Export Financing Project 071203

PROJECT REPORT
ON
EXPORT FINANCING
&
DOCUMENTATIONS
Submitted by :
School of Management Studies

Indira Gandhi National Open University
Maidan Garhi, New Delhi – 110068.
ACKNOWLEDGEMENT
I take this opportunity to express my deep sense of gratitude and
respect for my guide Mr. Arun Kumar Jain for her constant
interest, valuable encouragement and timely guidance during
completion of this project work.
I am also thankful to all my professors of Indira Gandhi National

Open University for their timely co-operation and helpful guidance.
I Would like to take this opportunity to specially thank Prof. Anurag

Singh, Faculty Delhi University & Dr. G.K.Varshney, Shyam Lal
College, Delhi University for their valuable guidance and timely
help and support for making this research study possible.
Last but not the least, I deeply express appreciation to all my

friends who directly or indirectly co-operated and helped me during
completion of my project.
CERTIFICATE OF ORIGINALITY
This is to certify that, K.Krishnan, student of MBA ( Finance) from

Indira Gandhi National Open University, has satisfactorily
completed his project work on “EXPORT FINANCING &
DOCUMENTATION” during academic year 2003-04.
The project work was done under my supervision and the views and
methodology adopted are original to the best of our knowledge and
belief.
(STUDENT) (PROJECT
GUIDE)
K.KRISHNAN, IGNOU
CONCLUSION DRAWN
FROM THE QUESTIONAIRE

The Basis of Analysis is on a Simple Questionnaire which covers
25 simple points which are necessary for every indian exporters
before coming to business of exports and for existing exporters.
After analyzing and examining questionnaire method, filled by
various exporters , we analyze that simple points which are
necessary for exports are not correctly filled by exporters. The
points which are not taken care by exporters are :-
1. Rate of Interest
2. Packing Credit
3. Pre-Shipment Export Credit In Foreign Currency
4. Service Charges Levied on Packing Credit
5. Packing Credit Advances Against Personal Car, House Etc.
6. Extension of Packing Credit Facility to Sub-Supplier.
7. Extension of ECGC Guarantee to Packing Advances.

8. Export Advances Against Fixed Assets
9. Export Advances Against Claims of Duty Drawback.
10.Export Advances for Purchase of Fixed Assets.
11.Export Advances Against Goods Sent on Consignment
Basis.
12.Conversion of Credit Export Sale to Cash Sale.
13.Awareness of New Export Financing option.
14.Export Finance for Market Development, Product
Adaption, Training & R & D Support Etc.
15.Role of Exim Bank.
As we see that out of 25 points, only 10 points are correctly
approached by exporters i:e 40% are correctly approached,
remaining 60% points are incorrectly approached.
This clearly indicates, that exporters are not aware of export
finance. That is the basis I finally took this “Export
Financing Documentation” as my project as I am
already in this field for more than 5 years.
K.KRISHNAN, IGNOU
REVIEW OF THE
QUESTIONAIRE
1. Rate of Interest
From this table, we analyse that the rate of interest prevailing
in the bank were not known by the exporters. Out of 13 only 9
exporters clearly mentioned Interest @ 11-12% p.a. ( For
detail please refer page )
2. Packing Credit
From this table we analyse that every exporter except one are
having knowledge of packing credit advances.
( For detail please refer page )
3. Pre-shipment export credit in foreign currency (PCFC)
After seeing questionnaire method analsis,we came to final
conclusion that only few exporters ( 3 out of 13) were having
knowledge about PCFC scheme. This is the scheme announced
by RBI in Nov 1993, in addition to normal packing credit

schemes. In the project I simply explained all the options
available for availing export finance under PCFC scheme and
the formalities in terms of documents which are required to be
completed by the Indian exporters for availing export finance
under PCFC scheme.
4. SERVICE CHARGES LEVIED ON PACKING CREDIT
As mentioned in PCFC scheme only 3 out of 13 exporters
clearly mentioned that no service charged levied on packing
credit other than premium payable to ECGC scheme.
5. PACKING CREDIT ADVANCES AGAINST PERSONAL
CAR, HOUSE ETC.
9 out of 13 exporters clearly says no P/C advances against
personal car, house etc. ( For detail please refer page )
6. EXTENSION OF PACKING CREDIT FACILITY TO SUB-
SUPPLIER.
Every exporter except 2 , were knowledge about the extension
of packing credit facility to sub-supplier. This is the facility
extended to sub-suppliers of raw materials, components etc.
to the exporter goods. In the project I have explained what
are the detailed guidelines to be fulfilled for getting packing
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credit facility to sub-supplier. ( For detail please refer page )
7. EXTENSION OF ECGC GUARANTEE TO PACKING
ADVANCES.
Only 2 out of 13 exporters were not having knowledge about
extension about ECGC Guarantee to packing advances. It is
very important to each and every exporters to obtain this
information from the bank, as cost of additional premium for
individual guarantee may sometimes be quite heavy depending
upon the turnover in the account.
8. EXPORT ADVANCES AGAINST FIXED ASSETS
Out of 13, 7 Exporters mentioned about that no export
advances will be received against fixed assets and this is true
also. As we know that many advances will be received from
the bank against fixed assets and this will predict and
encourages some exporters to get export advances against
fixed assets.
9. EXPORT ADVANCES AGAINST CLAIMS OF DUTY
DRAWBACK.
Only 1 exporter wrongly tells that we cannot claim export

advances against claims of duty drawback.
10.EXPORT ADVANCES FOR PURCHASE OF FIXED
ASSETS.
As already mentioned in above point no. 8, that no export
advances will be received against fixed assets or purchase of
fixed assets.
11. EXPORT ADVANCES AGAINST GOODS SENT ON
CONSIGNMENT BASIS.
Out of 13, 2 exporters saying that no export advances will be
received against goods sent on consignment basis.
12. CONVERSION OF CREDIT EXPORT SALE TO CASH
SALE.
This is called Forfaiting finance ( A new mechanism of
financing exports).
From seeing the questionnaire method analysis, we find that
no exporters were having knowledge about forfating finance
expect one exporter i:e M/s S.D.International. This is new
financing option for Indian Exporters, under which an
exporters in India can convert their credit sale into cash sale
subject to quotes being available. Various formalities to be
K.KRISHNAN, IGNOU
fulfilled for getting this facility. ( For full details, explained in a
simplified manner, refer Page ).
13. AWARENESS OF NEW EXPORT FINANCING OPTION.
Aleady explained in Point no. 12. or Refer page
14. EXPORT FINANCE FOR MARKET DEVELOPMENT,
PRODUCT ADAPTION,TRAINING & R & D SUPPORT ETC.
Exporters are not having knowledge about getting export
finance for market development , product adaption, training
and R & D support, by seeing questionnaire method analysis.
Most exporters try to finance their exports through commercial
banks. To promote their exports some also take advantage of
the Government’s Marketing Development Assistance Scheme
through Ministry of Commerce. Yet, there are many exporters
who are ignorant of various funding schemes of other
organizations which could help them to finance their exports.
In the project, an effort has been made to identify such
schemes and highlight their specific requirements for the
benefit of the exporting community. This is explained in the
topic “ Non-conventional Avenues for Export Financing”.
( Page )
15. ROLE OF EXIM BANK.
Out of 13, only 8 exporters clearly mentioned about the role of
the EXIM Bank. The EXIM Bank provides financial assistance to
promote Indian exports through direct financial assistance,
overseas investment finance, term finance for export
production and export development, pre-shipment credit,
buyers credit, lines of credit, relending facility, export bills
rediscounting, refinance to commercial banks, finance for
computer software exports, finance for export marketing and
bulk import finance to commercial banks. This also extends
non-funded facility to Indian exporters in the form of
guarantees. Full details of financing programmes of EXIM Bank
explained in Page in the project.
K.KRISHNAN, IGNOU
CHAPTER SCHEME
T h e p ro jec t h el p s th e ex p o rt ers to kn o w abo u t v ari o us
m eth o d s and gu i d el i n es to be ad o p ted fo r av ai li n g
ex p o rt fi n a nc e wh i c h wi l l h el p th em to m an ag e th e
ri s ks a ss oc i a t ed wi th ex p o rti n g.
 Export Financing- Introduction
 Features of Export Financing
 Methods of Export Financing –
Pre-shipment finance
Post-shipment finance
 Forfaiting Finance – A new financing
option for Indian Exporters.
 Non-conventional avenues for Export
Financing
 Role of Exim Bank & other banks
K.KRISHNAN, IGNOU
Export Financing -
Introduction
F i n a n c i a l a s s i s t a n c e i s e x t e n d e d b y t h e b an k s t o t h e
e x p o r t e r s a t p r e - s h i p m e n t a n d p o s t- s h i p m e n t s t a g e s .
F i n a n c i a l a s s i s t a n c e e x t e n d e d t o t h e e x p o r te r p r i o r t o
s h i p m e n t o f g o o d s f r o m I n d i a f a l l s w i t h i n t h e s co p e o f
pre-shipment finance while that extended after
shipment of the goods falls under p o s t- s h i p m e n t
finance. While the pre-shipment finance is provided
f o r w o r k i n g c a p i t a l f o r t h e p u r c h a s e o f raw m a t e r i a l ,
processing, packaging, t ran s p o r t a t i o n , war e h o u s i n g
etc. o f t h e g o o d s m e an t f o r e x p o r t , p o s t- s h i p m e n t
f i n a n c e i s g e n e ra l l y p r o v i d e d i n o r d e r t o b r i d g e t h e
gap between shipment of goods and and the
realisation of proceeds.
Salient Features of
Export Financing
1. Export Finance is to constitute 12% of Net Bank
Credit as per RBI guidelines.
2. Interest is charged at concessional rates of interest
and for this purpose RBI provides refinance at Bank
Rate.
K.KRISHNAN, IGNOU
3. Credit Guarantee coverage by Export Credit
Guarantee Corporation.
4. Purpose oriented and need based finance.
5. Consists of two elements-pre-shipment & post-
shipment finance.
6. Linkage between pre-shipment and post-shipment
stages and desirability of treating the two as single
package is crucial.
7. Liberal approach in regard to margin requirements
subject to sanction by appropriate authority in the
bank.
8. No margin requirement against export receivable.
9. Export credit over and above MPBF.
10.Exemption for application of loan delivery system.

