Pre Shipment Finance The scheme is intended to make short-term working capital finance available to exporters at internationally comparable interest rates. Types of Export Credit: (1) Pre-shipment Export Credit/ Packing Credit (RPC/FCC), (2) Post-shipment Export Credit – both In Foreign Currency (FCC) and Rupees. Pre-salesmen / Packing Credit also known as ‘Packing credit’ Is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment.
Packing credit can also be extended as working capital assistance to meet expenses such as wages, utility payments, travel expenses etc; to companies engaged in export or services. Packing credit is sanctioned/granted on the basis of letter of credit or a confirmed and irrevocable order for the export of odds / services from India or any other evidence of an order for export from India. Post-shipment Credit’ means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realization of export proceeds as per the period of realization prescribed by Reserve Bank of India (RIB) and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time.
As per extant guidelines of RIB, the period prescribed for realization of export proceeds is 12 months from the date of shipment. It provides the exporters with working capital between the time of the receipt of order and the time of shipment to arrange for production or procurement of goods. Pre-shipment finance is of particular importance to small scale manufacturers and exporters who do not possess sufficient financial resources to meet the expenditure involved In the production of goods for export.
Pre shipment finance Is normally provided by the commercial banks. As In the case of many other advances the bank sakes Into consideration a number of factors before making the necessary other advances to exporters biz.. (1 ) honesty, integrity and capital of the borrower, (2) banks experience about the exporter to ensure that his name does not appear on the caution list of the Reserve Bank. The security can be provided in the following forms: 1. Letter of credit 2.
Confirmed order as evidence of having received an order 3. Relevant policy issued by the Export Credit Guarantee Corporation and 4. Personal bond in the case of party(sis) already known to the banker Very often manufacturers eight have to supply goods to an export house in such cases manufactures may obtain pre-shipment finance on the basis of a letter from the export house containing (I) the obligation of the supplier and (it) a certificate that it is not itself claiming the pre shipment credit.
Pre-shipment finance would normally cover the following costs: (I) cost of purchase or production (it) packing including any special packing for export (iii) costs of special inspection or tests required by the importer (iv) internal transport costs (v) port, customs and shipping agents charges vi) freight and insurance charges if the contract is either c contract or a c. I. F contract and (vii) export duty to tax if any In certain cases the pre-shipment advance is made to finance expected receivables such as drawbacks.
Where domestic production costs are higher pre shipment finance may be higher than the f. O. B value of the contract to adequately cover the higher domestic costs. Pre-shipment advance may take the form of loan overdraft or cash credit. The confessional rate of interest on pre- shipment finance is PL – 2. 5 percent up to 180 days and beyond 180 days as up to 270 days, Interest is PL + 0. 5 re cent. Banks are free to charge any interest beyond 270 days. PL (Prime lending rate) varies between 11-12 per cent.
Pre-shipment Credit in Foreign Exchange: With a view to make export credit available at internationally competitive rates, banks have been allowed to extend Pre-shipment Credit in Foreign Currency (FCC) at rates linked to LABOR (London Inter-bank Offer Rates). This facility is available in all convertible currencies. Pre-shipment credit is available for 180 days at 0. 75 per cent above six-months LABOR. If beyond 180 days, then the rate would be 2. 75 per cent over LABOR prevailing at the time of extension.
The credit would be self-liquidating in nature and will be adjusted by discounting the related export bill designated in foreign currency. Banks will be using funds available with them such as Exchange Earners’ Foreign Currency and Foreign Currency Non- residents Accounts. They can also borrow abroad so long as the cost of borrowing does not exceed 1 per cent over LABOR. For the exporters, there are two specific advantages: lower rate of interest and saving of conversion charges if credit is utilized to purchase imported inputs.
Revolving Credit: If an exporter is well known to the banker and his past performance has been dictators, the banks are usually prepared to grant revolving pre-shipment credit in connection with successive deliveries. This implies that upon repayment of the first loan, the exporter is automatically granted a corresponding loan on the same terms. This procedure offers the advantage of saving time and costs as the original documents serve as a basis for extended credit.
Packing credit is adjusted out of the provided under a letter of credit with a red clause where advance is granted at the instance and, therefore, on the responsibility of the foreign bank establishing the reedit. In case the goods are to be procured or purchased from a supplier or a manufacturer, the banks may open a letter of credit in favor of the suppliers under what is known as ‘back to back letter of credit’. This procedure is usually adopted by export houses for getting letters of credit in favor of their suppliers. In such cases credit can be extinguished by drawing a bill on the export house.
