to seek packing credit
in respect of the apportioned order, from any other
bank/source,
iii) The letter from the merchant exporter or Export
Trading House is countersigned by the bank advising
the letter of credit.
Sub-contractors or sub-suppliers supplying goods for
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exports under a consortia arrangement are also eligible
for packing credit.
Where the goods are to be manufactured by the
manufacturer and processed/packed etc. Export Trading
House/Merchant-Exporter before making the shipment
f inance can be ava iled by both the parties i.e. the
supplier as well as Export/Trading House or Merchant
Exporter for the required period, subject to the condition
that the total period of well as Export/Trading house or
Merchant Exporter for the required period, subject to the
condition that the total period of facility availed by both
does not exceed the maximum per iod permitted for
confessional finance.
The pre-shipment credit is required to be liquidated from
the proceeds of the relative export bills when purchased,
negotiated or discounted. However, the RBI has relaxed
this condition. For instance, if for any reason an exporter
negotiated or discounted. However, the RBI has relaxed
this condition. For instance, if for any reason an exporter
who has availed of pre-shipment credit, is confronted
with the cancellat ion of the export order and, hence,
unable top adjust the credit against relative export bill
proceeds, the wiping off such outstanding through export
bills drawn on the importers, either in the same country,
or in any other country is permitted, provided the
relative bills are in respect of the very goods for which
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credit was originally granted.
Period of Advance
The packing credit advance is granted up to the last date
of shipment as per the underlying sale contract/export
L/C to a maximum of 180 days. I f the export order
cannot be executed by that time, a further extension of
90 days may be permitted. Such extension would be
considered by ranks on ly i f they are sat is fied that
reasons for extension are due circumstances beyond the
control of the exporter.
Banks may also consider to extend pre-shipment credit
for a longer period ab into up to a maximum of 270 days
in respect of export of any commodity if the banks are
satisfied about the need for longer duration of credit,
depending upon seasonality of commodity, its
manufacturing cycle, time normally taken for shipment,
etc. the exporter must clearly out a case for avail ing
packing credit for longer period and obtain necessary
sanction from their banks.
Exporters are, however, under an obligation to complete
the export within a reasonable time which has now been
fixed as 180 days after completion of initial period of 180
days i.e. the export must be completed within 360 days
of granting o packing credit as otherwise it will loose the
benefit of confessional rate of interest.
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Rates of Interest
Pre-shipment advances are granted to the exporters at
the following concessional rate of interest:
Pre-shipment advance up to initial 180
days
PLR 2.5%
Pre-shipment advance for a further
period of 90 days
PLR - +0.5%
Pre-shipment advance beyond 270 days
up to 360 days
Banks are free
to determine
the rates
Pre-shipment advance against
incentives receivable from Government
covered by ECGC guarantees (up to 90
days)
PLR 2.5%
The other important points as regards rates of interest on
packing credit advances are given below:
If the export is not completed within 360 days from
the date of original advance, no benefit of concessional
rate of interest wil l be available from the 1 st day of
advance itself i.e. interest at the normal rate shall be
payable from the day one the export is completed. The
difference of interest less charged by the bank will be
recovered.
If the export does not materialise at all and packing
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credit advance is to be adjusted from local funds, the
entire advance wil l not be considered as an export
credit from the date of original advance itself and
interest at the commerc ial lend ing rate may be
charged by the rank from the date of original advance.
No other service charges are payable by the exporters
except guarantee fee on packing credit guarantee of
ECGC obtained by the bank.
Quantum of Advance
The advance granted to exporter is restricted to the FOB
value of goods or domestic value of goods whichever is
less except in the following cases:
1) For a few items, particularly engineering goods which
are backed by export incentives of Government of
India the domestic value of goods exceeds FOB value.
Advance up to the domestic value may be permitted in
such case provided these are covered under Export a
production Finance Guarantee of ECGC. The packing
credit allowed to these cases will be adjusted partly by
export proceeds and the remaining amount from the
claims of export incentives payable to the exporter.
2) For exports of HPS ground-nuts and de-oiled and
defeated cakes, packing credit can be granted up to
the cost of raw material required even through the
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value of advance exceeds the value of export order.
The advance in excess of export order must be
adjusted either in cash or by selling residual ground
nuts or by products oil product oil as soon as possible
but within 15 days in case of HPS ground-nuts and 30
days in case of de-oi led and defatted cakes. The
balance amount in the packing credit account will be
adjusted by proceeds of export bills drawn under the
export order in a usual manner. This provision has
been brought in because raw material requirement to
such exports is very high in comparison to the value of
export order.
Security of Packing Credit Advance
The goods meant for export form the primary security for
the bank granting packing credit advance. The form of
charge may, however , change on di fferent stages
depending upon the nature of reports. The packing credit
may initially be clean at the time of disbursement; may
be covered by hypothecation charge over the raw
mater ials, semi- finished and f inished goods later;
hypothecation charge be converted to pledge of finished
goods meant for exports or may even be covered by
document of title to goods (LR/RR) if the goods are sent
for shipment to a port city. This aspect of security must
be discussed in details in the initial stages itself so that
operation in the account are convenient.
