This document provides information on various sources and forms of export financing in India. Commercial banks provide pre-shipment financing to exporters at concessional rates, which is then refinanced by institutions like the Reserve Bank of India and Export Import Bank of India. Pre-shipment financing helps exporters with costs before shipping goods overseas. Post-shipment financing is provided against evidence of shipment and helps export exporters between shipment and receiving payment. Other forms discussed include forfaiting, which transfers risk to a third party, and factoring, where a factor provides financing and manages receivables. Related institutions like RBI, ECGC, and DGFT also support export policies and programs.

1. Some Information on Export
Financing
Presented By
Prepared by: Kamalesh Mukherjee, Director, FINTEQ
1

2. Export Financing- Sources
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Sources:
Commercial banks which are members of the Foreign Exchange
Dealer’s Association provide finance at a concessional rate of
interest and are refinanced by the Reserve Bank/ Export Import
Bank of India. In case they do not wish to avail refinance they
India refinance,
are entitled for an interest rate subsidy.
Export Import Bank of India, in certain cases, participates with
commercial bank in extending medium term loans to exporters.
Other Related Institutions:
Reserve Bank of India, being the central bank of country, lays down
the policy frame work and provides guidelines. The RBI functions
as refinancing i tit ti for short and medium t
fi i institution f h t d di term lloans
respectively, provided by commercial banks.
Export Credit & Guarantee Corporation (ECGC) also plays an
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important role through various policies and guarantees providing
cover for commercial and political risks involved in export trade.

3. Export Financing- Forms
Forms of Export Credit
• Pre-shipment credit
• Post-Shipment
Post Shipment credit
• Factoring
• Forfaiting

4. A. Pre-shipment Credit
Pre Shipment Finance is provided by financial institutions when the
Exporter wants the payment of the goods before shipment.
The objectives of pre shipment finance is to enable the exporter to:
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Procure raw materials.
Carry out manufacturing process.
Provide a secure warehouse f goods and raw materials.
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Process and pack the goods.
Ship the goods to the buyers.
Meet th fi
M t other financial cost of the business.
i l t f th b i
Types
Packing Credit
Advance against Cheques /Draft etc. representing Advance
Payments.
Forms :
Packing Credit in Indian Rupee
Packing Credit in Foreign Currency (PCFC)

5. A. Pre-shipment Credit- Eligibility
Eligibility
Issued to exporter who has the export order in his own name. As
an exception, i can also b granted to third party manufacturer/
i it l be d hi d f /
supplier who do not have export orders in their own name.
A ten digit importer exporter code number allotted by DGFT.
Exporter should not b i th caution li t of RBI License issued by
E t h ld t be in the ti list f RBI. Li i db
DGFT if the goods to be exported fall under the restricted
category.
If the goods to be exported are not under OGL (Open General
Licence), the exporter should have the required license /quota
permit to export
Formal application for releasing the packing credit to the effect
that the exporter would ship the goods and submit the relevant
shipping documents to the banks within prescribed time limit.
Firm order or irrevocable L/C or original cable / fax / telex
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message exchange between the exporter and the buyer.
The confirmed order received from the overseas buyer should
reveal the information about the full name and address of the
overseas b buyer, d
description quantity and value of goods (FOB or
i ti tit d l f d
CIF), destination port and the last date of payment.

6. A. Pre-shipment Credit- Stages
Appraisal and Sanction of Limits: Banks Check Exporter
profile, Product profile, political and economic details about country, and the
exporters license/ permit
Disbursement of Packing Credit Advance: normally
allowed when all the documents are properly executed. The quantum of
finance depend on the FOB value of contract /LC or the domestic values of
goods, whichever is found to be lower. Normally insurance and freight
d hi h i f dt b l N ll i d f i ht
charged are also considered.
Follow up of Packing Credit Advance: Exporter needs to
submit stock statement giving all the necessary information about the
stocks. It is then used by the banks as a guarantee for securing the packing
credit in advance.
Liquidation of Packing Credit Advance: Packing Credit
Advance needs t b liquidated out of the export proceeds of the relevant
Ad d to be li id t d t f th t d f th l t
shipment, thereby converting pre-shipment credit into post-shipment credit.
In case the export does not take place then the entire advance can also be
recovered at a certain interest rate.
Overdue P ki
O d Packing: Bank considers packing credit as an overdue, if
the borrower fails to liquidate the packing credit on the due date. And, if the
condition persists then the bank takes the necessary step to recover its dues
as per normal recovery procedure.