In the case of consignment sales, banks usually establish a special post-shipment credit account which is adjusted when the goods are sold abroad and the sale proceeds received. There are two types of facilities offered by the banks to the exporters of diamond industry. They are Pre shipment credit facility and Post Shipment credit facility. 8. 1 Pre shipment credit facility This is the credit facility known as packing credit loan which means the credit limit provided by the bank to the exporters till the packing of the finished materials.
This facility is basically given to the exporters to enable them to import the required raw materials and for processing the same I. E. For the payment of labor charges. This facility can be availed in the following manner either as FCC (Packing credit in Foreign Currency) or rupee PC (Rupee Packing Credit). P. C. F. C. (Packing credit in Foreign Currency) In the case of FCC, the bankers have their own line of credit with their foreign banks and the interest is charged at ‘LABOR’ rate I. E. London Inter Bank Offered Rate plus the interest spread that is mutually agreed upon between the bankers and the exporter subject to a minimum of 1. %, till the due date. This is denominated in a foreign currency. The above mentioned interest is for 90 days, since the period of liquidation of pre shipment credit normally granted by the bankers for diamond Industry is 90 days from the date of availing the facility. Beyond 90 days, if the FCC becomes overdue the interest will be charged based on fresh labor rate prevalent on the 91st day plus the interest spread and additional interest at 2% for the overdue period. If the payment is not received after 30 days from the due date, the Packing credit will be crystallites.
It means that the bankers will convert the balance FCC, at the TTT selling inter bank rate into Indian Rupees and the interest will be charged on the entire amount at commercial rate of interest from day one of availing the FCC. The rate of interest varies with different banks and is in the range of 15 to 20%. Rupee PC (Rupee packing credit). This is taken in Indian Rupees and is given to the exporter in the form of the Rupee Loan and the interest is charged at the rate as per RIB directives. When any export proceeds are realized, the packing credit is automatically adjusted.
If it becomes overdue the rate of interest will be charged at the rate determined by the individual bank. 8. 2 Post Shipment Credit The post shipment credit limit is allowed after the shipments are effected for bills drawn on a client through the bankers or shipments directly addressed to the nonsense. Out of this post shipment the bankers allow a sub-limit for availing loans foreign clients of their exporter customers through their overseas correspondents/ their branches/approved international agencies. The bankers update the confidential reports once in a year.
Once the documents are submitted to the bank, the exporter can avail the post shipment credit limits. The post shipment credit limits can be availed in any of the following manners. 1. Rupee loan: In this case the exporter can avail loan Upton 90% of each export bill as rupee loan. EXPORT CREDIT RUPEE EXPORT CREDIT (PRE-SHIPMENT AND POST-SHIPMENT) : United Bank of India offers both pre and post shipment credit to the Indian exporters through Rupee denominated loans as well as foreign currency loans in India.
Exporters having firm export orders or L/C from a recognized Bank can avail the export credit facilities from United Bank of India provided they satisfy the required credit norms. The details of the credit norms can be obtained from the nearest authorized branch of the Bank. Post shipment rupee export credit is available for a maximum period of -180- days / discomfort the date of first disbursement . The corporate, if required can book award contracts in respect of future export credit drawls.
EXPORT BILL REDISCOVERING : United Bank of India offers financing of export by way of bill discounting of export bills to provide post shipment finance to the exporters at competitive international rate of interest. The export bills (both Sight and Issuance) can be purchased/ discounted provided they comply with the norms of the Bank/ RIB. All exporters are eligible to cover the bills drawn under L/C, non-credit bills under sanctioned limits under the Bill discounting Scheme. Purpose Post shipment credit is a loan or advance granted or any other credit provided by he Bank for export of goods/services from India.
Period For demand bills, the period of advance will be the Normal Transit period (as specified by FIFED). For issuance bills, the period of advance will be issuance period of the bill plus Normal Transit period, if applicable and grace period, if any. Security Liquidation of Post Shipment Credit Post shipment credit should normally be liquidated by the proceeds of export bills received from abroad in respect of goods exported/services rendered. The exporter has the option to avail pre shipment credit and post shipment credit either in rupee or in foreign currency.
However if the pre shipment credit has been availed in foreign currency, the post shipment credit has also to be availed in foreign currency Pre- Shipment/Post-Shipment Credit in Foreign Currency to Exporters Bank of Abroad provides FCC in foreign currency to the exporters enabling them to fund their procurement, manufacturing/ processing and packing requirements. These loans are available at very competitive international interest rates covering the cost of both domestic as well as import content of the exports. The FCC can be availed in SIS$, Euro, GAP and Japanese Yen.