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Margin
The concept of margin in case packing credit is actually
linked with the value of order/L/C and/or with value of
security and different banks have their own standard in
this regard. The most accepted concept of margin in
these accounts is as under:
1) Margin on export order/L/C: This margin is applied on
the value of export order/letter of credit at the time of
initial disbursement when the packing credit may not
be backed by security of goods. Usually a high margin
is stipulated in such cases.
2) Margin on security: This is usual margin as applicable
to other advances backed by security of goods such as
cash credit accounts etc.
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ECGC Guarantee
Most of the banks cover their packing credit advances
under Packing Credit Guarantee of Credit and Guarantee
Corporation (ECGC). ECGC issues packing credit
guarantees on each exporter individually and also has the
system of issuing a guarantee in favour of the bank on
whole turnover basis.
Premium on the guarantee is generally recovered from
the exporter. The rates of premium on individual
guarantees are higher in comparison to rates on Whole
Turnover Packing Credit Guarantee issued to banks. It is
necessary to obtain this information from the bank as
cost of additional premium for individual guarantee may
sometimes be quite heavy depending upon the turnover
in the account. Guarantees i ssued by ECGC are in
addition to various policies issued by ECGC in favour of
exporters to cover the r isk of non-payment or other
political risk involved in export trade. Full details of these
policies are given in Chapter on Export Credit Insurance.
Exim Banks Scheme for grant of Foreign Currency
Pre-shipment Credit to Exporters (CFPC Scheme
Export Import Bank of India (Exim Bank) has floated a
scheme for Indian exporters to enable them to avail of
pre-shipment credit in foreign currencies to finance cost
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of imported inputs for manufacture of export products.
The scheme is operated through authorized dealers who
are granted refinance by Exim Bank in foreign currency
out of credi t l ines arranged by Ex im Bank. Sal ient
features of the scheme are given hereunder:
i ) Ex im Bank wil l arrange short- term l ines of credi t in
foreign currencies from foreign lending agencies.
i i) Exim Bank wi ll al locate bank-wise l imits in foreign
currencies out of funds so raised for lending by
those banks to Indian exporters.
i ii) The following categories of exporters wil l be el igible
to obtain finance under the scheme:
a) Export House/Trading Houses with annual
turnover exceeding Rs. 10 crores.
b) Manufacturing units with minimum export
orientation of 25% of production or export
turnover of Rs. 50 crores should be made either
directly or through Trading Houses.
c) Exporters should have satisfactory track record.
iv) Pre-shipment credit wil l be made available in any of
the major international currencies in which Exim
Bank raises funds.
v) The packing credit granted under the scheme should
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be within the permissible bank finance sanctioned
by banks under the existing credit policy norms laid
down by Reserve Bank.
vi) The credit risk arising in the transaction will be
borne by banks through whom foreign currency
funds will be disbursed
vii) The outstanding under the facility should always be
covered by firm orders/letters of credit or export
receivables.
vii i) Financing banks should obtain credit reports and
satisfy themselves about the means and standing of
the overseas buyers.
ix) the foreign currency loans to be extended by banks
to their exporters should be covered with ECGC.
The total interest spread will be restricted to 2% over the
interest rate at which the funds are raised by the Exim
Bank. This two per cent will be shared by Exim Bank and
the bank as under:
Share of Exim Bank0.5%
Share of Bank1.5%
Any commitment fee and/or management fee, if
applicable will also be payable by the exporter.
The repayment of pre-shipment credit will be made out of
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packing credit has been drawn by the exporter.
i ii ) The relaxat ions as above are available both under
packing cred it ava iled in rupees or in foreign
currency.
iv) The relaxation as above is, however, not extended
to transactions of sister/associate/group concerns.
Extension of Packing Credit Facility to Sub-Supplier
As per existing guidelines the packing credit is allowed to
be shared between an Export Order Holder including
trading house and a manufacturer of goods exported.
This facil ity is now extended to sub-suppl iers of raw
materials, components etc. to the exported goods. The
detailed guidelines in this regard are as under:
i) The packing cred it fac il ity for the sub-suppl ier w il l
be available only on the basis of an export order or
letter of credit L/C in the name of Export Order
Holder. No running A/c facility will be permitted to
sub-supplier.
ii) The Export Order Holder may open inland L/C
through his banker in favour of his supplier/s on the
basis of the export order or L/C received by him.
On the basis of such inland L/C the bank can grant
packing credit to sub-supplier. Such packing credit
wil l be l iquidated from the proceeds of the bil ls
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drawn under L/C. The L/C opening bank will grant
packing credit to the Export Order Holder at this
stage.
iii) Export Order Holder can open any number of L/Cs
for the various components required within the
overall value limit of the order L/C.
iv) The scheme w ill cover only the rupee packing
credit. The finance given to both the sub-supplier
and Export Order Holder will be eligible for export
packing credit at interest rates as per RBIs interest
rate directive for the specified period as announced
from time to time.
v) The charges for opening inland L/Cs wil l be as per
FEDAI (Foreign Exchange Dealers Association of
India) rules.
vi) The Export Order Holder will be responsible for
exporting the goods as per export order or L/C and
any delay with process will subject him to the penal
provisions as appl icable once the sub-supplier
makes available the goods as inland L/C terms to
the Export Order Holder, his obligation of
performance under the scheme wil l be treated as
complex and penal provisions will not be applicable
to him for any delay by Export Order Holder.