11. Letter of credit to an exporter may be provided for
a period of 3 yrs based on projections subject to
periodic review once in a period of 12 months.
K.KRISHNAN, IGNOU
Methods of Export
Financing
PRE-SHIPMENT CREDIT
Pre-shipment Credit in Indian Rupees
The purpose of the advance includes purchase of raw
materials or the purchase of finished goods, their
manufacturing processing, packing, transporting,
warehousing, etc., for export. Once the goods are ready
for exporting some banks convert the packing
credit/pre-shipment finance into what are called
shipping loans. Shipping loans also form another type of
packing credit. Packing credit may be taken as
equivalent to 'cash credit' in domestic business except

that cash credit facility is sanctioned as a
continuous/running facility whereas packing credit
advance is disbursed for a special purpose to enable the
exporter to meet a specific export obligation. Every pre-
shipment advance is, therefore, considered as a
separate loan account different from a domestic advance
or inter se.
The credit limits for pre-shipment advance are
considered simultaneously along with other facilities and
it is generally made a sub-limit within the overall cash
credit limit sanctioned to the borrower. However, for
those borrowers who are exclusively engaged in exports,
separate packing credit limits are sanctioned by the
banks. The procedure and techniques adopted by the
bank are the same as in case of other advances.
However, the assessment of working capital requirement
may be based upon the export orders in hand with the
exporter besides his capacity to meet that commitment.
A very flexible approach in this regard is adopted by the
banks and adequate finance is available for every viable
export proposal. The purpose of the above discussion is
to emphasis the need to apply for total credit
requirements at one time with all the relevant details
made available to the bank in the beginning itself so
that suitable limits are sanctioned avoiding any request
for ad boc facilities at a later date. The general terms
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and conditions of granting packing credit advances by
banks are given below.
1. export form India is allowed either against an export
L/C or against an export order. The bank may also
sanction packing credit which may be disbursed either
against an L/C or against an order. Correct position in
this regard must be explained to the bank to avoid
any difficulty later. It may be noted that if the limit
by the bank is sanctioned against LC, disbursement
against an order may not be allowed by the bank.
Even in case of reports under L/C, the exporter may
receive the L/C at a very late stage and may be
required to procure/manufacture the goods much
before the L/C is received. In this situation also some
difficulty may be faced in getting the packing credit
released from the bank. It would, therefore, be
necessary to discuss all these matters with the bank
at the time of sanctioning of limits.
2. All pre-shipment advances are to be liquidated from
the proceeds of export bills. Application of sanctioning
of suitable post-shipment facilities should, therefore,
be simultaneously made. Exporter may also be
entitled for duty drawback etc. and credit limits
against claims of such incentives shall also be
obtained at that time.

3. No other service charges are leviable on these
advances other than premium payable to ECGC on
their guarantees.
4. Sub-suppliers are also eligible for the packing credit
advances for which they should lodge to the banks a
letter from the Export House/Merchant Exporter
incorporating details of the goods to be supplied and
confirming that they (export house etc.) have not
availed of any packing credit advances for which they
should lodge to the bank a letter from house etc.)
have nor availed of any packing credit from any other
bank/source against the same contract/L/C.
5. Packing credit is normally given and adjusted L/C/
contract wise. However, the finance is now permitted
to be given on running account basis. For details see
under para "Submission of Export Order/L/C".
6. In case of cancellation of export order, facility of
substitution of contracts is also available.
7. The finance is also available for undertaking
preliminary arrangements in respect of consultancy
services.
8. The finance is also available for export of goods of
exhibition and sales, imports under advance import
licences.
K.KRISHNAN, IGNOU
9. Except a certain cases, pre-shipment finance granted
tot he exporter does not exceed FOB value of the
goods or domestic market value of the goods
whichever is less.
Pre-shipment Credit in Foreign (PCFC)
With a view to providing pre-shipment credit to Indian
exporters at internationally competitive rates of
interest, Reserve bank of India announced a new scheme
of providing Pre-shipment Credit in Foreign
Currency (PCFC) by the banks in India in November
1993. The PCFC scheme will be in addition to normal
packing credit schemes in Indian rupees presently
available to Indian exporters. The exporter will now
have the following two options for availing export
finance.
a) To avail packing credit in rupees and then avail post
shipment credit in rupees or under PCFC or by
discounting/rediscounting of export bills abroad.
b) To avail packing credit in foreign currency and
discounting / rediscounting of export bills in foreign
currency abroad., in India rupees or under PCFC. The
broad aspects of PCFC scheme are given below:
i) Packing credit under foreign currency is available
to cover both the domestic and imported inputs of

goods to be exported from India.
ii) PCFC can be availed in any convertible foreign
currency.
iii) Banks will grant PCFC out of foreign currency
resources available with them under EEFC account,
FCNR accounts and RFC accounts and may also
negotiate required lines of credit from their foreign
branches/correspondents.
iv) PCFC will be available for an initial period of 180
days as incase of rupee credit: The extension in
period of PCFC for further 90 days may be granted
at an interest rate which will be higher by 2% of
the normal rate as in case of rupee credit.
Extension of PC upto 360 days and rate of interest
on such extension will be as per discretion of the
bank.
v) The running A/c facility will be permitted under
PCFC on the same lines as in case of packing credit
in rupees. However, packing credit advance already
permitted in rupees will not be converted to PCFC.
vi) PCFC will be available only for cash exports and
will not cover "Deferred Payment Exports'.
vii) The lending rate to exporter will be linked to 6
months LIBOR (London Inter Bank Offer Rate) rate
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and the
a) Indian banks having branches aborad] - 20% over,
LIBOR and foreign banks in India.
b) Indian banks not having branches - 2 1 / 2 % over LIBOR
abroad. The above rates are excluding withholding
tax. The banks are, however, free to quote better
rates depending upon the availability of foreign
exchange resources available with them and/or the
terms of line of credit arranged by these banks with
their foreign branches/correspondents.
viiiWithholding tax as per applicable rates will be
payable rates will be exporter in addition to
interest as above.
ix In case full amount of PCFC or part thereof is
utilised to finance domestic inputs, the foreign
currency amount will be converted to Indian rupees
at appropriate exchange rates.
x PCFC will be available within 'MPBF'/credit limits
sanctioned in favour of exporter.
xi ECGC cover will be available in rupees only,
whereas PCFC is in foreign currency.
xii PCFC will be self-liquidating in nature. PCFC should
be liquidated by submission of export documents

for discounting/rediscounting. PCFC will not be
allowed to be liquidated with foreign exchange
acquired from other sources.
PCFC can be extended for exports to ACU 1 Countries
w.e.f.1.1.1996. PFC can also be extended for deemed
exports.
Sharing of Export Credit under PCFC Scheme
PCFC can now be availed by the manufacturer on the
basis of disclaimer from the export order holder in the
same way as permitted under rupee credit scheme. PCFC
granted to the manufacturer will be adjustd by
transferring foreign currency from the export order
holder.
PCFC for supplies from one EOU/EPZ Unit to
another EOU/EPZ Unit
Supplier made to EOUs/EPZ units are treated as Deemed
Exports and Reserve Bank has permitted granting PCFC
both in the supplier EOU/EPZ unit and the receiver
EOU/EPZ unit. PCFC for supplier EOU/EPZ unit will be for
supply of raw material components for goods which will
be further processed and finally exported by receiver
EOU/EPZ unit. The PCFC extended in a supplier EOU/EPZ
unit will have to be liquidated by receipt of foreign
exchange from the receiver EOU/EPZ unit, for which a
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supplier EOU/EPZ unit purpose, the receiver EOU/EPZ
unit can avail of PCFC. The stipulation regarding
liquidation of PCFC by payment in foreign exchange will
be met in such cases not by notation of exporter
documents but by transfer of foreign exchange from the
bankers of the receiver EOU/EPZ unit to the banker of
supplier EOU/EPZ unit.
PCFC ranted to receiver EOU/EPZ unit will be liquidated
by discounting of export bills as per general procedure
in this regard. Furthermore such transaction will be
treated as exports for the supplier unit and import for
the receiving unit.
Importer Exporter Code Number
No commercial export from India is permitted on behalf
of a person/firm/company who has not been allotted an
Importer Exporter Code Number. A few firms may be
completing exports through registered Export/Trading
Houses and are eligible to avail packing credit limits
from the banks. Such firms may not be required to
obtain the code number.
Application for Packing Credit
Application for Packman Credit should be accomplished
by the following documents:
i) Confirmed export order/contract or L/C, etc. in

original.(Where it is not available, an undertaking
to the effect that the same will be produced to the
bank within a reasonable time for verification and
endorsement. This undertaking is required where
the exporter wants to avail himself of packing
credit advance against preliminary information of
contract where by at the later stage the contract or
L/C, as the case may be, will be received by him.
ii) An undertaking that the advance will be utilised for
the specific purpose of procuring / manufacturing /
shipping etc. of the goods meant for export only as
stated in the relative confirmed export order or the
L/C.
iii) Where the exporter/application asking for the
packing credit is a sub-supplier and wants to
supply the goods to Export/Trading/Star.
Trading/Super Star Trading House or merchant
exporter, an undertaking from the merchant
exporter or Export/Trading/Star Trading/super Star
Trading House stating that they have not will not
avail themselves of packing credit facility against
the same transaction for the same purpose till the
original packing credit is liquidated.
iv) Copies of Income Tax/Wealth Tax Assessment Order
for the past 2/3 years in the case of sole
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proprietary and partnership firm.
v) Copy of RBI's (Exporter's) Code Number (CNX).
vi) Copy of a valid RCMC (Registration-cum-
Membership Certificate) help by the exporter
and/or the Export/Trading Star Trading House
Certificate.
vii) Appropriate policy/guarantee of the ECGC.
viii) Any other document required by the bank.
A packing credit limit (PCL) is sanctioned by the
appropriate authority in the bank. It is fixed either as an
annual overall limit or as ad hoc specific limit.
Usually, the trade/manufacturer/export who seeks a
packing credit limit also required foreign bills purchase
limit negotiation/purchase/discount of bills, drawn under
leter of credit and/or without letter of credit.
All such limits together are generally reviewed by the
appropriate authority in the bank and separate limits are
purpose wise and security wise for the packing credit
loan and foreign bills purchased within the total limit.
These limits are reviewed at the end of the period for
which they are sanctioned and they are
renewed/revised/canceled depending on the merits of
each case.
Submission of Export Order/L/C
The exporter has to produce a confirmed export order or
L/C as per the terms of sanction at the time of
disbursement of packing credit. In the absence of an
export order/L/C, the bank accept some other
communication form the overseas buyer provided it
contains minimum details giving the name of the buyer,
the value of the order, quantity and particulars of the
goods to be exported, date of shipment and terms of
payment. Even in such cases final sales contract/L/C will
be required to be submitted to the bank at a later stage.
Sometimes an export order is received by an export
hose/trading hose or an merchant exporter who may
pass on this order to sub-supplier who is not directly
exporting. Such sub-supplier may also avail packing
credit facility from the bank. The packing credit in such
cases can be granted after getting a letter from the
exporter house/trading house giving details of the
ord3er and also confirming that he (export
house/trading house) has not availed any packing credit
against that order.
The repayment of such advance should be from the
proceeds of bills drawn under inland L/C (back to back
L/C) opened by the export house/merchant exporter in
favour of the sub-supplier. Where such an L/C is not
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opened, the sub-supplier may draw export
house/merchant exporter would be necessary to the
effect that the goods have actually been exported.
Extension of Pre-shipment Credit - 'Running
Account' facility
The requirement of prior lodgment of letters of credit or
firm orders had been waived by Reserve Bank of India
respect of exports of certain commodities where banks
were authorised to grant running account facility.
Reserve baks has now with effect from 14 t h March, 1992
waived this requirement for all commodities and banks
have been permitted to grant pre-shjipment advances
for exports of any commodity without insisting on prior
lodgment of letter of credit/firm export orders. Granting
of such facility may be subject to the following general
conditions.
i) The facility will be allowed to only those exporters
whose trace record has been good. New exporters
may not for obvious reasons be allowed this
facility.
ii) The exporters to whom this facility is allowed will
be required to produce letters of credit/firm export
orders within a reasonable period of time. In case
of export of commodities covered under "Selective
Credit Control', letters of credit/firm orders should