The corporations/ exporters with a good track cord can avail of a running account facility with the Bank for FCC. To qualify for this purpose, the exporters overdue bill should not exceed 5% of the average annual export realization during the preceding -3- years. Key Benefits In case of cancellation of export order, the FCC can be closed by selling equivalent amount of foreign exchange at TTT selling rate prevalent on the date of liquidation. The forward covers can be booked in respect of future FCC drawings. The FCC drawings are also permitted in cross currency subject to exporter bearing the risk in currency fluctuations.
Terms & Conditions The corporations/exporters having firm export orders or confirmed L/C are eligible for FCC, provided they satisfy other credit norms of the Bank. FCC in foreign currency is available for a maximum period of 180 days from the date of first disbursement, similar to the case of Rupee facility. FCC is to be repaid with the proceeds of the export bill submitted after shipment. The FCC in foreign currency are granted through the Integrated Treasury Branch at Iambi. Multi-currency drawings against the same orders are not permitted due to operational inconvenience. Cross-country drawings are restricted to US dollars.
In case, the export order is in a non-designated currency like Swiss Franc etc. FCC will be given only in SIS$. For orders in Euro, Pound Sterling and JP, FCC can be availed in the respective currencies or US$ at the choice of exporter. Export Credit Refinancing Export Credit Refinancing (ECRU) provides an alternative short term pre- and post- shipment financing to direct/indirect exporters to promote export of manufactured products, agriculture products and primary commodities. It is available to a manufacturer or trading company with ECRU credit line duly established with any participating commercial bank.
The pre-shipment ECRU facility facilitates the production of eligible goods for export prior to shipment and to encourage the backward linkages between exporters and local suppliers in industrial development. The post-shipment ECRU facility bridges the funding requirement of exporter from shipment to receipt of payment of the export bill. Facility Post-shipment ECRU Method of Financing Order-Based Financing is against the export order received from overseas buyer or direct exporter. Certificate of Performance (CAP) Financing is against certificate of performance (CAP) issued by EXAM Bank Bill Discounting
Financing against export documents Margin of Financing Up to 95% on value of export order. Up to of ECRU, DEL, ECRU, EDP or LOP Up to a maximum of 100% of export bill value. Subject to availability of ECRU credit limit with the commercial bank and EXAM Banks administrative limit. Direct Exporter 100% of export value of proceeding 12 month Indirect Exporter 80% of local sales Subject to ECRU credit limit with the commercial bank and EXAM Bank’s administrative limit. Tenor Up to a maximum of 120 days 120 days rollover is allowed Up too maximum 183 days. Repayment Export proceeds; or Post-shipment proceeds Proceeds from direct exporter.
Upon: – receipt of export proceeds; or maturity of the post-shipment bill whichever is earlier. Export Credit Refinancing-I (ECRU-I) Export Credit Refinancing-I (ECRU-I) provides an alternative short term pre-and post- products, agriculture products and primary commodities that are “Hall”, via the provision of Shari compliant financing facilities. It is available to a manufacturer or trading company with ECRU-I credit line duly established with any participating goods for export prior to shipment and to encourage the backward linkages between the exporters and local suppliers in industrial development.
The post-shipment ECRU-I facility bridges the funding requirement of exporter from shipment to receipt of payment of the export bill. Facility Pre-shipment ECRU-I Post-shipment ECRU-I Financing is against Certificate of Performance (CAP) issued by EXAM Bank Bill Up to 95% of the value of the export order. 95% of ECRU-I DEL, ECRU-I EDP or LOP. Manufacturing Up to 80% of export value of preceding 12 months Trading Up to 90% of export value of preceding 12 months Up to a maximum of 100% of export bill value.
Subject to availability of ECRU-I credit Subject to ECRU-I credit limit with the commercial bank and EXAM Bank’s administrative 20 days cycle and not allowed for roll-over Up too maximum 183 days Upon receipt of: Upon: Receipt of export proceeds; or Maturity of the post-shipment bill whichever is earlier. Shari Concepts The applicable concept for financing of the purchase of raw materials and other ‘Maharajah’ (cost plus profit) followed by the ‘ABA-AY-Danny’ (debt trading) between EXAM Bank and ECRU-I Banks for refinancing of bills.