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vii) The scheme will cover only the first stage of
production cycle. In other words a manufacturer
exporter will be allowed to open inland L/C in favour
of this immediate suppl iers of raw material/
components etc. that are required for manufacture
of exported goods. The scheme will not be extended
to cover suppliers of raw material / components etc.
to such immediate suppliers. In case Export Order
Holder is only a trading house, the facil ity wil l be
available commencing from the manufacturer to
whom the order has been passed on by the trading
house.
viii) EOUs/ EPZ units supplying goods to another
EOU/EPZ unit for export purposes are also eligible
for rupeepre-shipment export credit under this
Scheme. However, the supplier EOU/EPZ unit wil l
not be eligible for any post-shipment facility either
in rupees or under PSCFC scheme as the scheme
does not cover sales of goods on credit terms.
ix) The scheme does not env isage any change in the
total quantum of advance or period of advance.
Accordingly, the credit extended under the system
wil l be treated as export credit from the date of
advance to the sub-supplier to the date of
liquidation by Export Order Holder under the inland
export-L/C system and upto the date of liquidation
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of packing credit by shipment of goods by Export
Order Holder.
x) The position regarding interest- tax on export
packing credit granted to sub-supplier is not clear
and interest-tax may be payable for the time being.
Credit against proceeds of Cheques, Drafts, etc.
received directly towards advance payment for
Exports
Banks can grant export credit at concessive interest rate
in such cases subject to the following conditions being
fulfillment.
i) Accommodation is granted for the transit period
stipulated by FEDAI for collection of the instrument
or til l the of realization of proceeds thereof which
ever is earlier.
ii) The bank gets satisfactory evidence that the
instrument represents advance remittance against
an export order.
iii) The Banks past exper ience with the borrowers and
the latters track record are good
iv) The trade pract ices suggest the possibi li ty of such
instrument etc., being received towards advance
payments are the exporters are able to satisfy the
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Bank with reason for receiving payment directly.
v) Exchange Control Department of Reserve Bank has
agreed to treat the direct inward remittance as an
approach method of realization of export proceeds.
vi) I t is ensured by the Bank in due course that the
goods have been shipped.
Packing Credit for Imports against entitlements
under advance licence
Concessive packing credit can be granted to manufacture
exporters for financing of such imports against advance
licence etc. as are meant for manufacture of goods to be
exported by them even if they are not in a position, at
the time availing of credit, to produce letter of credit or
firm order for export of the manufactured items. This will
be subject to the following conditions:
i) The bank has satisfied itself by referring to the
conditions stipulated in the import licence that the
imported material will be utilised for the items to be
exported abroad.
ii) Letter of credit/firm order is produced with in a
reasonable time which should not exceed 60 days
from the date of advance failing which commercial
rate of interest will be charged ab initio.
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POST-SHIPMENT CREDIT
Post-shipment finance means any advance granted to an
exporter after shipment of goods. At the post-shipment
stage.
a) advances against shipping documents;
b) advances against duty drawback.
The need for post-shipment finance arises because
exporters who sell goods abroad have to wait for a long
time before payment is received from overseas buyers.
The period of waiting will depend upon th terms of
payment. Based on different types of terms of payment
different methods of financing are being devised. Most of
the provisions of Exchange Control Manual are by and
large applicable to all these methods of post-shipment
finance except few special provisions applicable to the
individual methods of finance.
Negotiations of Export Documents Drawn under
Foreign L/Cs
This has been thoroughly discussed in Chapter on
Negotiations under Documentary Credits.
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Purchase of Export Bills drawn under Confirmed
Contracts
Purchase or discount facilities in respect of export bills
drawn under confi rmed export order are general ly
granted to customers who are enjoying Bill
Purchase/Discounting l imits sanctioned by the Bank.
Since in case of purchase of discounting of export
documents drawn under export order the security offered
under L/C by way of substitution of credit-worthiness of
the buyer i.e. the importer as well as that of the exporter
or beneficiary. The documents drawn on DP basis are
parted with through foreign correspondent only when
payment is received while in case of DA bills documents
(including that of title to the goods) are passed on the
overseas importer against the acceptance of the draft to
make payment on maturity. DA bills are thus unsecured.
The bank financing against export bills is open to the risk
of non-payment on maturity. DA bills are thus unsecured.
The bank financing against export bills is open to the risk
of non-payment. Banks, in order to enhance security
generally, opt for ECGC policies and guarantees which are
issued in favour of the exporter/banks to protect their
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Duty drawback is permitted against export of different
categories of goods under the Customer and Central
Excise Duty Drawback Rules, 1995. Drawback in relation
to goods manufactured in India and exported means a
rebate of duties chargeable under Central Excises and
Salt Act, 1944 on certa in speci fied goods. The Duty
Drawback Scheme is administered by Directorate of Duty
Drawback in the ministry of Finance. The claims of duty
drawback are settled by Customs House at the rates
determined and notified by the Directorate.
As per the present procedure, no separate claim of duty
drawback is to be fi led by the exporter. A copy of the
shipping bil l presented by the exporter at the time of
making shipment of goods serves the purpose of claim of
duty drawback as well . This c la im is provisional ly
accepted by the customs at the time of shipment and the
shipping b il l is duly veri fied the c la im is settled by
customs office later.