be produced within a period of one month from the
date of advance.
iii) The banks shall mark off individual export bills, as
and when they are received for negotiation /
purchase / collection, against the earliest
outstanding pre-shipment credit on 'First In First
Out' (FIFO) basis.
iv) In respect of export of any commodity where the
amount of pre-shipment credit is in excess of
export value, excess amount should be adjusted
either in cash or by sale of non-exportable by
product, as soon as the extraction/segregation of
by product is completed, within a period of 30 days
from the date of advance.
v) The facility will not be allowed for inventory build
up and only need based limits will be allowed.
vi) The benefit of confessional rate of interest will be
permitted up to 180/270 days in respect of each
pre-shipment credit.
vii) If any exporter is found abusing the facility or does
not comply with the above terms and conditions,
the facility of running account will be withdrawn.
Pre-shipment Advance
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It can also be given on production of sufficient evidence
i.e. cable and telex/fax, the L/C or firm export order
received by the exporter and lodged with the bank
within a reasonable time (as agreed upon by the bank)
of the grant of such advance. Moreover, the
cable/telex/fax messages should reveal quantity and
particular of goods, value of order, date of
shipment/delivery period, terms of payment and name of
buyer.
It can also be given under the 'Red Clause' letter of
credit i.e. at the instance and responsibility of the
foreign bank establishing L/C.
In a Red Clause L/C, the packing credit advance is made
against a simple receipt and is unsecured whereas
packing credit in normal course (i.e. not against Red
Clause) is made against the deposit of L/C and execution
of letter of pledge/hypothecation/trust receipt and other
loan documents.
Exporter who do not receive the export order in their
name such as suppliers to merchant exporter and
Export/Trading Houses are also eligible provided:
i) The produce a letter from the concerned merchant
exporter/Export Trading House that a portion of the
'Order' has been allotted to them, detailing the
goods to be supplied.
ii) The merchant exporter or Export Trading House
neither has availed nor wish to seek packing credit
in respect of the apportioned order, from any other
bank/source,
iii) The letter from the merchant exporter or Export
Trading House is countersigned by the bank
advising the letter of credit.
Sub-contractors or sub-suppliers supplying goods for
exports under a consortia arrangement are also eligible
for packing credit.
Where the goods are to be manufactured by the
manufacturer and processed/packed etc. Export Trading
House/Merchant-Exporter before making the shipment
finance can be availed by both the parties i.e. the
supplier as well as Export/Trading House or Merchant
Exporter for the required period, subject to the condition
that the total period of well as Export/Trading house or
Merchant Exporter for the required period, subject to the
condition that the total period of facility availed by both
does not exceed the maximum period permitted for
confessional finance.
The pre-shipment credit is required to be liquidated from
the proceeds of the relative export bills when purchased,
negotiated or discounted. However, the RBI has relaxed
this condition. For instance, if for any reason an
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exporter negotiated or discounted. However, the RBI has
relaxed this condition. For instance, if for any reason an
exporter who has availed of pre-shipment credit, is
confronted with the cancellation of the export order and,
hence, unable top adjust the credit against relative
export bill proceeds, the wiping off such outstanding
through export bills drawn on the importers, either in
the same country, or in any other country is permitted,
provided the relative bills are in respect of the very
goods for which credit was originally granted.
Period of Advance
The packing credit advance is granted up to the last
date of shipment as per the underlying sale
contract/export L/C to a maximum of 180 days. If the
export order cannot be executed by that time, a further
extension of 90 days may be permitted. Such extension
would be considered by ranks only if they are satisfied
that reasons for extension are due circumstances
beyond the control of the exporter.
Banks may also consider to extend pre-shipment credit
for a longer period ab into up to a maximum of 270
days in respect of export of any commodity if the banks
are satisfied about the need for longer duration of
credit, depending upon seasonality of commodity, its
manufacturing cycle, time normally taken for shipment,

etc. the exporter must clearly out a case for availing
packing credit for longer period and obtain necessary
sanction from their banks.
Exporters are, however, under an obligation to complete
the export within a reasonable time which has now been
fixed as 180 days after completion of initial period of
180 days i.e. the export must be completed within 360
days of granting o packing credit as otherwise it will
loose the benefit of confessional rate of interest.
Rates of Interest
Pre-shipment advances are granted to the exporters at
the following concessional rate of interest:
Pre-shipment advance up to initial 180 PLR – 2.5%
days
Pre-shipment advance for a further PLR - +0.5%
period of 90 days
Pre-shipment advance beyond 270 days Banks are free

to determine
up to 360 days the rates
Pre-shipment advance against PLR – 2.5%
incentives receivable from Government
covered by ECGC guarantees (up to 90
days)
The other important points as regards rates of interest
K.KRISHNAN, IGNOU
on packing credit advances are given below:
 If the export is not completed within 360 days from
the date of original advance, no benefit of
concessional rate of interest will be available from the
1 s t day of advance itself i.e. interest at the normal
rate shall be payable from the day one the export is
completed. The difference of interest less charged by
the bank will be recovered.
 If the export does not materialise at all and packing
credit advance is to be adjusted from local funds, the
entire advance will not be considered as an export
credit from the date of original advance itself and
interest at the commercial lending rate may be
charged by the rank from the date of original
advance.
 No other service charges are payable by the exporters
except guarantee fee on packing credit guarantee of
ECGC obtained by the bank.
Quantum of Advance
The advance granted to exporter is restricted to the
FOB value of goods or domestic value of goods
whichever is less except in the following cases:
1) For a few items, particularly engineering goods which
are backed by export incentives of Government of

India the domestic value of goods exceeds FOB value.
Advance up to the domestic value may be permitted
in such case provided these are covered under ‘Export
a production Finance Guarantee’ of ECGC. The
packing credit allowed to these cases will be adjusted
partly by export proceeds and the remaining amount
from the claims of export incentives payable to the
exporter.
2) For exports of HPS ground-nuts and de-oiled and
defeated cakes, packing credit can be granted up to
the cost of raw material required even through the
value of advance exceeds the value of export order.
The advance in excess of export order must be
adjusted either in cash or by selling residual ground
nuts or by products oil product oil as soon as possible
but within 15 days in case of HPS ground-nuts and 30
days in case of de-oiled and defatted cakes. The
balance amount in the packing credit account will be
adjusted by proceeds of export bills drawn under the
export order in a usual manner. This provision has
been brought in because raw material requirement to
such exports is very high in comparison to the value
of export order.
Security of Packing Credit Advance
The goods meant for export form the primary security
K.KRISHNAN, IGNOU
for the bank granting packing credit advance. The form
of charge may, however, change on different stages
depending upon the nature of reports. The packing
credit may initially be clean at the time of disbursement;
may be covered by hypothecation charge over the raw
materials, semi-finished and finished goods later;
hypothecation charge be converted to pledge of finished
goods meant for exports or may even be covered by
document of title to goods (LR/RR) if the goods are sent
for shipment to a port city. This aspect of security must
be discussed in details in the initial stages itself so that
operation in the account are convenient.
Margin
The concept of margin in case packing credit is actually
linked with the value of order/L/C and/or with value of
security and different banks have their own standard in
this regard. The most accepted concept of margin in
these accounts is as under:
1) Margin on export order/L/C: This margin is applied on
the value of export order/letter of credit at the time
of initial disbursement when the packing credit may
not be backed by security of goods. Usually a high
margin is stipulated in such cases.
2) Margin on security: This is usual margin as applicable
to other advances backed by security of goods such as

cash credit accounts etc.
K.KRISHNAN, IGNOU
ECGC Guarantee
Most of the banks cover their packing credit advances
under ‘Packing Credit Guarantee” of Credit and
Guarantee Corporation (ECGC). ECGC issues packing
credit guarantees on each exporter individually and also
has the system of issuing a guarantee in favour of the
bank on whole turnover basis.
Premium on the guarantee is generally recovered from
the exporter. The rates of premium on individual
guarantees are higher in comparison to rates on ‘Whole
Turnover Packing Credit Guarantee’ issued to banks. It is
necessary to obtain this information from the bank as
cost of additional premium for individual guarantee may
sometimes be quite heavy depending upon the turnover
in the account. Guarantees issued by ECGC are in
addition to various policies issued by ECGC in favour of
exporters to cover the risk of non-payment or other
political risk involved in export trade. Full details of
these policies are given in Chapter on Export Credit
Insurance.
Exim Bank’s Scheme for grant of Foreign Currency
Pre-shipment Credit to Exporters (CFPC Scheme
Export Import Bank of India (Exim Bank) has floated a
scheme for Indian exporters to enable them to avail of

pre-shipment credit in foreign currencies to finance cost
of imported inputs for manufacture of export products.
The scheme is operated through authorized dealers who
are granted refinance by Exim Bank in foreign currency
out of credit lines arranged by Exim Bank. Salient
features of the scheme are given hereunder:
i) Exim Bank will arrange short-term lines of credit in
foreign currencies from foreign lending agencies.
ii) Exim Bank will allocate bank-wise limits in foreign
currencies out of funds so raised for lending by
those banks to Indian exporters.
iii) The following categories of exporters will be
eligible to obtain finance under the scheme:
a) Export House/Trading Houses with annual
turnover exceeding Rs. 10 crores.
b) Manufacturing units with minimum export
orientation of 25% of production or export
turnover of Rs. 50 crores should be made either
directly or through Trading Houses.
c) Exporters should have satisfactory track record.
iv) Pre-shipment credit will be made available in any
of the major international currencies in which Exim
Bank raises funds.
K.KRISHNAN, IGNOU
v) The packing credit granted under the scheme
should be within the permissible bank finance
sanctioned by banks under the existing credit
policy norms laid down by Reserve Bank.
vi) The credit risk arising in the transaction will be
borne by banks through whom foreign currency
funds will be disbursed
vii) The outstanding under the facility should always be
covered by firm orders/letters of credit or export
receivables.
viii) Financing banks should obtain credit reports and
satisfy themselves about the means and standing of
the overseas buyers.
ix) the foreign currency loans to be extended by banks
to their exporters should be covered with ECGC.
The total interest spread will be restricted to 2% over
the interest rate at which the funds are raised by the
Exim Bank. This two per cent will be shared by Exim
Bank and the bank as under:
0.5%
Share of Exim Bank
1.5%
Share of Bank
Any commitment fee and/or management fee, if
applicable will also be payable by the exporter.

