Thursday, September 9, 2021

IGNOU : M.COM : IBO 4 : UNIT 8 : Q - 3. What is post -shipment finance? Explain various methods of post-shipment finance.

 Ans. POST-SHIPMENT FINANCE

It may be defined as "any loan or advance granted or any other credit provided by n bank to an exporter of goods from India from the date of extending the credit after shipment of goods to the date of realization of export proceeds. It includes any. loan or advance granted to an exporter on consideration of or on the security of, any duty drawback or any cash receivables by way of incentive from the government.

Let us now discuss various types of post-shipment finance

Negotiation of Export Documents Under Letters of Credit

Where the exports are under letter of credit arrangements, the banks will negotiate the export bills provided it is drawn in conformity with the letter of credit. When documents are presented to the bank for negotiation under L/C, they should be scrutinized carefully taking into account all the terms and conditions of the credit. All the documents tendered should be strictly in accordance with the L/C terms. It is to be noted that the L/C issuing bank undertakes to honour its commitment only if the beneficiary submits the stipulated documents. Even the slightest deviation from those specified in the LIC can give an excuse to the issuing bank of refusing the reimbursement of the payment that might have been already made by the negotiating bank.

Purchase/Discount of Foreign Bills

Purchase or discount facilities in respect of export bills drawn under confirmed export contracts are generally granted to exporters who enjoy bill purchase/discounting limits sanctioned by the bank. As the security offered by the issuing bank under letter of credit arrangement is not available, the financing bank is totally dependent upon the credit worthiness of the foreign buyer. The documents, under the Documents against Payment (DIP) arrangements, are released through foreign correspondent only when payment is received. Whereas in the case of Documents against Acceptance (DIA) bills, documents are delivered to the overseas importers against acceptance of the draft to make payment on maturity. Since the financing banks are open to the risk of non-payment, ECGC policies issued in favour of exporters and assigned to banks are insisted upon.

Advance against Bills Sent on Collection

Post-shipment finance is granted against bills sent on collection basis in the following situations :

i) when the accommodation available under the foreign bills purchase limit is exhausted

ii) when some export bills drawn under L/C have discrepancies

iii) where it is customary practice in the particular line of trade and in the case of exports to countries where there are problems of externalization.

Advance against Goods Sent on Consignment

Sometimes exports are effected on consignment basis. In such condition payment is receivable to sale of goods. Goods are exported at the risk of exporter for sale. The banks may finance against such transaction subject to the exporter enjoying specific limit for such purpose. The overseas branch1 correspondent of the bank is instructed to deliver documents against Trust Receipt.

Advance against Export Incentives

Advances against the export incentives are given at the pre-shipment stage as well as the post-shipment stage. However, the major part of the advance is given at the post-shipment stage. The advance is granted to an exporter in consideration of or on the security of any duty drawback incentives receivable from the Government. The banks follow their own procedure in granting the advance. The most common practice is to obtain a power of attorney from the exporter executed in their favour by the banks. It is sent to the concerned government department like the Director General of Foreign Trade, Commissioner of Customs, etc. These advances are not granted in isolation. It is granted only if a11 other types of z. export finance are extended to the exporter by the same bank.

Advance against Undrawn Balances

In some of the export business, it is the trade practice that the bills are not drawn for the full invoice value of the goods. A small part of the bills is left undrawn for payment after adjustments due to difference in weight quality, etc. Advances are granted against such undrawn balances. In this case the export proceeds must be realized within 90 days.

Advance against Retention Money

Banks grant advances against retention money, which is payable within one year from the date of shipment, the advances are granted up to 90 days. If such advances extend beyond one year, they are treated as deferred payment advance which are also eligible for concessional rate of interest.

Post-shipment Export Credit Guarantee and Export Finance Guarantee

Post-shipment finance given to exporters by banks through purchase, negotiation or discount of export bills or advances against such bills qualifies for this guarantee. Exporters are expected to hold appropriate shipments or contracts policy of ECGC to cover the overseas credit risks.

Post-shipment Credit in Foreign Currency

The exporters have the option of availing of exports credit at the post-shipment stage either in rupee or in foreign currency. The credit is granted under the Rediscounting of Export Bills Abroad Scheme (EBR) at LIBOR linked interest rates. The scheme covers export bills with ' Issuance period up-to 180 days from the date of shipment. Discounting of bills beyond 180 days requires prior approval from RBI. The exporters have the option to avail of pre-shipment credit and post-shipment credit either in rupee or in foreign currency. If pre-shipment credit I has been availed of in foreign currency, the post-shipment credit necessarily to be under the EBR scheme. This is done because the foreign currency pre-shipment credit has to be liquidated in foreign currency. 

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