As a further incentive to exporters Customs Houses at
Delhi, Mumbai, Cal cutta, Chennai, Chandigarah,
Hyderabad have evolve a simpl if ied procedure under
which claims of duty drawback are settled immediately
after shipment and no funds of exporter are blocked.
However, where settlement is not possible under the
simpli fied procedure exporters any obtain advances
against claims of duty drawback as provisionally certified
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by customs. The New Delhi Customs has gone a step
further by introducing EDI system of Indian Customs and
now w.e.f. 1.11.1996 drawback claims are settled under
computerized system.
Advance against Goods sent on Consignment Basis
When the goods are exported on consignment basis at the
risk of the exporter for sale and eventual remittance of
sales proceeds to him by the agent/consignee, bank may
finance against such transaction subject to the customer
enjoying specific limit to that effect. However, the bank
should ensure that while forwarding shipping documents
to its overseas branch/correspondent to instruct the
latter to del iver the documents only against Trust
Receipt/Undertaking to del iver the sale proceeds by
specified date, which should be within the prescribed
date even if according to the practice in certain trades a
bill for part of the estimated value is drawn in advance
against the exports.
Advance against Undrawn balance
In certain lines of export it is the trade practice that bills
are not to be drawn for the full invoice value of the goods
but to leave smal l part undrawn for payment af ter
adjustment due to difference in rates, weight, quality
etc., to be ascertained after approval and inspection of
the goods. Banks do finance against the undrawn balance
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if undrawn balance is in conformity with the normal level
of balance left undrawn in the particular l ine of export
subject to a maximum of 10% of the value of export and
an undertaking is obtained from the exporter that he will,
within 6 months from the date of shipment of the goods
surrender balance proceeds of the shipment. Against the
specific prior approval from Reserve Bank of India the
percentage of undrawn balance can be enhanced by the
exporter and the finance can be made available
accordingly at higher rate. Since the actual amount to be
realized out of the undrawn balance may be less than the
undrawn balance it is necessary t keep margin on such
advance.
Advance against retention money
In certain lines of export it is the trade practice that bills
are not to be drawn for the full invoice value of the goods
but to leave smal l part undrawn for payment af ter
adjustment due to difference in rates, weight, quality
etc., to be ascertained after approval and inspection of
the goods. , banks do finance aga inst the undrawn
balance i f undrawn balance is in conformity with the
normal level of balance left undrawn in the particular line
of export subject to a maximum of 10% of the value of
export and an undertaking is obtained from the exporter
that he will, within 6 months from the date of shipment
of the goods surrender balance proceeds of the shipment.
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Against the specific prior approval from Reserve bank of
India the percentage of undrawn balance can be
enhanced by the exporter and the finance can be made
available accordingly at h igh rate. Since the actual
amount to be realized out of the undrawn balance may be
less than the undrawn balance it is necessary to keep
margin on such advance.
Advance against Retention money
Banks also grant advances against retention money,
which is payable wi thin one year f rom the date of
shipment at confessional rate of interest i.e., 13% upto
90 days. If such advances extend beyond one year, they
are treated as deferred payment advances which are also
eligible for concessive rate of interest.
Treatment for Overdue foreign currency Bills
Many a time bills remain outstanding for long after the
transit period or the due date, for some reason or the
other. If the bill is not paid within 30 days after its due
date and the relative credit advice not received by the
concerned bank within this period, the foreign currency
amount of the bil is to be converted into rupees at the
prevailing. T.T. selling rate and the liability will be held
in rupees in the books of the negotiating bank.
Thereafter, the bill with be treated as on collection basis.
As and when the credit advice is f inal ly received, the
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Forfaiting finance ( A new
financing option for
Indian Exporter)
Definition
Forfaiting is a mechanism of financing exports.
By discounting export receivables
Evidenced by bills of exchange or promissory notes
without recourse to the seller (viz. Exporter)
On a fixed rate basis (discount)
Upto 100 per cent of the contract value.
The word forfait is derived from the French word a
forfait which means the surrender of rights.
Simply speaking, forfaiting is the non-recourse
discounting of export receivables . In a for faiting
transaction the exporter surrenders, without recourse tohim, his rights to claim payment on goods delivered to an
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importer, in return for immediate cash payment from a
forfaiter. As a result an exporter in India can convert a
credit sale into a cash sale, with no recourse to the
exporter or his banker.
Eligibility
Al l goods exported on credi t terms are e ligible for
forfaiting, subject to quotes being available.
How forfaiting works?
Receivables under a deferred payment contract for export
of goods, evidenced by bills of exchange or promissory
notes, can be forfaited.
Bil ls of exchange or promissory notes, backed by co-
acceptance from a bank (which would generally be the
buyers bank), are endorsed by the exporter, without
recourse, in favour of the forfaiting agency in exchange
for discounted cash proceeds. The bankers co-acceptance
is known as availisation. The co-accepting bank must be
acceptable to the forfaiting agency.
Prescribed formats
The bil ls of exchange or promissory notes should be in
the prescribed format.
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Role of Exim bank
The role of Exim bank will be that of a facilitator between
the Indian exporter and the overseas forfaiting agency.
