The financial function in the export department is similar to the financial function in an other organisation, but with this essential difference – that there are a host of government, banking and export insurance regulations one should strictly adhere to, and quite a few insurance regulations one should strictly adhere to, and quite a few precautions to be taken since the export deal will be in foreign exchange and any inappropriate handling will result in a serious loss of foreign exchange, apart from the other consequences.
The areas where finance would be essentially needed, after one obtains an export order will be:
- Procuring raw materials and components, and manufacturing the product.
- Refinance facilities so as to get the proceeds of export bills at the time of negotiation of export benefits are realized.
- Refinance facilities for long-term credits offered for the export of products.
The schemes of export financing available to an exporter in India are reasonably liberal and it may be safely stated that no export contract would normally be frustrated for lack of finance. Financial institutions, like commercial banks, require basic procedural formalities to be completed between the buyer and the exporter to enable them to provide the necessary financial facilities to the exporter, whether such facilities extend over a short, medium or long term.
Finance
Pre-shipment Finance
The procedure adopted for preshipment credit against a deferred payment contract are the same as those applicable to short-term contracts. Pre-shipment credit is allowed by banks against a contract/letter of credit.
Post-shipment Finance
When an exporter enters into a deferred payment contract, the entire contract value, excluding the advance payment received by him, is realized by him over an extended period of, say, upto 5 years. This imposes a severe burden on his finances. To relieve him of this burden, as also to give incentives to exporters, the Reserve Bank of India has authorised commercial banks to extend to the exporters a "Term Export Credit" as post-shipment credit.
Depending on the nature of the deferred payment contract, post shipment credit is given either directly by a commercial bank or in collaboration with Exim Bank.
Export –Import Bank of India
The Export-Import Bank of India (EXIM Bank) is a public sector financial institution, established on January 1, 1982. It has taken over the various export financing of the Industrial Development Bank of India. It was established by and Act of Parliament for the purpose of financing, facilitating and promoting foreign trade of India. It is the principal financial institution for co-ordination the working of institution engaged in financing export of consultancy and related services, finance export oriented industries and provide international merchant banking services.
Lending Programmes
The main focus of EXIM Bank operation is on export credits for medium-term and long-term exports. Whenever a buyer of exported goods services from India, is allowed to defer payment, an export credit arises. Deferred export credit is available for the sale of Indian machinery, manufactured equipment and related services. Capital goods eligible for export credit have been identified.
It is divided into group A which is eligible for term credit beyond 2 years, and group B which is eligible for credit upto a maximum of 2 years. Such credit given may be in the form of supplier’s credit or buyer’s credit. Supplier’s credit arises when Indian exporters credit to the overseas buyer and finances himself through EXIM Bank. The deferred export credit takes the form of buyer’s credit when EXIM Bank extends credit directly to the buyer. EXIM Bank operates three broad programmes of financing. These are – Loans, Re-discounting and Guarantees.
The leading and rediscounting programmes are divided into nine categories as indicated below:
- Provide financial assistance to exporters
- Technology and consultancy services
- Overseas investment financing
- Pre-shipment credit
- Overseas buyers’ credit
- Lines of credit to foreign governments
- Relending facility to bank overseas
- Export bills re-discounting
- Refinance of export credit
This enables the Indian exporter to extend term credit to an importer overseas for the purchase of Indian capital goods. The exports include equipments, machinery and related services, project exports, turnkey projects, construction projects, etc. Export of this nature arise when an Indian company contracts supply agreements for the supply of equipments and services or a project export agreement involving the setting up of a textile mill, sugar plant etc.
Indian companies borrow funds from EXIM Bank and provide deferred credit to overseas buyers of Indian technology or consultancy services.
The bank provides financing when an Indian company establishes a joint venture overseas, and requires funds towards equity participation.
This loan of credit is available for companies that have won an export contract for capital goods and are seeking finance to produce the goods which entails a production period exceeding six months.
This is offered directly to foreign importers for the import of Indian capital goods and relative services with repayment terms spread over a period of years.
Lines of credit are offered to foreign governments and foreign financial institutions. Such lines provide long-term finance for import of Indian capital goods, and related services.
This facility to overseas bank is made available to enable them to provide term finance to importers for import of Indian capital goods. The overseas banks will facilitate the foreign buyer, the EXIM Bank, and supplier to avail of these facilities.
This lending programme is available to commercial banks in India that are authorised to deal in foreign exchange. Such banks can re-discount their short-term usance export bills with the EXIM Bank. EXIM Bank provides funds under this programme for a period of 90 days.
Under this Programme, the commercial banks in India, who are authorised to deal in foreign exchange, can obtain from EXIM Bank 100% refinance of term loans extended for export of Indian capital goods. This credit is commercial banks can obtain financing participation under EXIM Bank’s other programmes.
ECGC
Export Credit & Guarantee Corporation. Export transactions by their very method and operations involved, carry substantial risks which are both commercial and political in nature. This scheduled banks, which are authorised to extend easy financial terms for export endeavors are not equipped to take care of these risks. Besides, it also provides financial guarantees to banks and exporters for exports against deferred credit payment terms.
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(Agri.
Finance)