The repayment of pre-shipment credit will be made out
of sale proceeds off export shipments in respect of
which the facility was availed by the exporters.
The export will be subject to normal exchange/trade
control regulations. As against the rupee interest rate of
3%, the credit under the scheme is going to be cheaper.
The exact rate of interest will, however, depend on the
foreign currency in which credit is availed. For instance
approximate rate in US $ should be around 7 per cent.
However, exchange rate for such transactions will be
fixed at the time of taking advance and benefit of any
appreciation in the value of foreign currency vis-a-vius
Indian rupee will not be available.
Relaxation’s granted in the area of Export Packing Credit
Reserve Bank has announced a few relaxations in
operational aspects of export packing credit as under:
i) The stipulation of repayment a few relaxations in
operational aspects of export packing credit as
under: Substitution of commodity of export may
also be granted by the bank. In other works
packing credit availed by an exporter can now be
liquidated by export documents relating to any
export done by that exporter.
ii) The existing packing credit may also be marked off
K.KRISHNAN, IGNOU
with export proceeds of documents against which
no packing credit has been drawn by the exporter.
iii) The relaxation’s as above are available both under
packing credit availed in rupees or in foreign
currency.
iv) The relaxation as above is, however, not extended
to transactions of sister/associate/group concerns.
Extension of Packing Credit Facility to Sub-Supplier
As per existing guidelines the packing credit is allowed
to be shared between an Export Order Holder including
trading house and a manufacturer of goods exported.
This facility is now extended to sub-suppliers of raw
materials, components etc. to the exported goods. The
detailed guidelines in this regard are as under:
i) The packing credit facility for the sub-supplier will
be available only on the basis of an export order or
letter of credit L/C in the name of Export Order
Holder. No running A/c facility will be permitted to
sub-supplier.
ii) The Export Order Holder may open inland L/C
through his banker in favour of his supplier/s on
the basis of the export order or L/C received by
him. On the basis of such inland L/C the bank can
grant packing credit to sub-supplier. Such packing

credit will be liquidated from the proceeds of the
bills drawn under L/C. The L/C opening bank will
grant packing credit to the Export Order Holder at
this stage.
iii) Export Order Holder can open any number of L/Cs
for the various components required within the
overall value limit of the order L/C.
iv) The scheme will cover only the rupee packing
credit. The finance given to both the sub-supplier
and Export Order Holder will be eligible for export
packing credit at interest rates as per RBI’s
interest rate directive for the specified period as
announced from time to time.
v) The charges for opening inland L/Cs will be as per
FEDAI (Foreign Exchange Dealers Association of
India) rules.
vi) The Export Order Holder will be responsible for
exporting the goods as per export order or L/C and
any delay with process will subject him to the
penal provisions as applicable once the sub-
supplier makes available the goods as inland L/C
terms to the Export Order Holder, his obligation of
performance under the scheme will be treated as
complex and penal provisions will not be applicable
to him for any delay by Export Order Holder.
K.KRISHNAN, IGNOU
vii) The scheme will cover only the first stage of
production cycle. In other words a manufacturer
exporter will be allowed to open inland L/C in
favour of this immediate suppliers of raw material/
components etc. that are required for manufacture
of exported goods. The scheme will not be
extended to cover suppliers of raw material /
components etc. to such immediate suppliers. In
case Export Order Holder is only a trading house,
the facility will be available commencing from the
manufacturer to whom the order has been passed
on by the trading house.
viii) EOUs/ EPZ units supplying goods to another
EOU/EPZ unit for export purposes are also eligible
for rupeepre-shipment export credit under this
Scheme. However, the supplier EOU/EPZ unit will
not be eligible for any post-shipment facility either
in rupees or under PSCFC scheme as the scheme
does not cover sales of goods on credit terms.
ix) The scheme does not envisage any change in the
total quantum of advance or period of advance.
Accordingly, the credit extended under the system
will be treated as export credit from the date of
advance to the sub-supplier to the date of
liquidation by Export Order Holder under the inland
export-L/C system and upto the date of liquidation

of packing credit by shipment of goods by Export
Order Holder.
x) The position regarding interest- tax on export
packing credit granted to sub-supplier is not clear
and interest-tax may be payable for the time being.
Credit against proceeds of Cheques, Drafts, etc.
received directly towards advance payment for
Exports
Banks can grant export credit at concessive interest rate
in such cases subject to the following conditions being
fulfillment.
i) Accommodation is granted for the transit period
stipulated by FEDAI for collection of the instrument
or till the of realization of proceeds thereof which
ever is earlier.
ii) The bank gets satisfactory evidence that the
instrument represents advance remittance against
an export order.
iii) The Bank’s past experience with the borrowers and
the latters track record are good
iv) The trade practices suggest the possibility of such
instrument etc., being received towards advance
payments are the exporters are able to satisfy the
K.KRISHNAN, IGNOU
Bank with reason for receiving payment directly.
v) Exchange Control Department of Reserve Bank has
agreed to treat the direct inward remittance as an
approach method of realization of export proceeds.
vi) It is ensured by the Bank in due course that the
goods have been shipped.
Packing Credit for Imports against entitlements
under advance licence
Concessive packing credit can be granted to
manufacture –exporters for financing of such imports
against advance licence etc. as are meant for
manufacture of goods to be exported by them even if
they are not in a position, at the time availing of credit,
to produce letter of credit or firm order for export of the
manufactured items. This will be subject to the following
conditions:
i) The bank has satisfied itself by referring to the
conditions stipulated in the import licence that the
imported material will be utilised for the items to
be exported abroad.
ii) Letter of credit/firm order is produced with in a
reasonable time which should not exceed 60 days
from the date of advance failing which commercial
rate of interest will be charged ab initio.

Extension of Packing Credit etc. for Deemed
Exports
Banks can grant export credit at concessional rates both
for pre-shipment (supply) in respect of deemed exports.
All categories of supply of goods regarded as deemed
export under paragraph 0.2 o EXIM Policy 997-2002 are
eligible to avail the concessional finance.
K.KRISHNAN, IGNOU
POST-SHIPMENT CREDIT
Post-shipment finance means any advance granted to an
exporter after shipment of goods. At the post-shipment
stage.
a) advances against shipping documents;
b) advances against duty drawback.
The need for post-shipment finance arises because
exporters who sell goods abroad have to wait for a long
time before payment is received from overseas buyers.
The period of waiting will depend upon th terms of
payment. Based on different types of terms of payment
different methods of financing are being devised. Most
of the provisions of Exchange Control Manual are by and
large applicable to all these methods of post-shipment
finance except few special provisions applicable to the
individual methods of finance.
Negotiations of Export Documents Drawn under
Foreign L/Cs
This has been thoroughly discussed in Chapter on
‘Negotiations under Documentary Credits’.

Purchase of Export Bills drawn under Confirmed
Contracts
Purchase or discount facilities in respect of export bills
drawn under confirmed export order are generally
granted to customers who are enjoying Bill
Purchase/Discounting limits sanctioned by the Bank.
Since in case of purchase of discounting of export
documents drawn under export order the security
offered under L/C by way of substitution of credit-
worthiness of the buyer i.e. the importer as well as that
of the exporter or beneficiary. The documents drawn on
DP basis are parted with through foreign correspondent
only when payment is received while in case of DA bills
documents (including that of title to the goods) are
passed on the overseas importer against the acceptance
of the draft to make payment on maturity. DA bills are
thus unsecured. The bank financing against export bills
is open to the risk of non-payment on maturity. DA bills
are thus unsecured. The bank financing against export
bills is open to the risk of non-payment. Banks, in order
to enhance security generally, opt for ECGC policies and
guarantees which are issued in favour of the
K.KRISHNAN, IGNOU
exporter/banks to protect their interest on percentage
basis in case of non-payment or delayed payment which
is not on account of mischief, mistake or negligence on
the part of exporter. Within the total limit of policy
issued to the customer, drawee-wise limits are generally
fixed for individual customer. At the time of purchasing
the bill bank has to ascertain that this drawee limit is
not exceeded so as to make the bank ineligible for claim
in case of non-payment.
Advances against Export Bills Sent on Collect ion
It may sometimes be possible to avail advance against
export bills sent on collection. In such cases the
exporter bills will be sent by the bank on collection basis
and will not be purchased/discounted. Advance such bills
will be granted by way of a ‘separate loan’ usually
termed as ‘post-shipment loan’. This facility is, in fact
other form of post-shipment advance and will be
sanctioned by the bank on the same terms and
conditions as applicable to the facility of
Negotiation/Purchase/Discount of export bills. A margin
of 10 to 25% is, however, stipulated in such cases. The
rates of interest etc., chargeable on this facility are also
governed by the bank by way of
negotiation/purchase/discount.
Advances against Claims of Duty Drawback
Duty drawback is permitted against export of different
categories of goods under the ’Customer and Central
Excise Duty Drawback Rules, 1995. ‘Drawback in relation
to goods manufactured in India and exported means a
rebate of duties chargeable under Central Excises and
Salt Act, 1944 on certain specified goods. The Duty
Drawback Scheme is administered by Directorate of Duty
Drawback in the ministry of Finance. The claims of duty
drawback are settled by Customs House at the rates
determined and notified by the Directorate.
As per the present procedure, no separate claim of duty
drawback is to be filed by the exporter. A copy of the
shipping bill presented by the exporter at the time of
making shipment of goods serves the purpose of claim of
duty drawback as well. This claim is provisionally
accepted by the customs at the time of shipment and
the shipping bill is duly verified the claim is settled by
customs office later.
As a further incentive to exporters Customs Houses at
Delhi, Mumbai, Calcutta, Chennai, Chandigarah,
Hyderabad have evolve a simplified procedure under
which claims of duty drawback are settled immediately
after shipment and no funds of exporter are blocked.
However, where settlement is not possible under the
K.KRISHNAN, IGNOU
simplified procedure exporters any obtain advances
against claims of duty drawback as provisionally
certified by customs. The New Delhi Customs has gone a
step further by introducing EDI system of Indian
Customs and now w.e.f. 1.11.1996 drawback claims are
settled under computerized system.
Advance against Goods sent on Consignment Basis
When the goods are exported on consignment basis at
the risk of the exporter for sale and eventual remittance
of sales proceeds to him by the agent/consignee, bank
may finance against such transaction subject to the
customer enjoying specific limit to that effect. However,
the bank should ensure that while forwarding shipping
documents to its overseas branch/correspondent to
instruct the latter to deliver the documents only against
Trust Receipt/Undertaking to deliver the sale proceeds
by specified date, which should be within the prescribed
date even if according to the practice in certain trades a
bill for part of the estimated value is drawn in advance
against the exports.
Advance against Undrawn balance
In certain lines of export it is the trade practice that
bills are not to be drawn for the full invoice value of the
goods but to leave small part undrawn for payment after
adjustment due to difference in rates, weight, quality

