PRE SHIPMENT
FINANCE
EXIM
GROUP A2
MEANING
Short term funding
Offered to an exporter
By way of Packing Credit
For working capital
Given in rupees or foreign currency
(PCFC)
In form of a loan, cash credit or overdraft
facility
ELIGIBILITY
Holding an Export Order or Letter of
Credit (L/C) taken out by the buyer
“Running Account Facility”
TENOR
RBI’s concessional ROIs
Maximum Period: 180 days + 90 days
Minimum Period: 7 days
Banks’ own interest rates
Maximum Period: 270 days
Minimum Period: 360 days
COSTS
BPLR: 13.25%
Upto 180 days: 10%, Concessional ROI
Extension of 90 days: 12% ROI
Over 270 days: Commercial rates higher
than 270 days
DOCUMENTS
Export Order/Contract or L/C in original
Undertaking for advance utilized only for
exporting purposes
Undertaking from Trading House for not
availing for credit facility for same
transaction, if sub-supplier
Copies of Income Tax/Wealth Tax
Assessment Order
CONTD…
Copy of a valid RCMC and/or Trading
House Certificate
Policy/guarantee of the ECGC
Credentials of foreign buyer
Certificate of origin
Bill of Lading
Bill of Exchange
SPECIAL SCHEMES
Exim Bank’s scheme for financing cost of
imported inputs
Scheme of credit to sub-suppliers
Credit for deemed exports
Pre shipment Credit in Foreign Currency
(PCFC)
AMOUNT OF FINANCE AN
EXPORTER CAN GET…
“Need Based Financing”
Margin differs from bank to bank (10 – 25%)
Margins are stipulated:
Exporter has some stake in transaction
Cover erosion in goods
No lending against exporter’s profit margin
Banking Practice
90% of FOB
75% of CIF
CREDIT OBTAINED IN
DIFFERENT CURRENCIES
Domestic Currency, the Rupee, if exporter
based in India
Foreign Currency preferred when cost of
borrowing is lower
WAYS TO LIQUIDATE
PRE SHIPMENT FINANCE
Proceeds of export bills negotiated,
purchased or discounted
No liquidation by debit to cash credit
account
Conversion of pre shipment finance to post
shipment
Bills discounted under “Rediscounting of
Export Bills Abroad” scheme, if PCFC
RECENT UPDATES (AUGUST ’07)
Many small and medium-sized exporters have
inadequate short-term working capital
Market failure from informational irregularities
on part of banks about exporters’ ability to
execute export orders
Several countries have established pre shipment
export finance guarantee facility
Aim to act as catalyst to temporarily share non-
performance risks of exporters
Encouragement of implementation of pre
shipment finance in some countries without
guarantees
THANK YOU