On a request from an exporter, for an export transaction
which is el igible to be forfaited, exim bank wil l obtain
indicat ive and f irm forfa it ing quotes-discount rate,
commitment and other fees-from overseas agencies.
Exim bank wil l receive avail ised bil ls of exchange or
promissory notes,m as the case may be, and send them
to the forfaiter for discounting and will arrange for the
discounted proceeds to be remitted to the Indian expoter.
Exim Bank wil l issue appropriate certificates to enable
Indian exporter.
Exim Bank wil l issue appropriate certificates to enable
Indian exporters to remit commitment fees and other
charges. Exim bank has been authorized by the Reserve
Bank of India vide AD (GP Series) Circular No. 3 dated
February 13, 1992, to facilitate export financing through
forfaiting.
Forfaiting costs
A forfaiting transaction has typically three cost elements:
Commitment free,
Discount fee,
Documentation fee.
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Commitment fee
A commitment fee is payable by the exporter to the
forfaiter for the latters commitment to execute a specific
forfait ing transaction at a f irm discount rate within a
specif ied time (normally not more than one year). The
commitment fee generally ranges between 0.5 per cent
and 1.5 per cent per annum of the utilized amount to be
forfaited and is charged for the period forfait contract,
whichever is earlier. The commitment fee is payable
regardless of whether or not the export contract is
ultimately executed.
Discount fee
Discount fee is the interest cost payable by the exporter
for the entire period of credit involved and is deducted by
the for fa iter f rom the amount paid to the exporter
against the avalised promissory notes or bill s of
exchange. The discount fee is based on the relevant
market interest rates as ref lected by the prevai ling
London Inter-Bank Offered Rate (LIBOR) for the credit
period and currency involved, plus a premium for the
r isks assumed by the forfa iter. The d iscount rate isapplied to the aggregate principal and interest due on the
debt instrument on its maturity to arrive at the payout to
the exporter. The discount rate is established at the time
of executing a forfait contract between the exporter and
the forfaiting agency.
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Documentation Fee
Generally, no documentation fee is incurred in
straightforward forfait transactions. However, if extensive
documentation and legal work is necessary a
documentation fee may be charged.
Other Costs
Exum Bank will charge a service fee for facilitating the
forfait ing transaction which wil l be payable in India
rupees, there may be addit ional costs lev ied by a
forfaiter, such as handling charges, penalty etc. However,
these costs are transaction-specific and will be specified
and will be specified, where applicable.
Transferability of cost
As per Reserve Bank of India's AD (GP Series) Circular
No. 3dated February 13, 1992, discount fee,
documentat ion fee and any other costs lev ied by a
forfaiter must be transferred toi the overseas buyer.
Commitment fee should also be passed on to the
overseas b over to the extent possible.
The exporter should f inal ise the export contract in a
manner which ensures that the amount received in
foreign exchange by the exporter after payment of
forfait ing discount and other fees is equivalent to the
price which he would obtain of gods were sold on cash
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payment terms.
Computation of Duty Drawback
Duty drawback wil l be computed only on FOB cost of
goods i.e invoice value less freight, insurance, if any, and
forfait discount and other related fees.
The Forfaiting Benefits
Concerts a deferred payment export into a cash export
into a cash transaction, improving liquidity and cash
flow.
Frees the exporter from cross-border pol it ical or
commercial risks associated with export receivables.
Finance upto 100 per cent of the export value is
possible as compared to 80-85 per cent f inancing
available from conventional export credit programmes.
As forfait ing offers without recourse finance to an
exporter, it does not impact the exporter's borrowing
limits. Thus forfaiting represents an additional source
of funding, contributing to improved liquidity and cash
flow.
Provides fixed rate finance; hedges against interest
and exchange risks arising from deferred export credit.
Exporter is f reed from credit administration and
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collection problems.
Forfaiting is transaction specific. Consequently, long
term banking relat ionship with the forfaiter is not
necessary to arrange a forfaiting transaction.
Exporter saves on insurance costs as forfai ting
obviates the need for export credit insurance.
Simplicity of documentation enables rapid conclusions
of the forfaiting arrangement.
Other Important Factors
Currency in which contract must be executed to vbe
eligible for forfaiting: the export contract can be execute
din any of the major convert ib le currencies e.g. US
Dollar, Deutsche Mark, Pound Sterling, Japanese Yen.
Minimum value: The minimum value of an export contract
eligible for for fa it ing and acceptable to a for fa it ing
agency will generally be the equivalent of $ 500,000.
El ig ibi li ty: El ig ibi li ty of an export transaction for
forfaiting can be determined when the forfaiting agency
is approached for a forfait quote. The availability of a
forfaiting quote for a particular country will depend on
the forfaiting agency's perception of risk quality of export
receivables from that country. The forfaiting agency will
indicate the maximum amount and the period of discount
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while giving quote for forfaiting.
In case exporters wisdh to forfait their export
receivables, Exim Bank can be contracted with these
details:
Name and address of foreign buyer
Country to which exports are to be made
Name of the guarantor bank (i.e. aval), if known to the
exporter
Nature of goods
Operating mechanism
1. Indian exporter initiates negotiations with prospective
overseas buyer with regard to order quantity, price,
currency of payment, delivery period and credit terms.