etc., to be ascertained after approval and inspection of
the goods. Banks do finance against the undrawn
balance if undrawn balance is in conformity with the
normal level of balance left undrawn in the particular
line of export subject to a maximum of 10% of the value
of export and an undertaking is obtained from the
exporter that he will, within 6 months from the date of
shipment of the goods surrender balance proceeds of the
shipment. Against the specific prior approval from
Reserve Bank of India the percentage of undrawn
balance can be enhanced by the exporter and the
finance can be made available accordingly at higher
rate. Since the actual amount to be realized out of the
undrawn balance may be less than the undrawn balance
it is necessary t keep margin on such advance.
Advance against retention money
In certain lines of export it is the trade practice that
bills are not to be drawn for the full invoice value of the
goods but to leave small part undrawn for payment after
adjustment due to difference in rates, weight, quality
etc., to be ascertained after approval and inspection of
the goods., banks do finance against the undrawn
balance if undrawn balance is in conformity with the
normal level of balance left undrawn in the particular
line of export subject to a maximum of 10% of the value
of export and an undertaking is obtained from the
K.KRISHNAN, IGNOU
exporter that he will, within 6 months from the date of
shipment of the goods surrender balance proceeds of the
shipment. Against the specific prior approval from
Reserve bank of India the percentage of undrawn
balance can be enhanced by the exporter and the
finance can be made available accordingly at high rate.
Since the actual amount to be realized out of the
undrawn balance may be less than the undrawn balance
it is necessary to keep margin on such advance.
Advance against Retention money
Banks also grant advances against retention money,
which is payable within one year from the date of
shipment at confessional rate of interest i.e., 13% upto
90 days. If such advances extend beyond one year, they
are treated as deferred payment advances which are
also eligible for concessive rate of interest.
Treatment for Overdue foreign currency Bills
Many a time bills remain outstanding for long after the
transit period or the due date, for some reason or the
other. If the bill is not paid within 30 days after its due
date and the relative credit advice not received by the
concerned bank within this period, the foreign currency
amount of the bil is to be converted into rupees at the
prevailing. T.T. selling rate and the liability will be held
in rupees in the books of the negotiating bank.

Thereafter, the bill with be treated as on collection
basis. As and when the credit advice is finally received,
the foreign currency amount of the bill will be purchased
afresh by the bank at the prevailing T.T. buying rate.
The difference between the rupees amount arrived at on
the 30 t h day after due ar on the bais of T.T. selling rate
and the rupees amount arrived at one the date of final
payment at the T.T. buying rate will be debited/credited
to the exporter. Barring exceptional cases, the exporter
is bound to suffer a loss on account of the inherent
difference between the T.T. selling T.T. buying rates on
any currency. Again, interest would be recovered on the
overdue export bill after the due date upto the date of
realization.
K.KRISHNAN, IGNOU
Forfaiting finance ( A
new financing option for
Indian Exporter)
Definit ion
Forfaiting is a mechanism of financing exports.
• By discounting export receivables
• Evidenced by bills of exchange or promissory notes
without recourse to the seller (viz. Exporter)
• On a fixed rate basis (discount)
• Upto 100 per cent of the contract value.
The word ‘forfait’ is derived from the French word ‘a
forfait’ which means the surrender of rights.
Simply speaking, forfaiting is the non-recourse
discounting of export receivables. In a forfaiting
transaction the exporter surrenders, without recourse to

him, his rights to claim payment on goods delivered to
an importer, in return for immediate cash payment from
a forfaiter. As a result an exporter in India can convert a
credit sale into a cash sale, with no recourse to the
exporter or his banker.
Eligibility
All goods exported on credit terms are eligible for
forfaiting, subject to quotes being available.
How forfaiting works?
Receivables under a deferred payment contract for
export of goods, evidenced by bills of exchange or
promissory notes, can be forfaited.
Bills of exchange or promissory notes, backed by co-
acceptance from a bank (which would generally be the
buyer ’s bank), are endorsed by the exporter, without
recourse, in favour of the forfaiting agency in exchange
for discounted cash proceeds. The banker ’s co-
acceptance is known as availisation. The co-accepting
bank must be acceptable to the forfaiting agency.
Prescribed formats
The bills of exchange or promissory notes should be in
the prescribed format.
K.KRISHNAN, IGNOU
Role of Exim bank
The role of Exim bank will be that of a facilitator

between the Indian exporter and the overseas forfaiting
agency. On a request from an exporter, for an export
transaction which is eligible to be forfaited, exim bank
will obtain indicative and firm forfaiting quotes-discount
rate, commitment and other fees-from overseas
agencies.
Exim bank will receive availised bills of exchange or

promissory notes,m as the case may be, and send them
to the forfaiter for discounting and will arrange for the
discounted proceeds to be remitted to the Indian
expoter.
Exim Bank will issue appropriate certificates to enable

Indian exporter.
Exim Bank will issue appropriate certificates to enable

Indian exporters to remit commitment fees and other
charges. Exim bank has been authorized by the Reserve
Bank of India vide AD (GP Series) Circular No. 3 dated
February 13, 1992, to facilitate export financing through
forfaiting.
Forfaiting costs
A forfaiting transaction has typically three cost

elements:
• Commitment free,
• Discount fee,
• Documentation fee.
Commitment fee
A commitment fee is payable by the exporter to the

forfaiter for the latter’s commitment to execute a
specific forfaiting transaction at a firm discount rate
within a specified time (normally not more than one
year). The commitment fee generally ranges between
0.5 per cent and 1.5 per cent per annum of the utilized
amount to be forfaited and is charged for the period
forfait contract, whichever is earlier. The commitment
fee is payable regardless of whether or not the export
contract is ultimately executed.
Discount fee
Discount fee is the interest cost payable by the exporter

for the entire period of credit involved and is deducted
by the forfaiter from the amount paid to the exporter
against the avalised promissory notes or bills of
exchange. The discount fee is based on the relevant
market interest rates as reflected by the prevailing
London Inter-Bank Offered Rate (LIBOR) for the credit
period and currency involved, plus a premium for the
risks assumed by the forfaiter. The discount rate is
applied to the aggregate principal and interest due on
the debt instrument on its maturity to arrive at the
payout to the exporter. The discount rate is established
at the time of executing a forfait contract between the
K.KRISHNAN, IGNOU
exporter and the forfaiting agency.
Documentation Fee
Generally, no documentation fee is incurred in
straightforward forfait transactions. However, if
extensive documentation and legal work is necessary a
documentation fee may be charged.
Other Costs
Exum Bank will charge a service fee for facilitating the
forfaiting transaction which will be payable in India
rupees, there may be additional costs levied by a
forfaiter, such as handling charges, penalty etc.
However, these costs are transaction-specific and will be
specified and will be specified, where applicable.
Transferability of cost
As per Reserve Bank of India's AD (GP Series) Circular
No. 3dated February 13, 1992, discount fee,
documentation fee and any other costs levied by a
forfaiter must be transferred toi the overseas buyer.
Commitment fee should also be passed on to the
overseas b over to the extent possible.
The exporter should finalise the export contract in a
manner which ensures that the amount received in

foreign exchange by the exporter after payment of
forfaiting discount and other fees is equivalent to the
price which he would obtain of gods were sold on cash
payment terms.
Computation of Duty Drawback
Duty drawback will be computed only on FOB cost of
goods i.e invoice value less freight, insurance, if any,
and forfait discount and other related fees.
The Forfaiting Benefits
 Concerts a deferred payment export into a cash
export into a cash transaction, improving liquidity and
cash flow.
 Frees the exporter from cross-border political or
commercial risks associated with export receivables.
 Finance upto 100 per cent of the export value is
possible as compared to 80-85 per cent financing
available from conventional export credit
programmes.
 As forfaiting offers without recourse finance to an
exporter, it does not impact the exporter's borrowing
limits. Thus forfaiting represents an additional source
of funding, contributing to improved liquidity and cash
flow.
K.KRISHNAN, IGNOU
 Provides fixed rate finance; hedges against interest
and exchange risks arising from deferred export
credit.
 Exporter is freed from credit administration and
collection problems.
 Forfaiting is transaction specific. Consequently, long
term banking relationship with the forfaiter is not
necessary to arrange a forfaiting transaction.
 Exporter saves on insurance costs as forfaiting
obviates the need for export credit insurance.
 Simplicity of documentation enables rapid conclusions
of the forfaiting arrangement.
Other Important Factors
Currency in which contract must be executed to vbe
eligible for forfaiting: the export contract can be execute
din any of the major convertible currencies e.g. US
Dollar, Deutsche Mark, Pound Sterling, Japanese Yen.
Minimum value: The minimum value of an export
contract eligible for forfaiting and acceptable to a
forfaiting agency will generally be the equivalent of $
500,000.
Eligibility: Eligibility of an export transaction for
forfaiting can be determined when the forfaiting agency

is approached for a forfait quote. The availability of a
forfaiting quote for a particular country will depend on
the forfaiting agency's perception of risk quality of
export receivables from that country. The forfaiting
agency will indicate the maximum amount and the
period of discount while giving quote for forfaiting.
In case exporters wisdh to forfait their export
receivables, Exim Bank can be contracted with these
details:
 Name and address of foreign buyer
 Country to which exports are to be made
 Name of the guarantor bank (i.e. aval), if known to
the exporter
 Nature of goods
Operating mechanism
1. Indian exporter initiates negotiations with prospective
overseas buyer with regard to order quantity, price,
currency of payment, delivery period and credit
terms.
2. Exporter approaches Exim bank to obtain an
indicative foraiting quote from the forfaiting agency.
For this purpose, the exporter is required to provide
the following information-
K.KRISHNAN, IGNOU
 Name and address of foreign buyer
 Country to which exports are to be made
 Name of the guarantor bank (i.e. aval), if known to
the exporter
 Nature of goods
 Order quantity
 Amount of order base price, interest rate
 Delivery period and repayment schedule
 Name of the authorised dealer who will handle the
export transaction for the exporter in India.
3. Exim Bank obtain indicative quotes of discount,
commitment fees and documentation fees, if any, and
communicates these to the exporter.
4. Exporter finalises the terms of the contract with the
buyer. The final export offer must be structured in a
manner which ensures that the amount received in
foreign exchange by the exporter after payment of
forfaiting discount and other fees is equivalent to the
price which he would obtain if goods were sold on
cash payment terms.
5. If the terms are acceptable ot the overseas buyer, the
Indian exporter informs Exim Bank accordingly and

