IGNOU : M.COM : IBO 4 : UNIT 8 : Q - 2. What do you mean by Pre-shipment finance? Enumerate the methods of Pre-shipment finance. Describe the procedure of Pre-shipment credit in foreign currency.

 

Ans. PRE-SHIPMENT FINANCE

Pre-shipment finance is provided to the exporters for the purchase of raw materials, processing them and converting them into finished goods for the purpose of export. Let us discuss various pre-shipment advances available to the exporters.

Packing Credit

The basic purpose of packing credit is to enable the eligible exporters to procure, process, manufacture or store the goods meant for export. Packing credit refers to any loan to an exporter for financing the purchase, processing, manufacturing or packing of goods as defined by the Reserve Bank of India. It is a short-term credit against exportable goods.

Packing credit is normally granted on secured basis. Sometimes clear advance may also be , granted. Many advances are clean at their initial stage when goods are not yet acquired. Once the goods are acquired and are in the custody of the exporter banks usually convert the clean advance into hypothecation pledge, Let us first discuss the detail procedure of packing credit.

Advance against Incentives

When the value of the materials to be procured for export is more than FOB value of the contract, the exporters may get packing credit advance more than the FOB value of the goods. The excess of cost of production over the FOB value of the contract represents incentives receivables. For example, when the domestic price of goods exceeds the value of export orders, the difference represents duty drawback entitlement. Banks can grant advances against duty drawback at pre-shipment stage subject to the condition that the loan is covered by Export Production Finance Guarantee of Export Credit Guarantee Corporation (ECGC). This guarantee enables banks to sanction advances at the pre-shipment stage to the full extent of cost of production. The extent of cover and the premium are the same as for packing credit guarantee.

Pre-shipment Credit in Foreign Currency

This is an additional window to rupee packing credit scheme. This credit is available to cover both the domestic and imported inputs of the goods exported from India. The facility is available in any of the convertible currencies. The credit will be self-liquidating in nature and accordingly after the shipment of goods the bills will be eligible for discounting1 rediscounting or for post-shipment credit in foreign currency. The exporters can avail this finance under the following two options.

i) The exporters may avail pre-shipment credit in rupees and, then, the post-shipment credit either in rupees or in foreign currency denominated credit or discounting/rediscounting of export bills.

ii) The exporters may avail pre-shipment credit in foreign currency and discounting/rediscounting of the export bills in foreign currency.

PCFC credit will also be available both to the supplier units of EPZIEOU and the receiver units of EPZI EOU. The credit in foreign currency shall also be available on exports to Asian Clearing Union (ACU) Countries. This will be extended only on the basis of confirmed/firm export orders or confirmed L/Cs. The Running Account facility will not be available under the scheme.