IGNOU : M.COM : IBO 4 : UNIT 8 : Q - 6. Write short notes On: i) Pre-shipment Credit In Foreign Currency ii) Post Shipment Credit in Foreign Currency iii) Buyer's Credit iv) Factoring v) Forfaiting

 

Ans. 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 discounting rediscounting or for post-shipment credit in foreign currency. The exporters can avail this finance under the following two options.

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 Zone because the foreign currency pre-shipment credit has to be liquidated in foreign currency.

Buyer's Credit: It is a loan extended by a financial institutions or a consortium of financial institutions to the overseas buyer for financing a particular contract. Let us discuss buyer's Credit in detail.

Under this scheme, credit is granted by EXIM Bank jointly with an authorized dealer to foreign buyers in connection with export of capital goods and turnkey projects from India. The exporters are paid out of the buyer's credit on a non-recourse basis on their complying with the terms of the export contracts to be financed under the scheme. Before the exporter enters into any contract providing for credit terms to be financed under buyer's credit scheme, they should have detailed discussion with the bankers. While considering proposal under the scheme, the following factors are taken into account by EXIM Bank.

Factoring: It is an attractive way of providing export finance to exporters. In this system, factor bears the complete credit risk. Who is a factor? A factor is a special type of agent who depending upon the type of agreement, offers a variety of services. These services include coverage of credit risk, collection of export proceeds, maintenance of accounts receivables and advance of funds. Purchase of receivables of it. clients without recourse is the most important service of the factor. A big advantage to the exporter is that it is without recourse financing. This means that the risk of non-payment by the importer is to be borne entirely by the factor.

In India, International Export Factoring services on with recourse basis have been approved by the RBI, It provides a new dimension to management of export receivables. SBI Factors and Commercial Services Pvt. Ltd., Bombay have been permitted to provide International Export Factoring. In this system, the exporter enter into an export factoring agreement with exporters factor. The exporters ship goods to approved foreign buyers, Each invoice is made payable to a specific factor in the importer's country. Copies of invoices and shipping documents are sent to the Importer's factor, Exporter's factor will make prepayment to the export against approved export receivables . On receipt of payments from the importer on due date of invoice, importer's factor remits the fund to the exporter's factor. The exporter's factor' pays to the exporter after deducting the amount of prepayments.

Forfaiting: Forfaiting refers to the non-recourse discounting of export receivables. It is a mechanism of financing exports that involves less risks and enhances international competitiveness. It converts a credit sale into cash sale for an exporter. In this system forfaiting agency discounts international trade receivables of the exporter. The forfaiter pays the exporter in cash and undertakes the risk associated with the export deal. The exporter surrenders, without recourse to him, his rights to claim for payment on goods delivered to an importer.

All exports of capital goods and other goods made on medium to long term credit are eligible to be financed through forfaiting. In India, EXIM bank plays an intermediary role between the Indian exporter and the overseas forfaiting agency. The exporter approaches EXIM bank for forfaiting transaction. The bank receives bills of exchange or promissory notes from the exporter and sends them to the forfaiter for discounting. Subsequently, the bank arranges for the discounted proceeds to be remitted to the Indian exporter. The bank issues appropriate certificates to enable Indian exporters to remit commitment fees and other charges. RBI has allowed Authorized dealers to undertake forfaiting of medium term export receivables.