requests the Bank to obtain a firm quote form the
forfaiting agency.
6. Exim Bank obtains a firm quote form the forfaiting
agency and conveys this information to the exporter
and his authorized dealer, with a request to the
exporter to confirm acceptance of the forfaiting terms
within a specified time limit.
7. Indian exporter confirms acceptance of forfaiting
terms of Exim Bank. The exporter will enter into a
commercial contract with the overseas buyer and also
execute a forfaiting contract with the forfaiting
agency through Exim Bank.
8. On execution of the forfaiting contract. Exim Bank
issues:
 A certificate to the exporter with a copy to the
authorised dealer, regarding the commitment fee to
be paid by the exporter to the forfaiting agency. This
certificate will enable to exporter to remit
commitment fees to the forfaiting agency, in
accordance with the schedule indicated in the
forfaiting contract in terms of the Reserve Bank of
India guidelines governing forfaiting contracts,
commitment fees will be regarded as being analogous
to bank charges, and will not be required to be
mentioned in the GR form or shipping bill prepared by
K.KRISHNAN, IGNOU
the exporter, subject to the commitment fee not
exceeding 1.5 per cent of the contract value.
 A certificate to the exporter detailing the discount
payable to the forfaiting agency, to enable the Indian
Customs authorities to verify deductions towards
discounts declared by the exporter on the GR form
and shipping bill.
9. The Indian exporter ships the goods as per the
schedule agreed with the overseas buyer. The
forfaiting transaction will be reflected in the following
three documents associated with an export
transaction, in the manner suggested below:
Invoice
Forfaiting discount, commiment fees, etc. need not be
shown separately; instead, these could be built into the
FOB price, stated on the invoice.
Shipping Bill and GR form
Details of the forfaiting costs will be included along with
the other details, such as FOB price, commission
insurance, normally included in the "Analysis of Export
Value" on the Shipping Bill. The claim for duty drawback,
if any, will be certified only with reference to the FOB
value of the exports states on the shipping bill.

In case of exports covered under the scheme of
forfaiting, the following procedure should be followed for
filling up the various columns relating to the FOB value
in the Shipping Billl and the GR form.
i) the column "Total f.o.b. value in words" will reflect
the total invoice value inclusive of the forfaiting
discount.
ii) Under the column "Analysis of export value," the
actual f.o.b. value, exclusive of the forfaiting
discount should be indicated against the sub-
column "FOB value". The forfaiting discount will
however, have to be shown separately under the
sub-heading "Other Deductions", on he basis of
Exim Bank's certificate which is to be submitted by
exporters to the Customs authorities.
iii) The column "Full export value or where not
ascertainable the value which exporter expects to
receive on the sale of goods" should indicate the
total invoice value inclusive of the forfaiting
discount.
iv) Under the column "Assessable Value under section
14" the actual f.o.b. value, net of the forfaiting
discount will have to be shown.
v) On the reverse of the Shipping Bill, the figures to
K.KRISHNAN, IGNOU
be indicated against the column "Value on which
Drawback Claim" should be the f.o.b. value after
deduction of the formatting discount.
vi) These instructions have been communicated to All
Collectors of Customs by Ministry of Finance,
Department of Revenue in terms of Notification
F.No. 605/26/91-DBK dates march 1,1993.
10.The export contract will provide for the overseas
buyer to furnish avalised bills promissory notes.
11.If the contract for bills of exchange, the exporter
will draw a series of bills of exchange and send them
along with shipping documents to his banker for
presentation to importer for acceptance through
latter's banker. Importer's banker will hand and over
shipping documents to importer against acceptance
of bills of exchange by the importer and signature of
avail. Avalised and accepted bills of exchange with
the words "Without Recourse" and forward them
through his banker to Exim Bank, which in turn will
send to the forfaiting agency.
12.If promissory notes are provided for in the export
contract, then the exporter will require the importer
to prepare a series of avalised promissory notes, as
agreed.
On shipment, the exporter's bank sends the shipping
documents to the importer's bank for transmission to
the overseas buyer. Importer's banker will hand over
shipping documents to importer against avalised
promissory notes issued by the importer.
Avalised and accepted promissory notes will be
forwarded to the exporter through his banker.
The Indian exporter endorses the avalised promissory
notes with the worlds "Without Recourse" and forwards
them through his bank to Exim Bank, which in turn will
send them to the forfaiting agency.
13.The forfaiting agency effects the payment of the
discounted value, in accordance with Exim Bank's
instructions, after verifying the aval's signature,
and other particulars.
Normally, Exim Bank will direct the forfaiter to credit
the payment to the nostro account of the exporter's
bank in the country where the forfaiter is based. The
bank receiving the discounted proceeds will arrange to
remit the funds to India. The exporter will be issued a
Certificate of Foreign Inward Remittance. The GR form
will also be released.
14.An export contract which provides for more than
one shipment can also be forfaited under a single
K.KRISHNAN, IGNOU
forfaiting contract. However, where the export is
effected in more than one shipment, availsed
promissory notes/bills of exchange in respect of
each shipment could be forfaited, subject to the
minimum value requirements laid down by the
forfaiter.
15.On maturity of the bills of exchange/promissory
notes, the forfaiting agency presents the
instruments to the aval for payment.
1. Customs Public Notice on Forfaiting discount and
commitment fees - Certificate of net realisable value
of exports by Customs The Export Import Bank of
India (Exim Bank), in consultation with the Reserve
Bank of India, have decided to introduce the Scheme
of Forfaiting as an instrument of financing exports.
The scheme is being introduced initially of a period of
three years.
2. Forfaiting, which is an instrument of export
financing, involves purchase of invoices, bills of
exchange, promissory notes etc. by certain forfaiting
Agencies abroad at a discount from the exporters in
different Countries of the world without recourse to
such exporters. The objecive of the scheme is
essentially to help out exporters overcome he
problems of delay in the repatriation of the export

sale proceeds. Under the scheme, the exporter
forfaits his right to futue payment in return for
immediate cash. In other worlds int converts credit
shale into a scahs transaction the considration being
discount that the exporters/his bank will have to
bear. Forfaiting is without further recourse to the
exporters i.e. of forfaiting bank/financial institution
is unable to realise the amount frojm the purchasers
of the goods, they cannot come back to the exporters
for recovery of the amount. In such a transaction,
the Forfaiting Agencies normally charge forfaiting
discount (which varies from country to country and
from transaction to transaction) and a committeemen
fee which is payable till such period as the discount
is allowed. The Indian exporters opting for the
Scheme will have to charge their foreign buyers with
these two elements of costs over and above the
contractual base price agreed upon. All transactions
under the forfaiting scheme will be through the Exim
Bank of India which will act as intermediary.
3. As clarified by the Exim Bank, the commitment fees
would be payable at a specified rate on the contract
value for the period commencing from the date of
acceptance of the offer, till the date of disbursals of
the amount by the Forfaiting Agency (which will take
place after shipment and presentation of documents).
K.KRISHNAN, IGNOU
Accordingly, it would not be possible to quantity this
fee at the time of shipment. The commitment fees
will be analogous to the bank charges. Since bank
charges are now being allowed to be included in the
F.O.B. value declared by the exporters it has been
decided that this fee should also be included for
arriving a the value under section 14 of the customs
act. In all cases where the commitment fees do not
exceed 1.5% of the contract value, the Reserve Bank
of India have permitted remittance of such fees in
terms of their AD (GP Series) Cicular No. 3 dated
13.2.1992. Prior approval of the RBI would, however,
be required in cases where the commitemnt fee
exceed 1.5% of the contract value.
4. Regarding the forfaiting discount, which is payable
by the exporters to the overseas Forfaiting Agency, it
has been decided that the Exim Bank of India will
issue a certificate, shipment-wise, showing the
forfaiting discount payable and this certificate will be
submitted by the exporter along with the Shipping
Bills of scrutiny of the Assessing Officer in the
Customs House. The forfaiting discount should be
deducted from the total invoice value, for arriving at
the assessable value under section 4 of the Customs
Act. The assessable value, after deduction of the
forfaiting discount will comprise of the F.O.B. price

and the commitment fees.
5. In case of exports under the Scheme of Forfaiting,
the following procedure should be followed for filling
up the various columns relating the FOB value in the
Shipping Bill and the G.R. Form:
i) the column "Total F.O.B. value in the Shipping Bill
and the G.R. Form:
ii) under the column 'Analysis of export value', the
actual F.O.B. value, exclusive of the forfaiting
discount should be indicate against the sub-column
'FOB Value'. The forfaiting discount will, however,
have to be shown separately under the sub-
heading "Other Deductions", on the basis of Exim
Bank certificate submitted by the individual
exporter.
iii) The column "full export value or where not
ascertainable the value which exporter to receive
on the sale of goods" should indicate the total
invoice value, inclusive of the forfaiting discount.
iv) Under the column 'Assessable Value under Section
14' the actual F.O.B. value, net oof the forfaiting
discount will have to be shown.
v) On the reverse of the S/Bill the figures to be
indicated against the column. Value on which
K.KRISHNAN, IGNOU
Drawback Claim' should be the F.O.B. Value after
deduction of the forfaiting discount. The drawback
amount and other export incentives will have to be
calculated with reference to the value shown after
the requisite deductions and should match with the
figures shown as FOB value as indicated in (ii)
above.
vi) The entries in the GR from with regard to the
break-up of the value should be verified by the
Customs authorities on the basis of the EXIM Bank
certificate before acceptance. The certificate to be
issued by the EXIM Bank should be endorsed by
the Customs Officials with the shipping bill number
and date and after completion of the Customs
formalities should be forwarded to the Reserve
bank of India with the GR form.

Non-Conventional
Avenues for Export
financing
Most exporters try to finance their exports through
commercial banks. To promote their exports some also
take advantage of the Government’s Marketing
Development Assistance Scheme through the Ministry of
Commerce. Yet, there are many exporters who are
ignorant of various funding schemes of other
organizations which could help them to finance their
exports. In the following paragraphs, an efforts has
been made to identify such schemes and highlight their
specific requirements for the benefit of the exporting
community.
Exim Bank
The financing schemes of Exim-Bank have been
discussed later in this Chapter.
Industrial Credit and Investment Corporation of
India Ltd. (ICICI)
K.KRISHNAN, IGNOU
All the financial institutions (namely IDBI, IFCI and
ICICI) give priority to financing projects involving export
possibilities. However, ICICI has separate fund for
financial assistance to Industrial Export Projects. Under
this scheme, ICICI provides assistance under two
schemes (i) Productivity Fund (for market development);
and (ii) Term Loans.
Productivity Fund
Financial assistance is available by way of a grant for
upgrading export marketing (through market research,
product adaptation, training etc.) and for improvement
in productivity (through introduction of process/product
technology) which would increase export
competitiveness.
Eligible Companies
Private/Joint Sector companies having comprehensive
productivity scheme with a view to enhancing
exportability of its products. Priority is given to
companies manufacturing products with identified export
prospects, preferably in the thrust industries like
engineering, electronics, chemicals, pharmaceuticals,
textiles, apparel, leather, food processing and packaging
and computer software.