7. A. Pre-shipment Credit in Foreign Currency
Authorized dealers are only permitted
The rate of interest on PCFC is linked to LIBOR
LIBOR.
The exporter has freedom to avail PCFC in convertible
currencies like USD, Pound, Sterling, Euro, Yen etc.
However, the risk associated with the cross currency
transaction is that of the exporter.
Sources of funds for the banks for extending PCFC facility
include the Foreign Currency balances available with the
Bank in Exchange, Earner Foreign Currency Account
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(EEFC), Resident Foreign Currency Accounts RFC(D)
and Foreign Currency (Non Resident) Accounts.

8. A. Pre-shipment Credit –Other issues
Packing Credit Facilities to Deemed Exports
Deemed exports made to multilateral funds aided projects and
programs, under orders secured through global tenders f which
d d d h h l b l d for hi h
payments will be made in free foreign exchange, are eligible for
concessional rate of interest both at pre and post supply stages.
Packing Credit facilities for Consulting Services
Do not involve physical movement of goods out of Indian Customs
territory. Pre-shipment finance can be provided to allow the exporter
t it P hi t fi b id d t ll th t
to mobilize resources like technical personnel and training them.
Advance against C
Cheque/Drafts received as advance
/ f
payment
Where exporters receive direct p y
p payments from abroad by means of
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cheques/drafts etc. the bank may grant export credit at concessional
rate to the exporters, till the time of realization of the proceeds of the
cheques or draft etc. The Banks however, must satisfy themselves
that the proceeds are against an export orderorder.

9. B. Post-shipment C ed t
ost s p e t Credit
Purpose : meant to finance export sales receivable after the date of
shipment of goods to the date of realization of exports proceeds. In
cases of deemed exports it is extended to finance receivable against
exports,
supplies made to designated agencies.
Basis : provided against evidence of shipment of g
p g p goods/supplies
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Nature: Can be secured or unsecured. Since the finance is extended
against evidence of export shipment and bank obtains the documents of
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title of goods, the finance is normally self liquidating. In case it involves
advance against un-drawn balance, it is usually unsecured in nature.
Quantum : C b extended up t 100% of th iinvoice value
Can be t d d to f the i l
Period : Can be short terms or long term, depending on the payment
terms offered by the exporter to the importer. Six months in case of cash
importer
exports.
Type of Exports covered: Physical exports Deemed export (
exports,
provided to the supplier of the goods which are supplied to the
designated agencies) and for Capital goods and project exports.

10. B. Post-shipment Credit
B Post shipment Credit- Types
1. Export Bills purchased/discounted.
2. Export Bills negotiated
3. Advance against export bills sent on collection
basis.
4. Advance against export on consignment basis
5. Advance against un-drawn balance on exports
6. Advance against claims of Duty Drawback.

11. Post-shipment C ed t types
ost s p e t Credit-types
1. Export Bills Purchased/ Discounted : (DP & DA bills)
Export bills (Non L/C Bills) is used i t
E t bill (N Bill ) i d in terms of sale contract/ order
f l t t/ d
may be discounted or purchased by the banks. It is used in
indisputable export transactions and the proper limit has to be
sanctioned to the exporter .
2.
2 Export Bills Negotiated (Bill under L/C):
Because of the security available in this method, banks often
become ready to extend the finance against bills under LC.
However, this arises two major risk factors for the banks:
The risk of nonperformance by the exporter, In which case, the
issuing banks do not honor the letter of credit.
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Documentary risk where the issuing bank refuses to honor its
commitment. So, it is important for the for the negotiating and the
lending bank to properly check all documents before submission
submission.

12. Post-shipment C ed t ypes
ost s p e t Credit-Types
3. Advance Against Export Bills Sent on Collection Basis
Bills can only be sent on collection basis if the bills drawn under LC
have some discrepancies. Banks may allow advance against these
collection bills to an exporter with concessional rates depending
upon the transit period in case of DP Bills and transit period plus
usance period in case of usance bill. Transit period is from the date
of acceptance of the export documents for collection by the bank.
4. Advance Against Export on Consignments Basis
Bank may finance goods exported on consignment basis at the risk
of the exporter. In this case bank instructs the overseas bank to
deliver the document only against trust receipt /undertaking to
deliver the sale proceeds by specified date which should be within
the prescribed date.

