EXPORT FINANCE AND

FOREIGN EXCHANGE
MANAGEMENT

Jayashree RVS IMSR

Nature
Classification

of export finance
Export credit Guarantee Corporation of
India policies and guarantees
Export pricing decision
Revenue cost
Fixed, variable semi variable
Direct and indirect cost
Relevance of classification of costs for
export
Jayashree RVS IMSR

EXPORT MEANS
Export

of goods i.e., sale

of goods from one country
to another.
Goods can be defined as things of
value(utility) required for satisfying
the needs and requirement of the
people.
It involves two things:
Outflow of goods
Inflow of foreign exchange
Jayashree RVS IMSR

EXPORT TRANSACTION
Home
Country
(Exporter
)

Goods

Payme
nt

Foreign
Country
(Importer
)

Jayashree RVS IMSR

Objective of
export management
To

secure export orders

To ensure timely shipment of
goods as per prescribed norms of
quality.
Specifications including terms
and conditions agreed between
the exporter and importer.

Jayashree RVS IMSR

EXPORT FINANCE
Procuring

raw material and

components and manufacturing
the product
Refinance facilities so as to get
the proceeds of export bills at the
time of negotiation of export
documents, after shipping the
goods.

Jayashree RVS IMSR

Availability

of funds until the

export benefits are realized.
Refinance facilities for long term
credits offered for the export of
products.
Major portion of export finance
comes from financial institutions
and commercial banks.
Jayashree RVS IMSR

Various

schemes of ECGC
facilitate
the grant of short term loans to the
exporters through their various
credit risk insurance policies and
financial guarantees.

Jayashree RVS IMSR

Terms

and conditions to be followed

for export related activities
Finance to be provided at all stages
of export operation i.e.,
Pre shipment (before sending for
shipment)Post shipment(after sending
for shipment)
Exporter

needs different types of

financial assistance depending
upon the nature of export contract.
Jayashree RVS IMSR

Nature of Export
finance
Promotion

of exports leads to
economic development
RBI steps to ensure free flow of
financial assistance to the exporters
at concessional rate of interest for
pre and post shipment stage.
Commercial banks Refinance
facility by RBI
EXIM bank long term loans to the
exporters.
Jayashree RVS IMSR

Export Import
Bank of India
The

EXIM bank established on Jan1,

1982 by an Act of Parliament for the
purpose of financing, facilitating and
promoting foreign trade of India.
It is the principal financial institutions
for coordinating the working of
institutions engaged in financing
export and import.
The bank provides competitive finance
at various stages of the export cycle.
Jayashree RVS IMSR

The

bank finances exports of Indian

machinery, manufactured goods,
consultancy and technology services
on deferred payment terms.
The bank is involved in promotion of
two way technology transfer through
the outward flow of investment in Indian
joint ventures
Foreign direct investment flow into India

Jayashree RVS IMSR

Classification of Export
finance
Pre

shipment finance
Post shipment finance

Jayashree RVS IMSR

Pre shipment finance

Financial

assistance extended to
the exporter before the shipment
of goods.
An exporter can avail pre
shipment finance in the form of
Packing credit in local currency
Pre shipment credit for foreign
currency

Jayashree RVS IMSR

Packing credit in
Domestic currency
When

exporter takes pre

shipment finance in currency, it is
packing credit
Purpose of the packing credit:
Enable the exporter to purchase raw
material, process or manufacture
and proceed for exports. This is
known as short term working capital
advance.
Jayashree RVS IMSR

Documents

to be given to Bank by

exporter
Packing credit loan is sanctioned against
a confirmed export order or proforma
invoice/irrevocable L/C
Details of the order received, such as
description of goods, quantity and value
should be submitted.
Form of finance:
Fund base advance
Non fund based advance
Jayashree RVS IMSR

1. Purchase order
2. Processing with
bank
3. L/C delivered
4. L/C notification
Japan Exporters
5. Goods shipment
6. L/C draft and
shipping
documents
7. L/C draft and
6
shipping
4
9
document s
delivered
8. Draft accepted
Bank of Tokyo
and funds
Exporter Bank
remitted
9. Payment
10.Shipping
documents
forwarded
11.Amount paid at
Jayashree RVS IMSR

Letter of Credit
1
USA Importers
5

1
0

11

Wells Fargo Bank

Importer Bank

3
7
8

Quantum

of finance (90% of the

export order)
Period of finance and interest rate
(first 90 days lowest and increases
for every successive 90 day period)
Procedure(submit formal application
form along with documentary proof,
separate packing credit loan is opened
for appropriate monitoring and
account closed with the trade
proceeds
Jayashree RVS IMSR

Closure

of packing credit
loan( realisation of sale proceeds
of export order)
Running account facility(Bank
have the autonomy to sanction
this facility even in the absence
of a confirmed order, subject to ,
- good track record and
concessional credit facility not
exceeds 180 days
Jayashree RVS IMSR

Pre shipment credit

in foreign currency
This

will enable the exporter to

finance the import of material
required for the manufacture of the
export product.
All categories of exporters are
allowed to avail this facility
Banks extend this PCFC in all
convertible currencies on the basis
of Letter of credit
It is available in cash exports only
Jayashree RVS IMSR

Once

the exporter avails PCFC,

he is not eligible for post
shipment credit in rupees.
Cost of PCFC is equal to max of
2% over appropriate LIBOR
(excluding tax in case of banks
having overseas branches) and
2.5 % over LIBOR(excluding tax in
case of other banks without
branches)
Jayashree RVS IMSR

Jayashree RVS IMSR

Post shipment
finance
Banks

give short term finance to

the exporters against receivable
upto120 days
Types of advances provided are
Export bills negotiation
Export bills purchase
Export against bills sent for
collection

Jayashree RVS IMSR

Negotiation

of export documents

under L/C
Exporters are required to submit the
bills and documents after shipment
to a bank
Exporter request for immediate
credit
Only when documents are in order
and comply with all terms of letter of
credit, negotiating bank make
payments to the exporter.
Jayashree RVS IMSR

Purchase/Discount

of foreign bills

When the exporter does not possess

the LC from the importer, request
the bank to discount documents for
receiving immediate payment.
Bank insist exporter to take ECGC
policy in his favor.

Jayashree RVS IMSR

Advance

against export bills sent

on collection
The documents drawn under LC
contain minor discrepancies
But the exporter immediate need
and financial requirement, bank may
sent bill on collection basis and
finance him to some extent from the
total amount.

Jayashree RVS IMSR

Advance

against export
incentives
Sanctioned by bank for both pre and
post shipment finance
Advance sanctioned when the
exporter has to receive the duty
drawback incentive from the
government and refunds from
customs and excise duty.
Importing capital goods/raw
material manufacturing exportable
Jayashree RVS IMSR

RESOURCES
1. Export Management - Khurana
2.http://en.wikipedia.org/wiki/Expor
t_Credit_Guarantee_Corporation_
of_India
3.http://banking.about.com/od/busi
nessbanking/a/letterofcredit.htm
4.
http://www.crfonline.org/orc/cro/c
ro-9-1.html
5.http://en.wikipedia.org/wiki/Lette
Jayashree RVS IMSR