Eligible Activities
Product ivity Improvement Act ivities
i) for cost reduction and quality improvement, choice
of process/product technology options, R&D effort
towards production quality / efficiency/ volume
improvement and establishing productivity cells
with measurable achievements. Given to
Productivity consultants and technicians.
ii) For identifying products suitable for ancillaries or
selecting appropriate ancillary for modernizing, etc.
Available to Ancillary Development Consultants.
iii) For development and implementation of training
programs, including trainers and training materials
required to improve productivity. Available to
supervisor training.
iv) Design and product adaptation (for constancy
and/or expenditure incurred in response to
identified export market opportunities).
v) Visits to plants in competing countries/plants
operated with collaborators assistance, with a view
to adopting their production practices.
vi) Workships/Seminars with institutions or potential
collaborators for productivity and technology
K.KRISHNAN, IGNOU
improvement.
vii) For upgrading product/process technology through
induction of technical know-how.
Export Market Development Activities
i) Desk Research to focus on promising markets.
ii) Overseas Market Research for evaluating product
specifications identifying market segments,
distribution channels, buyer profiles etc.
iii) Overseas travel for appointing agents/distributors,
direct selling and for keeping abreast with product
developments.
iv) Product inspectively /certification services.
v) Training of export marketing personnel.
vi) Travel to India by potential buyers.
vii) Sampling, Advertising etc. required for product
launch an international markets.
Quantum of Assistance
Grants upto 50% of the cost of the productivity scheme,
subject to a maximum of US$ 4,00,000.

Term Loans for Export Oriented Industrial Projects
ICICI also provides term loans to enable the industry to
increase its quality and cost competitiveness in the
international market.
Eligible Companies
Private/Joint sector companies manufacturing products
having long term export potential and economic
advantage. The companies should have a strategic
export plan striving to reach international price/quality
standards, incorporating expanded exports as an
important element of corporate strategy and marketing
and technological arrangements which are consistent
with significant export expansion.
Priority is given to companies manufacturing products in
the thrust areas (explained earlier) and those proposing
ancillary development and productivity improvement
plans.
Eligible Activities
Cost of plant, equipment jigs, fixtures, tools, drawings,
know-how etc. for technology upgradation,
modernization, balancing, expansion and new projects.
K.KRISHNAN, IGNOU
Terms of Loan
Repayment : Repayment in 5 to 10 years with
schedule grace period of 1 to 3 years-
depending on the expected cash
generations.
None, as even the foreign
Exchange Risk :
currency loan (if any) is
denominated in Indian Rupees on
disbursement
ICICI does not retain the option

Conversion :
of converting the loan to equity.
Option
Agricultural Commercial and Enterprise (ACE)
project
ACE is funded by USAID, ICICI is the implementing
agency for the project.
Objectives
The main objectives of the project are:
- To increase private investment in the agro-business
sector.
- To improve linkages between horticulture producers,
processors and traders.
- To increase flow of fresh and processed horticulture
products to targeted domestic and export markets.
- To increase rural incomes.

Eligible Organizations
Private commercial venture and co-operatives in the
State of Maharashtra will be eligible to receive
assistance under ACE.
Type of ACE activities
Thee groups of activities have been identified:
- Loans to private sector
- Technical assistance
- Trade and investment tours
Loans to Private Sector Agro-Business
All types of agro-business entrepreneurs in Maharashtra
will be eligible for ACE assistance.
Technical Assistance
Chemonics International, which has its headquarters in
Washington, D.C. and field offices in Miami, Budapest
and Warsaw, will be providing Technical Assistance (TA)
to private firms in designing and/or implementing
innovative projects related to post-farm agriculture
development.
K.KRISHNAN, IGNOU
Trade and Investment Tours
ACE will organise and finance about 15 Trade and
Investment (TI)m tours for entrepreneurs to visit firm in
USA/India for building commercial linkages. The request
for TI should meet the objective of the ACE programme
and preferably result in an ACE project.
Main Terms of Assistance
LOANS TO PRIVATE SECTOR
Promoters Atleast 255 of the project cost.
contribution
Upto 50% of the project cost
ACE Assistance
subject to a maximum of US $
7,50,000 or its reupee equivalent,
and balance 25% through
loans/equity from other financial
institutions/banks.
Upto seven years including suitable

Repayment period
moratorium
Technical Assistance
Promoter’s contribution atleast 25% of the TA cost and
the balance as grant from ACE funds.
The maharastra Chamber of Commerce and Industries
(MCCI), Pune would be assisting ICICI for promotion of

the ACE project.
Project proposals submitted by the entrepreneurs will be
evaluated by ICICI for approval. ICICI has formed an
ACE Group in its technology division for implementing
the ACE project.
For further information please contact:
Mr. Arjan Advani, General Manager
The Industrial Credit and Investment Corpn. Of India
Ltd.
Scindia House, 5 t h Floor, N.M. Marg,
Ballard Estate, Bombay – 400 038.
Tel No. 2618251
Telex No.011-84458 ICIC IN
Gram: CREDCORP Bombay
Fax: 022-2625444
Department of Scientific and Industrial Research
(D.S.I.R.)
The DSIR operates a scheme called Transfer and Trading
in Technology (TATT) under which it can grant assistance
for technology exports. Apart from financial assistance,
the prospective technology/service exporters can also
identify possible export opportunities by studying the
K.KRISHNAN, IGNOU
technology profiles of various developing countries,
which have been prepared with the support of DSIR to
identify the technology needs of those countries.
Scheme of Transfer and Trading in Technology (TATT)
Under this scheme, the DSIR provides support by way of
grant, to finance exports. The quantum of grant and
eligibility is determined case-to-case, but grant can
extend to 100% of the eligible expense.
Eligible Activities
i) Preparation of reports/films regarding capabilities
and experience of Indian industrial units and other
concerned organisations in export of technologies
and services.
ii) Preparation of technology profiles having export
potential.
iii) Training programmes for potential foreign clients.
iv) Preparation and dissemination of publicity and
market promotion materials like technology
catalogues, brochures, video films, audio-visuals
etc.
v) Participation in technology trade fairs, exhibitions
etc. (including participation fee, cost of display
etc.).
vi) Setting up demonstration plants/plot plants
projecting Indian technology, either in India or
abroad (in such cases, the grant is usually
restricted to about 205 of the cost of the pilot
plant).
vii) Documentation expense for delegations (for
example brochures, pamphlets, advertisement
materials, etc.) provided the delegation also
includes technology exports.
Procedure
As explained earlier, a grant under the TATT scheme is
sanctioned on a case-to-case basis. The details of the
proposal may be sent to DSIR, Technology Transfer
Division, Technology Bhawan, New Mehrauli Road, New
Delhi-110 016.
Role of Exim Bank
Finance
EXIM BANK FINANCE
The export-import Bank of India (Exim Bank) provides
financial assistance to promote Indian exports through
direct financial assistance, overseas investment finance,
K.KRISHNAN, IGNOU
term finance for export production and export
development, pre-shipment credit, buyers credit, lines of
credit, relending facility, export bills rediscounting,
refinance to commercial banks, finance for computer
software exports, finance for export marketing and bulk
import finance to commercial banks. Th Exim Bank also
extends non-funded facility to Indian exporters in the
form of guarantees. The diversified lending progrmme of
the Exim Bank now covers various stages of exports,
i.e. from the development of export markets to
expansion of production capacity for exports, production
for exports and post shipment financing. The Exim Banks
focus is on export of manufactured goods, project
exports, exports of technology services and export of
computer software.
FINANCING PROGRAMMES
Loans to Indian Companies
Deferred payment exports: Terms finance is provided to
Indian exporters of eligible goods and services which
enables them to offer deferred credit to overseas
buyers. Deferred credit can also cover Indian
consultancy, technology and other services, Commercial
banks participate in this programme directly or under
risk syndication arrangements.

Term loans for export production: Exim Bank provides
term loans/deferred payment guarantees to 100% export
oriented units, units in free trade zones and computer
software exporters. In collaboration with International
Finance Corporation, Washington, Exim Bank provides
loans to enable small and medium enterprises upgrade
export production capability.
Facilities for deemed exports: Deemed exports are
eligible for funded and non-funded facilities from Exim
Bank.
Finance for export marketing: This programme, which is
a component of a World Bank loan, helps exporters
implement their export market development plans.
Loans to Foreign Government, Companies And Financial

Institutions
Overseas Buyers Credit: credit is directly offered to
foreign entities for import of eligible goods and related
services, on deferred payment.
Lines of Credit: Besides foreign governments, finance is
available to foreign financial institutions and government
agencies to on-lend in respective country for import of
goods and services from India.
Relending Facility to Banks Overseas: Relending facility
is extended to banks overseas to enable them to provide
K.KRISHNAN, IGNOU
term finance to their clients world-wide for imports
from India.
Loans to Commercial Banks in India
Export Bills Rediscounting: Commercial banks in India
who are authorised to deal in foreign exchange can
rediscount their short term export bills with Exim Bank,
for an unexpired usance period of not more than 90
days.
Refinance of export credit: Authorised dealers in foreign
exchange can obtain from Exim Bank 100% refinance of
deferred payment loans extended for export of eligible
Indian goods.
Guaranteeing of Obligations
Exim Bank participates with commercial banks in India
in the issue of guarantees required by Indian companies
for export contracts and for execution of overseas
construction and turnkey projects.
ORGANISATION
Exim Bank is fully owned by the Government of Indian
and is managed by a Board of Directors with repatriation
from Government, financial institutions, banks, business
community. The operations are grouped into Project
Finance, Trade Finance, Overseas Investment finance

