UNIT -4 Pre & post shipment credit scheme Role of exim bank Financial Guarantee Export House Trading

House Star trading house Superstar trading Houses

Pre & Post Shipment Credit Scheme

Export Finance Exporter needs finance for purchasing, processing, manufacturing or packing of goods for export. After the goods have been shipped there is time gap between the time of shipment and receipt of export proceeds from the buyer. Export finance is the cheapest, easiest and the most liberal finance available in industry. It is generally found that they exporter are in need of finance at 2 stages -Pre shipment stage (before the goods are shipped) and -Post shipment stage(when the goods have been shipped).

Pre shipment Finance

Pre shipment finance is related to export after procuring the order, to purchase the row material, processing pre shipment inspection, packing, insurance, transport charges, export duty, dock charges and custom house charges. Packing Credit Extended by the banker for the procurement of raw material, processing, pre shipment finance and packing. Shipping Loan To meet the insure, transport, export license fees, export duty, dock charges and custom house charges. Person eligible for packing credit Packing credit can be grated to an exporter, who has export order in his own name and who will actually export the goods. However, as an exception to this rule, packing credit can be granted to supporting manufacturers or suppliers of goods, who do not have export ordering his name and are exporting through merchant exporter or export house. Basic criteria for granting packing credit Since export finance is a purpose oriented, it is granted to the eligible exporter or the manufacturers against evidence/lodgment of irrevocable L/C, established/transferred through the medium of a reputed bank or confirmed order/contacts placed by buyer. Purpose of finance Packing credit finance, being purpose-oriented finance, is granted for the specific purpose of procuring raw material, purchasing, manufacturing, processing, transporting, warehousing, packing and shipped the goods. Quantum of finance There is no fix formula for determines the quantum of finance, to be granted to exporter but banks normally finance 60% to 80% of the total value of export in many stage. Period of finance Maximum extendibility is only for 180 days or expiry date or processing period which ever is earlier. Rate of interest- Changer as per bank rules

Post shipment finance

Post shipment finance is the finance extended by the bank after effective the shipment to bridge the financial gap. Post shipment finance is required because at the pre shipment stage exporter gets only 60% to 80%. So balance amount need to be released to him after shipment. Post shipment finance can be classified as under Negotiation (settlement) of document under L/C The exporter tenders the documents to his bank and the bank pass the value to the exporter even before receiving it. It is done with resource (right of recovery). Purchase of document without L/C In case there is no L/C. the bank purchase the document drawn under the order. Exporter's bank runs a bigger risk in this case. Bank while purchasing the documensinsist of ECGC policy + credit limit on buyer. So that bank cans fallback on ECGC in the case of need.

Post shipment finance

Advance against document sent on collection basis Sometimes, it is possible that there is a shortfall in sanction bills, purchase or negotiation limit. To cover the entire amount of a bill tendered by the exporter for purchase or negotiation, or the document drawn under L/C have some discrepancies and the bank is reasonably sure that the same will be accepted to the buyer and that the bill will be paid. Under such situation, considering the immediate need and requirement of the exporter, the bank may send the bill on collection basis and finance him to some extent out of the total bill amount. Advance against retention money When the capital goods are being exported the buyer does not pay the full amount to the exporter but retain certain amount as retention money. It is lieu of performance guarantee according to India law only 10% is retention money only for 6 months. Advance against undrawn balance In certain line of export, it is the trade practice that bills are not to be drawn for the full invoice value of the goods but it leave small parts undrawn for payment after adjustment due to difference in rates, weight, quality. The undrawn amount is pay by the buyer after testing the goods at the discharge port. Bank finance the undrawn balance subject to a minimum of 10% of the value of export and an undertaking is obtained from the exporter that he will surrender the balance within 6 months or 12 months from the date of shipment. Purpose of post shipment finance Post shipment finance, being basically on export sales finance, is meant for financial export sales receivables after the date of shipment of goods of the trade of realization of the export proceeds. Quantum of post shipment finance Post shipment finance can be extendedly to 100% of invoice value of goods. Period of post shipment finance Post shipment finance can be a both short term and long term finance depending upon the payment terms. Rate of post shipment finance Upto 90 days --------> PLR - 2.5% 91 - 180 days -------> PLR - 0.5% 181 days and more --------> depend on the bank.