13. Post-shipment Credit-Types
5. Advance against Undrawn Balance
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It is a very common practice in export to leave small part undrawn
for payment after adjustment due to difference in rates, weight,
quality etc. Banks do finance against the undrawn balance, subject
to
t a maximum of 10 percent of the export value against an
i f t f th t l i t
undertaking from the exporter
6. Advance A i t Cl i
6 Ad Against Claims of Duty Drawback
fD t D b k
This credit is given only if the in house cost of production is higher in
relation to export price due to the existing duty structure. Banks
grant advances at lower rate of interest for a period of 90 days and
only if other types of export finance are extended to the exporter by
the same bank. After the shipment the exporters lodge their claims
to the relevant government authorities. The bank is authorized to
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receive the claim amount directly from the concerned government
authorities.

14. Forfaiting
Forfaiting refers to non-recourse discounting of export
receivables. The exporter surrenders, without recourse to him,
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his rights to claim for payment on goods delivered to an
importer.
Forfaiter pays exporter in cash and undertakes the risk
associated with the export.
i t d ith th t
EXIM bank plays intermediary role between exporter and the
overseas forfaiting agency. The exporter approaches EXIM
bank for forfaiting transaction. The bank receives bills from the
transaction
exporter and sends them to the forfaiter for discounting.
The bank arranges for the discounted proceeds to be remitted
to the Indian exporter. The bank issues appropriate certificates
to enable exporters to remit commitment fees and charges.
RBI has allowed Authorised dealers to undertake forfaiting of
medium term export receivables.
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Involves two cost elements: Commitment fee, payable by the
exporter to the forfeiter and Discount fee payable by the
exporter for the entire period of credit involved and deducted
by th f f it f
b the forfaiter from the amount paid to the exporter against the
th t id t th t i t th
availed bills of exchange.

15. Forfaiting
Forfaiting- Benefits
Benefits to Exporter
100 per cent financing : Without recourse and not occupying
exporter's credit line
t ' dit li
Improved cash flow : Receivables become current cash in flow
Reduced administration cost : By using forfeiting the exporter will
reduce the relevant management costscosts.
Advance tax refund: the exporter can make the verification of
export and get tax refund in advance just after financing.
Risk reduction : enables the exporter to transfer various risk
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resulted from deferred payments, such as interest rate risk,
currency risk, credit risk, and political risk to the forfeiting bank.
Increased trade opportunity : With forfeiting, the exporter is able to
grant credit to his buyers freely and thus be more competitive in
freely, thus,
the market.
Benefits to Banks
Banks can offer a novel product range to clients, which enable the
client to gain 100% finance, as against 80-85% in case of other
discounting
Bank i fee based income.
B k gain f b di
Lower credit administration and credit follow up.

16. Factoring
It is an attractive way of providing export finance to exporters. In this system, factor bears
the complete credit risk A factor is a special type of agent who depending upon the type
risk. who,
of agreement, offers a variety of services.
These services include coverage of credit risk, collection of export proceeds, maintenance
of accounts receivables and advance of funds.
Purchase of receivables of its clients without recourse is the most important service of the
factor. A big advantage to the exporter is that it is without recourse financing. This means
that the risk of non-payment by the importer is to be borne entirely by the factor.
In India, International Export Factoring services on with recourse basis have been
approved by the RBI. It provides a new dimension to management of export receivables.
SBI Factors and Commercial Services Pvt. Ltd., Bombay have been permitted to provide
International Export Factoring.
In this system, the exporter enters into an export factoring agreement with exporter’s
factor. The exporters ship goods to approved foreign buyers. Each invoice is made payable
to a specific factor in the importer’s country. Copies of invoices and shipping documents
are sent to the Importer’s factor. Exporter’s factor will make prepayment to the export
against approved export receivables.
On receipt of payments from the importer on due date of invoice, importer’s factor remits
the f d t th
th fund to the exporter’s factor. The exporter’s factor pays to the exporter after deducting
t ’ f t Th t ’ f t t th t ft d d ti
the amount of prepayments.