supported by Planning and Co-ordination Groups.
FINANCE FOR EXPORT ORIENTED UNITS
Introduction
Exim Bank seeks to create and enhance export capability
of Indian Companies. Under the Lending Programme for
Export Oriented Units, the Bank addresses the term
finance requirements of export oriented units.
Eligibility
Company with a minimum export orientation (present or
targetted) of 10% of net sales or export sales of Rs. 5
crores, per year, whichever is lower.
Focus
Units set up/proposed to be set up in Export Processing
Zones or under the 100% Export Oriented Units Scheme.
Also, expansion / modernization/ upgradation/
diversification programmes of existing export oriented
units, importing capital goods under Export Promotion
Capital Goods Scheme.
What is on offer
Terms loans in Indian Rupees or in foreign currency.
Deferred Payment Guarantee for imports and guarantee
in favour of Government of India for imports under
Export Promotion Capital Goods Scheme.
K.KRISHNAN, IGNOU
Rate of Internet
On rupee terms loans-liked to Bank’s minimum lending
rate; on foreign currency loans-all floating or fixed
interest rates. Guarantee commission in line with
industry practice.
Service Fee
1% of loan amount payable up front.
Repayment
Over a period upto ten years, determined on the basis of
projected cash flows with suitable moratorium.
Security
Appropriate charge on fixed assets of the
company/project plus any other security acceptable to
Exim Bank.
Appraisal focus
Track record of the company/promoters financial of the
company/project, competitive strength of the
product/industry, both in domestic as well as in export
markets, appropriateness of the technology, export
marketing arrangements, Exim Bank’s industry/company
exposure.
How to apply
Applications may be made to any of the Bank’s offices in
India, Prior to receiving an application, the Bank
welcomes preliminary discussions with the promoters to
determine scope for Exim Bank’s term finance and also
identify Exim Bank’s export services that could
supplement the finance.
General
Indian promoters requiring additional information or
clarifications are welcome to contract any of Exim Bank’s
offices in India.
FINANCE EXPORT OF COMPUTER SOFTWARE
With further liberalisation in the export import policy,
projects, going in for development and export of
software can now approach the Export Import Bank Of
India (Exim Bank) for indirect financing of their term
loan requirements.
The broad parameters of the scheme are as follows:
• A rupee term loan should be sanctioned by a
scheduled commercial bank to the software
developing and exporting units (this loan will be fully
refinanced by the exim Bank. The commercial bank
will have a 2% interest spread).
K.KRISHNAN, IGNOU
• The proposed unit should be located in an export
processing zone.
• The term loan sought, should be for acquisition of
project related fixed assets, including imported and
indigenous computer systems.
• Units/projects undertaking export obligation under
Government of India’s Software Export Policy (1986)
are also eligible. The scheme is also extended to
existing units with minimum export orietnation at 255
of the annual sales.
• New units/projects with minimum 25% export
orientation backed by firm export market
arrangements are also eligible.
• The project cost should not exceed Rs. 5 crore.
• The debt-equity ratio for the project should not be
more than 2:1.
• The promoters contribution should not be less than
17.5%
• There should be no default in respect of any term
loan availed of earlier.
• The maximum period of financing will be 10 years.
Including 3 years moratorium.

Any existing unit or an entrepreneur setting up a new
unit and fulfilling the above mentioned parameters can
approach a scheduled commercial bank for obtaining a
term loan for the said project.
It may be mentioned here that irrespective of the fact
that the cost of equity and debt is almost the same for
an 100% EOU (as there is zero tax liability for such
units) the advantage of term loan financing is that the
interest rate can be capitalised during the construction
period and built into the project cost.
PRE-SHIPMENT EXPORT CREDIT IN FOREIGN CURRENCY
Export-Import Bank of India (Exim Bank) has
introduced, for the first time ever in India, Pre-shipment
Export Credit in Foreign Currency. Such credit will
finance the foreign exchange costs of imported inputs
for export production such as raw materials,
components, consumables. The finance will be repayable
in foreign currency from the proceeds of the relative
exports. Hence, the Indian exporter is unlikely to bear
any foreign currency. Fluctuation risks. Such
transactions will also be self-liquidating in nature.
Foreign Currency Pre-shipment Credit (FCPC) envisages
Exim Bank raising short-term foreign currency funds on
a revolving basis from one of more syndicate of overseas
lenders. Exim Bank will fund commercial banks in India
K.KRISHNAN, IGNOU
who opt to avail of FCPC for on-lending to eligible
exporter customers for import of eligible items.
Commercial banks in India will, in turn, allocate FCPC
limits to their customers on the basis of their
assessment of import requirement for export
production. The advances granted under FCPC to the
exporters will be fully liquidated from the export
proceeds of the relative export bill. The maximum period
of an advance under FCPC will not generally exceed 180
days.
CO N SULTAN C Y AN D TE C HN O LO G Y SE R VI C E S FI AN C NE PRO GR AMME
Introduction
Indian Exporters, executing overseas contracts involving
consultancy and technology services, can avail of Exim
Bank’s financing programme, to offer deferred payment
terms to their clients, thereby enlarging the market for
Indian consultancy exports.
Who can use the facility?
Indian exporters, having corporate status or otherwise,
who have secured a contract for export of services
wherein deferred payment terms need to be offered to
the client, can utilise the facility.
Nature of Credit
The credit may be extended to the Indian Exporter

either by Exim Bank in participation with commercial
banks or directly by commercial banks, who could seek
refinance from Exim Bank. The Indian Exporter would,
in turn, offer deferred payment terms to the client.
Scope
Technology and Cnsultancy services including
a) Providing personnel (including skilled or unskilled
workmen and persons for rendering technical or other
services).
b) Transfer of technologic, know how expertise of other
skills;
c) Furnishing any information, blue prints, plans or
advice.
d) Operation, maintenance and supervision of
manufacturing plants, buildings and structures.
e) Management contracts for commercial concerns;
f ) Any other activity considered acceptable by Exim
Bank.
Amount of Credit
Exporter is normally expected to obtain an
advance/down payment of 25% of contract value and
remaining portion would be covered by credit under the
K.KRISHNAN, IGNOU
programme. The value of the contract should not be less
than Rs. 20 lakhs, if deferred payment terms are to be
offered.
Currency of credit
Normally India rupees, Loans in other currencies can
also be considered, if required.
Repayment
Credit is repayable, by the India Exporter, in half yearly
installments, over period not exceeding 5 years, with a
suitable grace period. Interest should be payable even
during the grace period.
Security
Guarantee of foreign government or a
guarantee/irrevocable letter of credit of an acceptable
bank would need to be obtained. Indian Exporter would
also be required to obtain ECGC insurance cover and
assign the same in favour of Banks.
Documentation
The Exporter would enter into an agreement with Exim
Bank/participating bank(s) and would be required to
execute documents as may be prescribed by Exim Bank.
Procedures
 In case deferred credit terms are to be offered the
Indian Exporter makes an application as per format
(available on request from Exim Bank) and submits it
to his banker, at bid submission stage.
 The bank forwards the application, with its documents
to all the members of the Working Group, i.e. Exim
Bank, Reserve Bank of India (Exchange Control
Department)and Export Credit Guarantee Corporation
of India Ltd. (ECGC).
 Bid clearance for proposals on cash payment terms
upto bid value of Rs. 5 crores and Rs. 10 crores is
delegated to the Authorized Dealers and Exim bank,
respectively, while bid clearance for proposals
exceeding Rs. 10 crores in value are considered by
the Working Group. All proposals on deferred payment
terms irrespective of bid value are considered by the
Working Group.
 Exim Bank calls for additional information/clarification
and convenes a Working Group meeting to discuss the
as applicable, for post award clearance.
 Disbursements would be made under the terms of
letter of credit opened by the overseas client or
under any agreement between client and Indian
exporter or against invoices accepted by the overseas
client.
K.KRISHNAN, IGNOU
Glossary of Terms
Term Definition
EXIM Export Import
PCFC Pre-shipment export Credit in Foreign Currency
ECGC Export Credit Gurantee Corporation
P/C Packing Credit
L/C Letter of Credit
FOB Freight on Board
LIBOR London Inter Bank offer Rate
EOU Export Oriented Unit
EPZ Export Processing Zone
IEC Importer Exporter Code
PLR Prime Lending Rate
PCL Packing Credit Limit
CFPC Foreign Currency Pre-shipment Credit
ACE Agricultural Commercial and Enterprise
BIBLIOGRAPHY
• Exporters manual and documentation ‘A Nabhi
Publication’.
• Export financing and documentation ‘A.K. Tandan’
• www.exportersindia.com
• www.eximbank.com
• Business India
• Industry Trade Association Manual Rajasthan
• Magazines
K.KRISHNAN, IGNOU

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PROJECT REPORT

School of Management Studies

I am also thankful to all my professors of Indira Gandhi National

I Would like to take this opportunity to specially thank Prof. Anurag

Last but not the least, I deeply express appreciation to all my

This is to certify that, K.Krishnan, student of MBA ( Finance) from

FROM THE QUESTIONAIRE

25 simple points which are necessary for every indian exporters

before coming to business of exports and for existing exporters.

After analyzing and examining questionnaire method, filled by

various exporters , we analyze that simple points which are

necessary for exports are not correctly filled by exporters. The

points which are not taken care by exporters are :-

3. Pre-Shipment Export Credit In Foreign Currency

4. Service Charges Levied on Packing Credit

5. Packing Credit Advances Against Personal Car, House Etc.

6. Extension of Packing Credit Facility to Sub-Supplier.

7. Extension of ECGC Guarantee to Packing Advances.

9. Export Advances Against Claims of Duty Drawback.

10.Export Advances for Purchase of Fixed Assets.

11.Export Advances Against Goods Sent on Consignment

12.Conversion of Credit Export Sale to Cash Sale.

13.Awareness of New Export Financing option.

14.Export Finance for Market Development, Product

Adaption, Training & R & D Support Etc.

15.Role of Exim Bank.

As we see that out of 25 points, only 10 points are correctly

approached by exporters i:e 40% are correctly approached,

remaining 60% points are incorrectly approached.

This clearly indicates, that exporters are not aware of export

finance. That is the basis I finally took this “Export

Financing Documentation” as my project as I am

already in this field for more than 5 years.

From this table, we analyse that the rate of interest prevailing

in the bank were not known by the exporters. Out of 13 only 9

exporters clearly mentioned Interest @ 11-12% p.a. ( For

detail please refer page )

having knowledge of packing credit advances.

( For detail please refer page )

3. Pre-shipment export credit in foreign currency (PCFC)

After seeing questionnaire method analsis,we came to final

conclusion that only few exporters ( 3 out of 13) were having

knowledge about PCFC scheme. This is the scheme announced

by RBI in Nov 1993, in addition to normal packing credit

available for availing export finance under PCFC scheme and

the formalities in terms of documents which are required to be

completed by the Indian exporters for availing export finance

under PCFC scheme.

4. SERVICE CHARGES LEVIED ON PACKING CREDIT

As mentioned in PCFC scheme only 3 out of 13 exporters

clearly mentioned that no service charged levied on packing

credit other than premium payable to ECGC scheme.

5. PACKING CREDIT ADVANCES AGAINST PERSONAL

CAR, HOUSE ETC.

9 out of 13 exporters clearly says no P/C advances against

personal car, house etc. ( For detail please refer page )

6. EXTENSION OF PACKING CREDIT FACILITY TO SUB-

Every exporter except 2 , were knowledge about the extension

of packing credit facility to sub-supplier. This is the facility

extended to sub-suppliers of raw materials, components etc.

to the exporter goods. In the project I have explained what

are the detailed guidelines to be fulfilled for getting packing

7. EXTENSION OF ECGC GUARANTEE TO PACKING