These transactions are made between the exporter, ECRU-I Banks and EXAM Bank and the applicable concept shall be ‘ABA-AY-Danny’. Under this, the exporter, as owner of the export, appoints the ECRU-I Bank as collecting agent to collect payment from the importer’s Bank. Eligibility Companies that are incorporated in Malaysia who are directly or indirectly involved in export activity and international trade shall be eligible for the ECRU-I facilities but subject to the following conditions: I. The inputs and the end products to be exported must be “Hall”, and it.
Products which are not listed under the First Schedule of Custom Duties Order (list of goods of which is prohibited to be exported). Export Credit Refinancing is a short term trade financing scheme administered by Export-Import Bank of Malaysia Bad. It is extended to exporters (direct & indirect) and local suppliers to promote the export of Malaysian manufactured & agricultural products and selected primary commodities that have significant value-added components and utilize local indigenous resources.
Types of facilities available to exporters Pre-shipment : financing before exportation of goods. After securing the purchase order for the goods, you can proceed to finance working capital requirement for production of merchandise like sourcing raw material and incurring the necessary overheads. Post-shipment : financing after the shipment of the goods on credit or seance terms. The facility will give immediate funds after the goods have been shipped out on credit basis. Hence, this will release your tied-up cash flow.
Export Credit Refinancing (ECRU) A short-term trade financing scheme granted to direct and indirect exporters Features Promotes the export of manufactured products, agricultural products and primary commodities Two types of facilities are available to exporters: pre-shipment ECRU and post-shipment ECRU Covers any product for export from Malaysia except turtle eggs, rattan and poisonous chemicals Both direct (manufacturing companies, agriculture reduce producers, trading companies) and indirect exporters (suppliers of domestic input) are eligible under this scheme Also available under Islamic financing as Export Credit Refinancing-I Backed by over 400 branches nationwide, a network of over 80 international offices and more than 800 correspondent banks worldwide Types of financing Pre-shipment ECRU Methods of financing Order Based Certificate of performance Bill discounting User Direct exporter Indirect exporter Direct exporter whose total exports of eligible goods for the last 12 months is ARM 1 Maximum of 4 months Minimum of 7 days and maximum of 6 months Direct exporter: Upon receipt of export proceeds or post- shipment proceeds Indirect exporter: proceeds from direct exporter Upon receipt of export proceeds and/ or post-shipment proceeds. Upon receipt of export proceeds or maturity of the post- shipment bill whichever is earlier Pre-Shipment Credit Introduction Pre Shipment credit is issued by a financial institution when the seller wants the payment of the goods before shipment.
The main objectives behind pre-shipment credit or pre export finance are to enable exporter to: Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business. Types of Pre Shipment credit Packing Credit Advance against cheeses/draft etc. Representing Advance Payments. This facility is provided to an exporter who satisfies the following criteria A ten digit importer exporter code number allotted by GIFT. Exporter should not be in the caution list of RIB. If the goods to be exported are not under OGLE (Open General License), the exporter should have the required license [quota permit to export the goods.
Packing credit facility can be provided to an exporter on production of the following evidences to the bank: Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer. License issued by GIFT if the goods to be exported fall under the restricted or cannibalized category. If the item alls under quota system, proper quota allotment proof needs to be submitted. The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIFS), destination port and the last date of payment. Advance against Queue/Drafts received as advance payment etc. He bank may grant export credit at confessional rate to the exporters of goods track record, till the time of realization of the proceeds of the cheeses or draft etc. The Banks however, must satisfy themselves that the proceeds are against an export order. Post-shipment Credit Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters don’t wait for the importer to deposit the funds. Types of Post Shipment Finance The post shipment finance can be classified as: Export Bills purchased/discounted.
Export Bills negotiated Advance against export bills sent on collection basis. Advance against export on consignment basis Advance against indrawn balance on exports Advance against claims of Duty Drawback. 1 . Export Bills Purchased/ Discounted. (EDP & DADA Bills) Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility. 2. Export Bills Negotiated (Bill under L/C) The risk of payment is less under the LLC, as the issuing bank makes sure the payment.
The risk is further reduced, if a bank guarantees the payments by confirming the LLC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LLC. However, this arises two major risk factors for the banks: The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions. In this case, the issuing banks do not honor the letter of credit. The bank also faces the documentary risk where the issuing bank refuses to honor its commitment. So, it is important for the negotiating bank, and the lending bank to properly check all the necessary documents before submission. 3. Advance against Export Bills Sent on Collection Basis