17. Factoring
A factor is a special type of agent who depending upon the type of agreement
offers a variety of ser ices These ser ices incl de co erage of credit risk
ariet services. services include coverage risk,
collection of export proceeds, maintenance of accounts receivables and
advance of funds.
The exporter enters into an export factoring agreement with exporter’s factor.
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The exporters ship goods to approved foreign buyers. Each invoice is made
payable to a specific factor in the importer’s country. Copies of invoices and
shipping documents are sent to the Importer’s factor. Exporter’s factor will
make prepayment to the exporter against approved export receivables .
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On receipt of payments from the importer on due date of invoice, importer’s
factor remits the fund to the exporter’s factor. The exporter’s factor pays to the
exporter after deducting the amount of prepayments.
Factoring may be disclosed or undisclosed
Disclosed factoring is of two types:
Recourse factoring: The client collects the money from the customer but in case
customer don’t pay the amount on maturity then the client is responsible to pay the
amount to the factor. It is offered at a low rate of interest and is in very common use.
Nonrecourse factoring: In non recourse factoring, factor undertakes to collect the
debts from the customer. Balance amount is paid to client at the end of the credit
period or when the customer pays the factor whichever comes first The advantage of
first.
nonrecourse factoring is that continuous factoring

18. Duty Drawback Scheme
In case of Central Excise, Manufacturers
can avail C
il Cenvat credit of d t paid on
t dit f duty id
inputs and utilise the same for payment of
duty
d t on other goods sold i I di or th
th d ld in India, they
can obtain refund. Schemes like
manufacture under bond are also
f t d b d l
available for customs. Manufacturers or
processors who are unable to avail any of
these schemes can avail duty drawback.

19. Duty Drawback Scheme (Cont.)
Drawback means th rebate of d t chargeable on any i
D b k the b t f duty h bl imported materials or excisable
t d t i l i bl
materials used in manufacture of processing of goods which are manufactured in India
and exported. Duty drawback is equal to
• a) cus o s du y pa d o imported inputs S
customs duty paid on po ed pu s SAD p us
plus
• b) excise duty paid on indigenous inputs.
Duty paid on packing material is also eligible. However, if inputs are obtained without
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payment of customs/excise duty, no drawback will be paid.
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If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part
on which duty is paid and on which rebate/refund is not obtained will be eligible for
drawback. N d
d b k No drawback i available on other t
b k is il bl th taxes lik sales t and octroi.
like l tax d t i

20. Duty Drawback Scheme (Cont.)
Drawback is allowable if any manufacture, process or any operation is
manufacture
carried out in India. Thus, drawback is available not only on
manufacture, but also on processing and job work, where goods may
not change its identity and no manufacture has taken placy
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considering average quantity and value of each class of inputs
The rate is fixed under rule 3 of Drawback Rules by considering
average quantity and value of each class of inputs or manufactured in
India. Average amount of duties paid is considered. These rates are
fixed for broad categories of p
g products. The rates include drawback on
packing materials.

21. Duty Drawback Scheme (Cont.)
The AIR (All Industry Rate) is usually fixed as % of FOB price of export
products. However, in respect of many export products, duty drawback cap
(ceiling) has been prescribed.
The table gives allocation of the drawback allowed under tow heads namely –
Customs and Central Excise. The customs portion covers basic customs duty,
surcharge and SAD. Excise portion covers basic and special excise duty and
CVD. Duty drawback of customs portion can be paid even if exporter has
availed Cenvat credit as Cenvat credit is only of excise duty and CVD –
credit,
MF(DR) circular No. 83/2000-Cus dated 16-10-2000

22. Duty Drawback Scheme (Cont.)
Individual
I di id l exporter i not required t produce any evidence i respect of actual
t is t i d to d id in t f t l
duties paid by him on inputs
It is possible to fix All Industry Rate only for some standard products. It cannot
be fixed for special type of products In such cases brand rate is fixed under
products. cases,
rule 6. The manufacturer has to be submit application with all details to
Commissioner, Central Excise. Such application must be made within 60
days of export.
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23. Duty Drawback Scheme (Cont.)
All Industry rate is fixed on average basis Thus a particular manufacturer
basis. Thus,
may find that the actual duty paid on inputs is higher than All Industry Rates
fixed for his product . In such case, he can apply under rule 7 of Drawback
Rules for fixation of Special Brand Rate, within 30 days from export.
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‘Value’ for the purposes of section 76(1)(b) will be value at the time of export
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and not the original value of import of the goods. If the imported goods are
used before re-export, the drawback will be allowed at a reduced percentage.