You are on page 1of 21

PRESHIPMENT TRADE FINANCE

Pre-shipment finance is credit granted to the Exporters by a financial institution. Pre-shipment finance is part of working capital finance. The main objective is to enable the exporter to: a)Procure raw material. b)Carry out manufacturing process. c)Provide a secured warehouse for goods & raw material. d)Process and pack the goods. e)Meet other financial costs, if any, of the business.

TYPES OF PRE-SHIPMENT FINANCE


A) Packing credit. B) Advance against cheques/drafts etc representing advance payments. Pre-shipment advance is extended in the following forms: 1) Packing credit in Indian Rupee (PCL) 2) Packing credit in Foreign Currency (PCFC) REQUIREMENT FOR GETTING PACKING CREDIT The facility is provided to the exporter who satisfies the following conditions: a) Exporter should have a ten digit importer-exporter code number allotted by DGFT (Director General of Foreign Trade).

ELIGIBILITY FOR PACKING CREDIT


Pre-shipment credit is granted to an exporter who has the export order or LC in his own name. The exporter is the person or company who actually delivers the goods to the importer/buyer. However, as an exception, Financial Institutions can also grant credit to a third-party manufacturer or supplier of goods who does not have export orders or LCs in their name. But some of the responsibilities of meeting the export requirement have been outsourced to them, by the main exporter.

QUANTUM OF FINANCE
There is no fixed formula to determine the quantum of finance that is granted to an exporter against a specific order/LC. The only guiding principle is the concept of need-based finance. Banks determine the percentage of margin, depending upon factors such as: a)The nature of order. b)The nature of commodity. c)The capability of exporter to bring in the requisite contribution in the shape of margin.

APPRAISAL AND SANCTION OF LIMITS


PCL is made available for the specific purpose of procuring / processing/manufacturing of goods meant for export. PCL advance should be liquidated from export proceeds. While considering credit faculties for export, Banks look into the product/commodity profile, country profile etc. Banks also look into the status report of the prospective buyer. For getting status report on foreign buyer, services of institutes like ECGC or international consulting agencies like Dun and Brad Street etc may be utilized.

APPRAISAL AND SANCTION OF LIMITS


Banks extend the PCL facilities after ensuring the following: a) The exporter is a regular customer, bonafide exporter and has a good standing in the market. b) The country with which exporter wants to deal is under the list of Restricted Cover Countries (RCC).

DISBURSEMENT OF PCL
After sanctioning the limits, Banks disburse the loan. Before disbursement, Banks checks the following particulars: 1) Name of the buyer. 2) Commodity to be exported, Quantity, Value (either CIF or FOB) 3) Last date of shipment / Negotiation. 4) Any other terms to be complied with

APPRAISAL AND SANCTION OF LIMITS


Quantum of finance fixed on the FOB value of contract /LC or domestic value of the goods, which ever is lower. Normally insurance and freight charges are considered at a later stage, when goods are ready to be shipped. The period for which PCL is provided is decided by the Bank depending upon the time required by the exporter for procuring and manufacturing / processing the goods. Normally PCL should not exceed 180 days. The Bank may provide a further 90 days extension on its own discretion, without further referring to RBI.

LIQUIDATION OF PCL
PCL is to be liquidated from the export proceeds. At this stage PCL will be converted into post-shipment advance. PCL can also be liquidated with the proceeds from payment received from the Govt. of India. This payment includes the duty draw back etc. For any reasons, if export does not take place at all, the entire advance is recovered at commercial rate of interest plus penal rate as decided by the Bank. EXCEPTIONS RBI has allowed some flexibilities into these regulations.

LIQUIDATION OF PCL
Substitution of commodity/buyer can be allowed by the Bank, without reference to Govt. of India i.e. the export of same or some other commodity to the same or other buyer. PCL can also be adjusted from EEFC funds of the exporter. Concessional rate of interest will be protected only up to the extent the export have actually taken place. OVERDUE PCL If borrower fails to liquidate the PCL on due date, the Bank consider it an overdue. If overdue persist, Bank takes steps to realize it.

SPECIAL CASES FOR GRANTING PCL


PCL may be shared between an Export Order Holder (EOH) and the manufacturer of goods. EOH issues a disclaimer that he has not availed/will not be availing any credit facility against the portion of order transferred in the name of manufacturer. The disclaimer may preferably be countersigned by the Banker of EOH. The Banker of EOH may open inland L/C specifying the goods to be supplied by the sub-supplier to EOH as part of export transaction. On the basis of such L/C, the sub-suppliers Bank may grant a PCL.The EOH is finally responsible for exporting the goods as per export order. In case EOH is a trading house, the facility is available commencing from the manufacturer to whom the order has been passed by the trading house. Banks ensure that there is no double finance.