2. Exporter approaches Exim bank to obtain an indicative
foraiting quote from the forfait ing agency. For this
purpose, the exporter i s requ ired to provide the
following information-
Name and address of foreign buyer
Country to which exports are to be made
Name of the guarantor bank (i.e. aval), if known to the
exporter
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Nature of goods
Order quantity
Amount of order base price, interest rate
Delivery period and repayment schedule
Name of the authorised dealer who wil l handle the
export transaction for the exporter in India.
3. Exim Bank obtain ind icative quotes of d iscount,
commitment fees and documentation fees, if any, and
communicates these to the exporter.
4. Exporter f inalises the terms of the contract with the
buyer. The final export offer must be structured in a
manner which ensures that the amount received in
foreign exchange by the exporter after payment of
forfaiting discount and other fees is equivalent to the
price which he would obtain if goods were sold on cash
payment terms.
5. If the terms are acceptable ot the overseas buyer, the
Indian exporter informs Exim Bank accordingly and
requests the Bank to obtain a f irm quote form the
forfaiting agency.
6. Exim Bank obtains a f irm quote form the forfait ing
agency and conveys this information to the exporter
and his author ized dealer , wi th a request to the
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exporter to confirm acceptance of the forfaiting terms
within a specified time limit.
7. Indian exporter confirms acceptance of forfaiting terms
of Exim Bank. The exporter will enter into a
commercial contract with the overseas buyer and also
execute a forfaiting contract with the forfaiting agency
through Exim Bank.
8. On execution of the forfait ing contract. Exim Bank
issues:
A certificate to the exporter with a copy to the
authorised dealer, regarding the commitment fee to be
paid by the exporter to the forfait ing agency. This
certificate will enable to exporter to remit commitment
fees to the forfaiting agency, in accordance with the
schedule indicated in the forfaiting contract in terms of
the Reserve Bank of India guidel ines governing
forfaiting contracts, commitment fees will be regarded
as being analogous to bank charges, and will not be
required to be mentioned in the GR form or shipping
bill prepared by the exporter, subject to the
commitment fee not exceeding 1.5 per cent of the
contract value.
A certi ficate to the exporter detai ling the discount
payable to the forfaiting agency, to enable the Indian
Customs authori ties to ver ify deductions towards
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discounts declared by the exporter on the GR form and
shipping bill.
9. The Indian expor ter ships the goods as per the
schedule agreed with the overseas buyer . The
forfaiting transaction will be reflected in the following
three documents associated with an export
transaction, in the manner suggested below:
Invoice
Forfaiting discount, commiment fees, etc. need not be
shown separately; instead, these could be built into the
FOB price, stated on the invoice.
Shipping Bill and GR form
Details of the forfaiting costs will be included along with
the other detail s, such as FOB price, commiss ion
insurance, normally included in the "Analysis of Export
Value" on the Shipping Bill. The claim for duty drawback,
if any, wil l be certif ied only with reference to the FOB
value of the exports states on the shipping bill.
In case of exports covered under the scheme of
forfaiting, the following procedure should be followed for
filling up the various columns relating to the FOB value in
the Shipping Billl and the GR form.
i ) the column "Total f .o .b. value in words" w il l reflect
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the total invoice value inclusive of the forfait ing
discount.
ii) Under the column "Analysis of export value," the
actual f .o.b. value, exclusive of the forfa it ing
discount should be indicated against the sub-column
"FOB value". The forfaiting discount will however,
have to be shown separately under the sub-heading
"Other Deductions", on he basis of Exim Bank's
certificate which is to be submitted by exporters to
the Customs authorities.
iii) The column "Full export value or where not
ascertainable the value which exporter expects to
receive on the sale of goods" should indicate the
tota l invo ice value inclus ive of the for fa it ing
discount.
iv) Under the column "Assessable Value under section
14" the actual f .o.b. value, net of the forfait ing
discount will have to be shown.
v) On the reverse of the Shipping Bi ll , the figures to be
ind icated aga inst the column "Value on which
Drawback Claim" should be the f.o.b. value after
deduction of the formatting discount.
v i) These instructions have been communicated to All
Col lectors of Customs by Minist ry of Finance,
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Department of Revenue in terms of Notif ication
F.No. 605/26/91-DBK dates march 1,1993.
10.The export contract wil l provide for the overseas
buyer to furnish avalised bills promissory notes.
11.If the contract for bills of exchange, the exporter will
draw a series of bil ls of exchange and send them
along with shipping documents to his banker for
presentation to importer for acceptance through
latter's banker. Importer's banker will hand and over
shipping documents to importer against acceptance of
bil ls of exchange by the importer and signature of
avail. Avalised and accepted bil ls of exchange with
the words "Without Recourse" and forward them
through his banker to Exim Bank, which in turn will
send to the forfaiting agency.
12.If promissory notes are provided for in the export
contract, then the exporter will require the importer
to prepare a series of avalised promissory notes, as
agreed.
On shipment, the exporter's bank sends the shipping
documents to the importer's bank for transmission to the
overseas buyer. Importer 's banker wi ll hand over
shipping documents to importer against aval ised
promissory notes issued by the importer.
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Avalised and accepted promissory notes will be forwarded
to the exporter through his banker.
