Export Financing Project 071203

8/14/2019 Export Financing Project 071203

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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.

K.KRISHNAN, IGNOU


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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.

K.KRISHNAN, IGNOU


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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

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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.).

K.KRISHNAN, IGNOU

8/14/2019 Export Financing Pro