SPECIAL CASES FOR GRANTING PCL


RUNNING ACCOUNT FACILITY Banks have been authorized to grant PCL for export of any commodity without insisting on prior lodgment of L/C/firm/confirmed export orders under running account facility. Export should have a good track records and need for running account has been established by the exporter to the satisfaction of the bank. Once this facility is provided, exporter should produce the L/C confirmed export order within a reasonable period. Banks mark off the individual export bills received for negotiation/collection against the earlier outstanding PCL on FIFO basis.

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)


With the objective of making credit available at Internally competitive rates, ADs have been permitted to extend PCL in foreign currencies to exporter. This is an additional window available to Indian Exporters, along with existing INR packing credit. Ads have been permitted to extend pre-shipment credit in foreign currency in order to facilitate the procurement of raw material/components etc required to fulfill the export order. The procurement of RM/components etc. may be made from the international markets or from domestic market.

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)


The rate of interest on PCFC is linked to LIBOR. As per regulation, the ultimate cost to the exporter shall bot exceed 0.75% over 6 month LIBOR. The facility may extended in one of the convertible currencies USD, Pound Sterling, Euro, J.Y. The risk and cost of cross currency transaction is that of the exporter. Running account facility can also be extended in PCFC scheme on the same line as the facility available under INR scheme.

PRE-SHIPMENT FINANCE TO DEEMED EXPORRTS


Deemed Export refers to those transactions in which goods supplied do not leave the country. The payment for such supplies in received in Indian rupees or in free foreign exchange. The following categories of supply of goods by main/sub-contractor shall be regarded as deemed export under this policy, provided goods are manufactured in India. CATEGORIES OF SUPPLIES A) Supply of goods to export oriented units (EOU) OR Software Technology Parks (STPs) or electronics Hardware Technology Parks (EHTPs) or Bio-Technology Parks (BTP)

PRE-SHIPMENT FINANCE TO DEEMED EXPORRTS


B) Supply of Capital Goods to holders o licenses under the Export Promotion Capital Goods Scheme (EPCG). C) Supply of goods to projects financed by multilateral or bilateral agencies/funds as notified by the Dept. of Economic Affairs, MOF, under international competitive bidding. D) Supply to projects funded by U.N. Agencies. E) Supply of goods to unclear power projects through competitive bidding as opposed to International Competitive Bidding. (htt;//dgftcom.nic.in/exim.

POST-SHIPMENT TRADE FINANCE


FEATURES: Purpose: Post-shipment Finance (PSF) is meant to finance export of sales receivables after the date of shipment of goods to the date of realization of export proceeds. In case of deemed export, it is extended to finance the receivables against supply made to designate agencies. BASIS OF FINANCE PSF is provided against evidence of shipment of goods or supplies of goods made to the importer or any other designated agencies.

POST-SHIPMENT TRADE FINANCE


FORM OF FINANCE: PSF can be secured or unsecured. PSF is mostly a funded advance. In few cases, such as financing of project export, the issue of BGs (retention money guarantees) is involved the finance is non-fund in nature. QUANTUM OF FINANCE: PSF can be extended up to 100% of the value of the goods. Where the domestic value of the goods exceeds the value of the export order or the invoice value, finance for the price difference can also be extended provided the difference is covered by receivables from Govt.

POST-SHIPMENT TRADE FINANCE


PSF can be short term or long term, depending upon the payment terms offered by the exporter to the overseas buyer. The maximum period allowed for realization of export proceeds is six months from the date of shipment. In case of deferred payment exports, requiring prior approval of the Authorized dealer, RBI or EXIM Bank, post-shipment finance can be extended at non-concessional rates up to approved period.

POST-SHIPMENT TRADE FINANCE


POST-SHIPMENT ADVANCE CAN BE PROVIDED FOR THREE TYPES OF EXPORTS: a) Physical exports: In this case, PSF is provided to th actual exporter or to the exporter in whose name the trade documents are transferred. b) Deemed Export: In this case, finance is forwarded to the supplier of the goods. These goods are supplied to the designated agencies. c) Capital goods and Project exports: Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic (Indian) exporter.

POST-SHIPMENT TRADE FINANCE


BUYERS CREDIT: In case of capital goods and export projects credit is sometimes extend directly to the foreign buyers to finance the purchase of goods and services from the exporting countries. This arrangement enables to make payments due to the supplier under the contract. SUPPLIERS CREDIT: Finance extended by suppliers to buyers in their own name is referred to as suppliers credit. Suppliers credit is a financing arrangement under which an exporter extends credit to the buyers in the importing country to finance the buyers purchases.

TYPES OF POST-SHIPMENT FINANCE


a) b) c) d) e) f) Export Bill Purchased Export bill Negotiated Advances against export Bills sent on collection basis. Advances against export on consignment basis. Advances against undrawn balances on exports. Advance against receivables from Govt. of India.

You might also like