Role of exim banks

Exim Bank of India

SET UP BY AN ACT OF PARLIAMENT IN SEPTEMBER 1981 WHOLLY OWNED BY GOVERNMENT OF INDIA COMMENCED OPERATIONS IN MARCH 1982 APEX FINANCIAL INSTITUTION

OBJECTIVES:

for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys international trade shall act on business principles with due regard to public interest
(Export-Import Bank of India Act, 1981)

Network of Offices
OFFICES IN INDIA
HEAD OFFICE Domestic Offices MUMBAI 9 Mumbai Kolkata, Bangalore Ahmedabad Guwahati Delhi Chennai Hyderabad Pune

OFFICES OVERSEAS
Overseas Rep. Offices 5 Washington D.C. Singapore Johannesburg London Budapest

Range of Products & Services

Range of Products Services
Advisory Services

Export Marketing Export Production

Export Product Development

PreShipment PostShipment

Knowledge Building

Investment Abroad
Advisory Services

IINFORMATION
SUPPLEMENTS FINANCING PROGRAMMES

Import Finance

Business Strategy
FINANCING PROGRAMME
Export Finance for Projects/Products/ Services/ Finance for Export Oriented Units: Manufacturing Facilities/ Product Development/ Export Marketing Finance for Agri Export Business Overseas Investment: Equity Loan/ Equity Investment Overseas

ADVISORY SERVICES
Opportunities in Multilateral Funded Projects Joint Venture Facilitation Service Export Marketing Service for SMEs

RESEARCH & ANALYSIS

Sector Studies on potential export sectors Country Studies on potential markets

Major Programmes
EXPORT CREDIT
PROJECTS

FINANCE FOR EXPORTING COS

TERM LOANS

VALUE-ADDED SERVICES
EXPORT MARKETING SERVICES MULTILATERAL FUNDED PROJECTS

Supplier's & Buyer's Credit Pre-Shipment Credit Guarantees & L/Cs

WORKING CAPITAL

EXPORT MARKET/ EXPORT PRODUCT DEVELOPMENT

EXPORT FACILITATION OVERSEAS INVESTMENT FINANCE DIRECT EQUITY PARTICIPATION IN INDIAN EXPORTING COs DIRECT EQUITY PARTICIPATION IN INDIAN OVERSEAS VENTURES IMPORT FINANCE CAPITAL GOODS, RAW MATERIALS

JOINT VENTURE FACILITATION

CONSULTANCY SUPPORT

PRODUCTS

WORKSHOPS & SEMINARS

Lines of Credit Pre-Shipment Credit Post-Shipment Credit

INFORMATION SERVICES

SERVICES

Supplier's Credit Buyer's Credit

Support for Execution of Projects

Pioneering Role in Promoting Project Exports Exim Bank plays a pivotal role in promoting and financing Indian companies in the execution of projects Over the past two decades, increasing number of projects have been executed by Indian companies in North Africa, Sub Saharan Africa, West Asia, South & South East Asia, CIS and Latin America Projects currently under execution with Exim Bank support No. of Contracts Value of Contracts No. of Countries : : 190 : 42 US$ 6 bn

STATUS HOLDER SCHEME REVAMPED

Export House (earlier known as One Star Export House), Star Export House (earlier known as Two Star Export House), Trading House (earlier known as Three Star Export House), Star Trading House (earlier known as Four Star Export House), and Premier Trading House (earlier known as Five Star Export House). They will be granted such status on achieving aggregate exports of Rs.20 crore, Rs.100 crore, Rs.500 crore, Rs.2500 crore and Rs.10000 crore respectively over a period of four years.

STATUS HOLDER SCHEME REVAMPED

Old category Earlier performance criteria (Rs. Crore) 15 New category New performance criteria (Rs. Crore)

One Star Export House Two Star Export House Three Star Export House Four Star Export House Five Star Export House

Export House

20

100

Star Export House Trading House

100

500

500

1500 5000

Star Trading House Premier Trading House

2500 10,000