The Indian exporter endorses the avalised promissory
notes with the worlds "Without Recourse" and forwards
them through his bank to Exim Bank, which in turn will
send them to the forfaiting agency.
13.The forfait ing agency effects the payment of the
discounted value, in accordance with Exim Bank's
instructions, after verifying the aval's signature, and
other particulars.
Normally, Exim Bank will direct the forfaiter to credit the
payment to the nostro account of the exporter's bank in
the country where the forfa iter is based. The bank
receiving the discounted proceeds will arrange to remit
the funds to India. The exporter will be issued a
Certif icate of Foreign Inward Remittance. The GR form
will also be released.
14.An export contract which provides for more than
one shipment can also be forfaited under a single
forfait ing contract. However, where the export is
ef fected in more than one shipment, avai lsed
promissory notes/bil ls of exchange in respect of
each shipment could be forfaited, subject to the
minimum value requirements laid down by the
forfaiter.
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15.On maturity of the bills of exchange/promissory
notes, the forfaiting agency presents the
instruments to the aval for payment.
1. Customs Publ ic Not ice on Forfa it ing d iscount and
commitment fees - Certificate of net realisable value
of exports by Customs The Export Import Bank of
India (Exim Bank), in consultation with the Reserve
Bank of India, have decided to introduce the Scheme
of Forfaiting as an instrument of f inancing exports.
The scheme is being introduced initially of a period of
three years.
2. Forfaiting, which is an instrument of export financing,
involves purchase of invoices, b il ls of exchange,
promissory notes etc. by certain forfaiting Agencies
abroad at a discount from the exporters in different
Countr ies of the world without recourse to such
exporters. The objecive of the scheme is essentially to
help out exporters overcome he problems of delay in
the repatriation of the export sale proceeds. Under
the scheme, the exporter forfaits his right to futue
payment in return for immediate cash. In other worlds
int converts credit shale into a scahs transaction the
considration being discount that the exporters/his
bank wil l have to bear. Forfaiting is without further
recourse to the exporters i.e. of forfaiting
bank/financial institution is unable to realise the
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amount frojm the purchasers of the goods, they
cannot come back to the exporters for recovery of the
amount. In such a transaction, the Forfaiting Agencies
normally charge forfaiting discount (which varies from
country to country and from transaction to
transaction) and a committeemen fee which is payable
till such period as the discount is allowed. The Indian
exporters opting for the Scheme will have to charge
their foreign buyers with these two elements of costs
over and above the contractual base price agreed
upon. All transactions under the forfaiting scheme will
be through the Exim Bank of India which will act as
intermediary.
3. As clarif ied by the Exim Bank, the commitment fees
would be payable at a specified rate on the contract
value for the period commencing from the date of
acceptance of the offer, til l the date of disbursals of
the amount by the Forfaiting Agency (which will take
place after shipment and presentation of documents).
Accordingly, it would not be possible to quantity this
fee at the time of shipment. The commitment fees will
be analogous to the bank charges. Since bank charges
are now being allowed to be included in the F.O.B.
value declared by the exporters it has been decided
that this fee should also be included for arriving a the
value under section 14 of the customs act. In al l
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and the G.R. Form:
ii) under the column 'Analysis of export value' , the
actual F.O.B. value, exclusive of the forfa it ing
discount should be indicate against the sub-column
'FOB Value'. The forfaiting discount will, however,
have to be shown separately under the sub-heading
"Other Deductions", on the basis of Exim Bank
certificate submitted by the individual exporter.
iii) The column "full export value or where not
ascertainable the value which exporter to receive
on the sale of goods" should indicate the total
invoice value, inclusive of the forfaiting discount.
iv) Under the column 'Assessable Value under Sect ion
14' the actual F.O.B. value, net oof the forfait ing
discount will have to be shown.
v) On the reverse of the S/Bill the figures to be
indicated against the column. Value on which
Drawback Claim' should be the F.O.B. Value after
deduction of the forfaiting discount. The drawback
amount and other export incentives will have to be
calculated with reference to the value shown after
the requisite deductions and should match with the
f igures shown as FOB value as indicated in ( ii )
above.
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vi) The entries in the GR from with regard to the
break-up of the value should be verif ied by the
Customs authorities on the basis of the EXIM Bank
certificate before acceptance. The certificate to be
issued by the EXIM Bank should be endorsed by the
Customs Officials with the shipping bill number and
date and after completion of the Customs
formalities should be forwarded to the Reserve bank
of India with the GR form.
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Non-Conventional
Avenues for Export
financing
Most exporters try to f inance their exports through
commercial banks. To promote their exports some also
take advantage of the Governments Marketing
Development Assistance Scheme through the Ministry of
Commerce. Yet , there are many exporters who are
ignorant of various funding schemes of other
organizations which could help them to f inance their
exports. In the following paragraphs, an efforts has been
made to identify such schemes and highlight their specific
requirements for the benefit of the exporting community.
Exim Bank
The financing schemes of Exim-Bank have been discussed
later in this Chapter.
Industrial Credit and Investment Corporation of
India Ltd. (ICICI)
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All the f inancial institutions (namely IDBI, IFCI and
ICICI) give priority to financing projects involving export
possibi li ties. However, ICICI has separate fund for
financial assistance to Industrial Export Projects. Under
th is scheme, ICICI provides assistance under two
schemes (i) Productivity Fund (for market development);
and (ii) Term Loans.
