How are Indias Export Financed? What are the various types of credit available?

Presented by Issac K.M

Foreign Exchange

Foreign exchange are a mechanism by which international indebtedness is settled between one country and another. by G.D Awasthi Since liberalization number of export oriented units in Information Technology, Biotechnology, other knowledge related sectors, BPO, KPO as well as traditional sectors like gems, jewellery, textiles, auto components etc have come up.

Export Finance

It is the financing that an exporting business requires to help them run their business. It can also mean "foreign buyer financing", or simply buyer financing, or even buyer credit. Other synonyms often used are vendor financing or supplier financing.

How are Indias Export Financed?

Export credit can be broadly classified into

1. Pre-shipment finance or packing credit 2. Revolving credit

3. Post shipment finance.

Pre-shipment finance or packing credit

Pre-shipment finance refers to finance extended to purchase, processing or packing of goods meant for exports. It is of more importance to small scale manufacturing and exports who does not process sufficient financial resources.

PACKING CREDIT
Packing credit is normally provided by the commercial banks. Factors to be considered before making necessary advancement to the export are: Honest integrity and capital of the borrower. Exporters experience in the line. Party should not be in the RBI Caution list or ECGC Special Approval List. Borrower should be credit worthy Commodity should have a good market Commodity should not be in the negative list.

Revolving credit

If an exporter is well known to the banker and his past performance has been satisfactory, the banks are usually prepared to grant revolving pre-shipment credit in connection with successive deliveries. This implies that upon repayment of the first loan, the exporter is automatically granted a corresponding loan on the same terms.

Post shipment finance.

Financial assistance extended after the shipment of exports falls within the scope of post shipment finance. i.e financial gap between the time of shipment of goods and the actual payment therefore. Credits are provided by commercial banks against the security of approved shipping documents.

Post shipment loans

Short term - up to the period 6 months Medium term - up to the period 5 years with the collaboration of export import bank of India. Long term - long term loans are provided in case of sale of capital goods by EIBI or RBI. - interest subsidy of 3%