Export Marketing SEM IV Module III Dr Jayashri

Export Marketing SEM IV Module III Dr. Jayashri Kulkarni

Methods of payment � Open Account � Advance payment � Payment against shipment/ consignment � Documentary Bill � L/C

letter of credit � Most popular � Authorisation given by opening bank to negotiating bank that if the exporter presents the relevant set of documents to pay the amount there in.

Procedure to open � Exporter’s Request � Importer’s request to his bank-opening bank � Issue L/C � Receipt of L/C by Exporter � Shipment of Goods � Scrutiny of documents –Negotiating Bank � Realisation of payment � Documents to Importer

Parties to L/C � Opener--Importer � Beneficiary—Exporter � Opening bank—Importer’s bank in his Country � Negotiating bank—Exporter’s Bank in his Country nominated by Opening Bank � Advising Bank—Foreign correspondent of opening bank � Confirming bank—Bank in Exporter’s Country Guarranting credit on request of opening Bank

Types of L/C � Revocable � Irrevocable � Confirmed � Unconfirmed � With recourse- responsibilty of exporter � Without Recourse � Revolving � Transferable � Non transferable

Types of L/C- Contd… � Red Clause � Green Clause � Back to back—domestic L/C � Traveller’s � Clean L/C � Stand by � Documentary � Fixed

Pre shipment Finance � Meaning: Packing Credit � RBI-, ” any loan to exporter for financing the purchasing, processing, manufacturing or packing of goods. ” � Finance required before shipment of the goods.

Pre shipment Finance. Features 1. Eligibility-Export order/Letter of Credit Or � Letter from export house 2. At Pre shipment stage 3. For working capital requirements 4. Depositing Irrevocable L/C with fin. Insti.

5. Amt. of Finance-Equal to amt. of Export order 6. Period-180 days+ extension frm. RBI-90 days 7. Concessional Rate of Int. 8. Phased manner disbursal 9. Proper accounts to be maintained 10. Repayment immediately after receiving export proceeds/ receiving incentives

Post shipment Finance � Meaning: Finance required by an exporter after shipment of goods but before recovery of dues from importer � Finance required for working capital requirements after shipment of goods.

Post Shipment Finance Features 1. After actual shipping of the goods/export documents are in the name of exporter 2. Working capital requirements after shipment of goods but before recovery of dues from importer. 3. Shipping documents- evidence 4. Various forms of post shipment finance 5. Amount-As per requirements

Features—contd. . 6. Period-Commercial Banks-90 days EXIM Bank— 90 days to 5 yrs/ upto 12 yrs. 7. Concessional Int. rate 8. Proper accounts to be maintained 9. Disbursement in installments 10. Used for export purpose only , Otherwise penalty is chargable.

Role of various Financial Institutions � Commercial Bank: 1. Fund based assistance: � 180 days packing credit at pre shipment stage � 90 days finance at post shipment stage 2. Non Fund based assistance: � Banks Guarantee � Credit rating for exporters

Non Fund based assistance by Commercial Banks-contd. . � Information about foreign exchange � Confirmation of L/C � Banks cover the risks of fluctuations in foreign exchange convergence rates. � Release foreign currency

Exim Bank � Features � Export Import Bank � Public sector bank � Started on 1 st march 1982 � Medium and Long term loan to exporter � Promotion of exports in India. -Fund / non fund based assistance

EXIM Bank-Functions/Role Fund to based Indian. Assistance Companies b. to Foreign Companies/govt. c. to Indian Commercial banks a. Non Fund based a. Guarantee of loan Assistance b. Advisory services

Assistance by EXIM bank � Fund 1. a. b. c. Based assistance: Financial assistance to Indian Companies. De ffered payment terms Pre shipment credit Overseas Investment financing

EXIM—Fund Based assistancecontd. . 2. Financial assistance to Foreign Companies/govt a. Overseas buyers credit b. Credit to foreign Govt. c. Relending to bank overseas 3. Financial assistance to Indian Commercial banks: a. Rediscounting B/E b. Re finace

Assistance by EXIM bank � Non fund based assistance: 1. Guarantee of loan: 2. Advisory services: market research, pricing, merchant banking

Forfeiting scheme of EXIM Bank � Original French word For fait –to surrender � The exporter forfeits / surrenders her right to receive payment to the Forfeiting Agency abroad. � EXIM Bank is intermediary between-Exporter, Forfeiting Agency

Mechanism for Forfeiting � Discounting the Bills Receivable � Exporter has B/E or Promissory Notes � L/C Without Recourse to the Exporter � Long term or medium term maturity of bills � Financing up to 100% of the Contract Value.

Role of SIDBI � Small Industries Development bank of India � Established in April 1990. � Subsidiary of IDBI � Promotion, development of small sector � Coordinator of institutions engaged in developing/ financing small sector

SIDBI-Functions/ Role Refinance a. b. c. Seed Capital Direct Discounting Equipment Fin. Rediscounting Tourism related Direct Assistance a. project Fin. b. ISO c. Equipment Fin. Bills Scheme a. b.

ECGC � Export Credit Guarantee Corporation Of India Ltd. � July 1957 � Central Govt. � Gives Guarantee to exporters for their loan � Risk Coverage for exporter against political & commercial risks � Provides information to exporter about credit worthiness of importer

Questions � What is Export Finance? What are its types? � Write a note on Pre shipment Finance. � Write a note on Post shipment Finance. � Discuss the role of Commercial bank in Export Finance. � Discuss the role of EXIM bank in Export Finance. � Discuss the role of SIDBI in Export Finance. � Discuss the role of ECGC in Export Finance

Questions. -Contd… � What are the types of L/C? � What is the procedure for opening and obtaining finance under L/C? � Distinguish between Pre shipment Finance and Post shipment Finance. � What is counter trade? Explain with example. � What are the types of Counter Trade? � What are the benefits of Counter Trade?

Objective questions-True or False a. Export Finance means Pre shipment Finance b. Term finance means short term loan c. Pre shipment finance means packing credit d. Extension to packing credit is given for 90 days e. Extension to packing credit does not require permission of RBI f. Post shipment finance is given for 90 days g. Forfeiting scheme is introduced by EXIM bank