Productivity Fund
Financial assistance is available by way of a grant for
upgrading export marketing (through market research,
product adaptation, training etc.) and for improvement
in productivity (through introduction of process/product
technology) which would increase export competitiveness.
Eligible Companies
Private/Joint Sector companies having comprehensive
productivity scheme with a view to enhancing
exportabil ity of its products. Prior ity is given to
companies manufacturing products with identified export
prospects, preferably in the thrust industr ies l ike
engineering, electronics, chemicals, pharmaceuticals,
textiles, apparel, leather, food processing and packaging
and computer software.
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improvement.
vii) For upgrading product/process technology through
induction of technical know-how.
Export Market Development Activities
i) Desk Research to focus on promising markets.
ii) Overseas Market Research for evaluating product
specifications identifying market segments,
distribution channels, buyer profiles etc.
iii) Overseas travel for appointing agents/distr ibutors,
direct selling and for keeping abreast with product
developments.
iv) Product inspectively /cert if icat ion services.
v) Tra in ing of export market ing personnel .
vi) Travel to India by potent ia l buyers.
vii) Sampl ing, Advert is ing etc. required for product
launch an international markets.
Quantum of Assistance
Grants upto 50% of the cost of the productivity scheme,
subject to a maximum of US$ 4,00,000.
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Terms of Loan
Repayment
schedule
: Repayment in 5 to 10 years with
grace period of 1 to 3 years-
depending on the expected cash
generations.
Exchange Risk :None, as even the foreign
currency loan (if any) is
denominated in Indian Rupees on
disbursement
Conversion Option :ICICI does not retain the option of
converting the loan to equity.
Agricultural Commercial and Enterprise (ACE)
project
ACE is funded by USAID, ICICI is the implement ing
agency for the project.
Objectives
The main objectives of the project are:
- To increase private investment in the agro-business
sector.
- To improve linkages between horticulture producers,
processors and traders.
- To increase flow of fresh and processed horticulture
products to targeted domestic and export markets.
- To increase rural incomes.
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Eligible Organizations
Private commercial venture and co-operatives in the
State of Maharashtra will be eligible to receive assistance
under ACE.
Type of ACE activities
Thee groups of activities have been identified:
- Loans to private sector
- Technical assistance
- Trade and investment tours
Loans to Private Sector Agro-Business
All types of agro-business entrepreneurs in Maharashtra
will be eligible for ACE assistance.
Technical Assistance
Chemonics International, which has its headquarters in
Washington, D.C. and field offices in Miami, Budapest and
Warsaw, wil l be providing Technical Assistance (TA) to
private firms in designing and/or implementing innovative
projects related to post-farm agriculture
development.
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Trade and Investment Tours
ACE wi ll organ ise and f inance about 15 Trade and
Investment (TI)m tours for entrepreneurs to visit firm in
USA/India for building commercial linkages. The request
for TI should meet the objective of the ACE programme
and preferably result in an ACE project.
Main Terms of Assistance
LOANS TO PRIVATE SECTOR
Promoters
contribution
Atleast 255 of the project cost.
ACE AssistanceUpto 50% of the project cost
subject to a maximum of US $
7,50,000 or its reupee equivalent,
and balance 25% through
loans/equity from other financial
institutions/banks.
Repayment periodUpto seven years including suitable
moratorium
Technical Assistance
Promoters contribution atleast 25% of the TA cost and
the balance as grant from ACE funds.
The maharastra Chamber of Commerce and Industries
(MCCI), Pune would be assisting ICICI for promotion of
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the ACE project.
Project proposals submitted by the entrepreneurs will be
evaluated by ICICI for approval. ICICI has formed an ACE
Group in its technology division for implementing the ACE
project.
For further information please contact:
Mr. Arjan Advani, General Manager
The Industrial Credit and Investment Corpn. Of India Ltd.
Scindia House, 5 th Floor, N.M. Marg,
Ballard Estate, Bombay 400 038.
Tel No. 2618251
Telex No.011-84458 ICIC IN
Gram: CREDCORP Bombay
Fax: 022-2625444
Department of Scientific and Industrial Research
(D.S.I.R.)
The DSIR operates a scheme called Transfer and Trading
in Technology (TATT) under which it can grant assistance
for technology exports. Apart from financial assistance,
the prospective technology/service exporters can also
identify possible export opportunities by studying the
technology profiles of various developing countries, which
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have been prepared with the support of DSIR to identify
the technology needs of those countries.
Scheme of Transfer and Trading in Technology (TATT)
Under this scheme, the DSIR provides support by way of
grant, to f inance exports. The quantum of grant and
eligibi li ty is determined case-to-case, but grant can
extend to 100% of the eligible expense.
Eligible Activities
i) Preparat ion of reports/f ilms regarding capabi lit ies
and experience of Indian industrial units and other
concerned organisations in export of technologies
and services.
ii) Preparation of technology profiles having export
potential.
iii) Training programmes for potential foreign cl ients.
iv) Preparation and dissemination of publicity and
market promot ion materials like technology
catalogues, brochures, video fi lms, audio-visuals
etc.
v) Participation in technology trade fairs, exhibi tions
etc. ( including participation fee, cost of display
etc.).
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