Export Pre-Shipment Finance

Know about EXIM Finance

There are specific and general needs for the exim finance that an exporter will need to organize his payment schedule.

This can be easily bifurcated into :

  • Pre – Shipment
  • Post – Shipment

Pre-Shipment Credit

Pre-Shipment finance is usually required by an exporter to organize his payments to complete the procedure and trade linked processes at various stages such :

  • Purchasing raw material
  • Implement production plans and schedules
  • Storage of raw material and finished goods
  • Final finishing and packaging of material
  • Shipping and transporting the commodities to the buyer
  • Incur other miscellaneous costs to carry on the smooth business process

Pre-Shipment Finance is generally issued as :

  • Packing credit in Indian currency or in foreign currency
  • Financing in lieu of advance proceeds and transfers against orders by the buyers

This Credit facility is available to :

  • Qualified exporters on individual basis or shared basis (incases where the export order is shared) directly for the consignments that are not on the RBI export prohibition list and not being exported under an Open General License.
  • Suppliers or producers of commodities, where export order in not in their name, where responsibility of export schedule requirements and obligations have been extended to them by the main exporting concern.
  • Exporters who have secured order through global tenders for the purpose of multilateral aids organizations
  • Export consultancies where technical expertise is the product. Credit is awarded to these companies for generating technical expertise in form of trained personnel to service

The amount of this need based credit facility can vary on basis of Letter of credit – LC or a firm order of supply. The amount to be extended as loan relies of the :

  • Order conditions
  • Goods and their type
  • Financial credentials of exporter

The deciding factors in overall credit limit fixation are generally FOB prices or value of merchandise in domestic market, whichever is lower.

Once the credit amount has been sanctioned the granting institution executes an extensive research on exporter’s and buyer’s profile and also demands a comprehensive detail of :

  • Goods meant to be exported for which credit facility is sought
  • Quantity of goods to be supplied
  • Value of Goods (on Ex-FOB or CIF)
  • Shipment deadline
  • Miscellaneous conditions of dealing

The proceeds are transferred through bankers Cheque or draft and the tenure of the credit facility is generally for a maximum period of 180 days with an extension of 90 days in certain cases. The extension is generally granted by banks without intimating RBI. In cases of specific permission the tenure can be extended upto 360 days.

Note : The disbursal of credit is affected when original letter of credit is filed with the credit extending institution. The letter of credit must be in name of the exporter.

Pre-Shipment Credit in Foreign Currency (PCFC)

Designated and specified operators are allowed to provide Pre-shipment credit in foreign currency (PCFC) credit facility to exporters at a competitive rate on international level. This facility has major benefits, primary being facilitation to exporter to procure raw material after completing primary export order.

Rate of PCFC is linked to London Inter Bank exchange rate (LIBOR). The exporter can obtain this credit in convertible currencies as per his requirement in Dollar, Pound, Euro or Yen etc. He is also expected to bear the risk associated with such transactions.