EXPORT FINANCE

EXPORT ACTIVITY LC or ORDER COMMERCIAL BANKS / EXIM BANK EXIM BANK SALES TOUR PARTICIPATION IN FAIRS/EXHIBITIONS ADVERTISING IN FOREIGN MEDIA OPENING OF FOREIGN OFFICES PROCUREMENT OF RAW MATERIALS PRODUCTION INSURANCE FREIGHT SHIPMENT SHIPPING DOCUMENTS LC or ORDER REALIZATION OF PROCEEDS RECEIVABLES EXIM BANK FIEO / MoC COMMERCIAL BANKS / EXIM BANK FINANCIAL INSTITUTIONS

Export Finance a. What is financed ? Cost of input, ci&f (not profit) Receivables from the Government - DDB b. Two stages Pre- shipment Post- shipment c. Two types Indian Rs Foreign currency d. Registration requirement

Pre Shipment Finance 2. Post Shipment Finance DIFFERENT STAGES OF EXPORT FINANCE Pre Shipment Finance 2. Post Shipment Finance

Pre- shipment finance PRE-SHIPMENT FINANCE a. working capital b. in anticipation of exports PERSONS ELIGIBLE Merchant exporter Manufacturer exporter Export and Trading Houses Manufacturer s supplying goods to EH , TH or merchant exporters Conditions Attached Not on the caution list of RBI Should have a licence if the goods are on restricted list Quota allotment proof if the goods are under quota system

2. Advance against receivables from Govt TYPES OF PRE SHIPMENT FINANCE Packing Credit 2. Advance against receivables from Govt 3. Advance against cheques /drafts representing advance payments

Pre- shipment finance BASIS FOR GRANTING A confirmed export order /contract or Letter of credit or Original fax /telex message exchanged between the buyer and the seller In case of sub suppliers A letter from the main exporter a undertaking from the main exporter that he has not availed packing credit from any other bank PURPOSE a. purchasing raw materials b. manufacturing c. processing d. transporting e. warehousing f. packing, and g. shipment

Pre- shipment Finance QUANTUM OF FINANCE Concept of need based finance Margin requirement Credit rating of the exporter Receivables on account of DDB PERIOD OF ADVANCE a. Product cycle b. 180 days plus extension of 90 days c. In case of DDB 90 days

Pre- shipment Finance Rate of Interest Not exceeding Base Rate minus 2.5% for 270 days Above 270 days ………….no cap from RBI DDB………….upto 90 DAYS Base Rate minus 2.5% Above 90 days …………no cap from RBI END USE Payment to be released only for designated purposes LIQUIDATION OF FINANCE a. Export Bill b. Fresh credit c. DDB d. substitution of contract/ buyer/ commodity etc allowed

3. Export of deoiled/defatted cakes Where DDB is the part cost quoted PACKING CREDIT IN EXCESS OF EXPORT VALUE Where by- product can be exported eg agro product – raw cashew nut( cashew shell oil) 2. Where partial domestic sale is involved eg tobacco, pepper ( for gradation into exportable /non exportable) 3. Export of deoiled/defatted cakes Where DDB is the part cost quoted

Post- shipment Finance WHO IS ELIGIBLE Merchant/Manufacturer exporters Export /Trading Houses Manufacturer supplying goods to EH/TH or Merchant Exporter BASIS PURPOSE QUANTUM

Export bills purchased/negotiated /discounted TYPES OF POST SHIPMENT FINANCE Export bills purchased/negotiated /discounted 2. Advances against bills sent on collection basis 3. Advance against exports on consignment basis Advance against undrawn balances 5. Advance against Duty Draw Back receivables from Government

Post- shipment Finance PERIOD OF FINANCE at concessional rate at overdue rate NTF NDD END USE CHANGE OF TENOR

Export credit in foreign currency AVAILABLE FOR EXPORTS MADE ON ‘CASH’ BASIS ONLY Pre-shipment IRS Post-shipment IRS Pre-shipment FC Post-shipment FC CHOICE OF CURRENCY - $, £, ¥, € change of currency is allowed RATE OF INTEREST is LIBOR + 350% max , overdue rate is +2% GOOD FOR IMPORT BASED INDUSTRY NO PREMIUM BENEFIT

Merchanting trade Transactions where goods are either DIRECTLY SHIPPED to the country of the buyer or TRANSHIPPED at an Indian port under customs supervision, but not the cases where goods are imported into India for re-export after processing, re-labeling etc. TRADER BUYER SELLER INDIA goods 2 goods 1 LC Order Or Adv. Payment LC Order Or Adv. Payment

Contd.. 1.For genuine traders, not for financial intermediaries. Obtain approval from AD. 2. Import should be possible in importing country and payment should be forthcoming 3. No foreign exchange involved except for NTP or maximum 1 month. Drafts should be of same tenor 4. Total transaction should be within 6 months of LC date or date of approval from AD (advance payment) 5. Funds received abroad can be retained in Nostro A/c 6. Transaction should leave reasonable profit

FORFEITING- An Export financing option Forfeiting is a mechanism of financing exports By discounting export receivables Evidenced by BOE /DPN Without recourse to the seller Carrying medium to long term maturities On a fixed rate basis ( discount) Upto 100% of contract value

FORFEITING- An Export financing option Type of exports eligible for F Capital goods and other goods made on medium to long term credit How does F works co-accepted BOE endorsed by exporter in favour of Factor , without recourse in exchange of discounted cash proceeds

FORFEITING- An Export financing option What does forfeiting cost ? Commitment fee 0.5 to 1.5% pa of the unutilised amount no refund if not used Discount fee interest rate plus premium for the risk assumed by the forfaiter Documentation fee – no AS PER RBI DISCOUNT FEE ,DISCOUNT FEE AND ANY OTHER COST MUST BE TRANSFERRED TO THE OVERSEAS BUYER

FORFEITING- An Export financing option Benefits……………… Converts Deferred Payment exports into a cash transaction Exporter is free from credit administration and collection problems No cross border political or commercial risk Forfeiting represents an additional source of funding as it is not on the balance sheet of the exporter On a fixed rate basis..hedges against interest and exchange risks Upto 100% of contract value as compared to 80 to 85% under conventional export credit programmes

Forfeiting- An Export financing option Benefits……………… Forfeiting is transaction specific and hence long term relationship with the forfaiter is not pre requisite. Saves on insurance cost(ECGC) Simple documentation