Index

Chapter Particulars Pg no.

No.

1 Introduction 2

2 Research Methodology 51

3 Literature Review 53

4 Data Analysis And Interpretation 57

5 Findings, Suggestion & 67

Conclusion

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 CHAPTER 1: INTRODUCTION

MEANING OF FINANCE:
FINANCE IS THE LIFE AND BLOOD OF ANY BUSINESS. Success or
failure of any export order mainly depends upon the finance available to execute
the order. Nowadays export finance is gaining great significance in the field of
international finance.
Many Nationalized as well as Private Banks are taking measures to help the exporter
by providing the pre-shipment and post-shipment finance at subsidized rate of
interest. Some of the major financial institutions are EXIM Bank, RBI, and other
financial institutions and banks. EXIM India is the major bank in the field of
export and import of India. It has introduced various schemes like forfeiting,
FREPEC Scheme, etc.
Even Government is taking measures to help the exporters to execute their export
orders without any hassles. Government has introduced schemes like Duty
Entitlement Pass Book Scheme, Duty free Materials, setting up of Export
Promotion Zones and Export Oriented Units, and other scheme promoting export
and import in India. Initially the Indian exporter had to face many hurdles for
executing an export order, but over the period these hurdles have been removed by
the government to smoothen the procedure of export and import in India.

MEANING OF EXPORT:
Export in simple words means selling goods abroad. International market being a very
wide market, hug quantity of goods can be sold in the form of exports. Export refers to
outflow of goods and services and inflow of foreign exchange.
Export occupies a very prominent place in the list of priorities of the economic
set up of developing countries because they contribute largely to foreign exchange
pool. Exports play a crucial role in the economy of the country. In order to maintain
healthy balance of trade and foreign exchange reserve. It is necessary to have a
sustained and high rate of growth of exports.
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Exports are a vehicle of growth and development. They help not only in procuring
the latest machinery, equipment and technology but also the goods and services,
which are not available indigenously. Exports leads to national self-reliance and reduces
dependence on external assistance which how so ever liberal, may not be available
without strings. Though India’ sex port compared to other countries is very small, but one
of the most important aspects of our export is the strong linkages it is forging with the
world economy which is a great boon for a developing nation like India.

MEANING OF EXPORT FINANACE:

Credit and finance is the life and blood of any business whether domestic or international.
It is more important in the case of export transactions due to the prevalence of novel non-
price competitive techniques encountered by exporters in various nations to enlarge their
share of world markets.

The selling techniques are no longer confined to mere quality; price or delivery schedules
of the products but are extended to payment terms offered by exporters. Liberal payment
terms usually score over the competitors not only of capital equipment but also of
consumer goods.

The payment terms however depend upon the availability of finance to exporters in
relation to its quantum, cost and the period at pre-shipment and post-shipment stage.

Production and manufacturing for substantial supplies for exports take time, in case
finance is not available to exporter for production. They will not be in a position to book
large export order if they don’t have sufficient financial funds. Even merchandise
exporters require finance for obtaining products from their suppliers.

This project is an attempt to throw light on the various sources of export finance
available to exporters, the schemes implemented by ECGC and EXIM for export

3
Promotion and the recent Developments in the form of tie –EXIM tie -ups, credit
policy announced by RBI in Oct 2001 and TRIMS. Export finance refers to the
credit facilities extended to the exporters at pre -shipment and post- shipment stages.
It includes any loans to an exporter for financing the purchase, processing,
manufacturing or packing of goods meant for overseas markets. Credit is also
extended after the shipment of goods to the date of realization of export proceeds.

EXPORT FINANCE DEFINATION:

Export financing is a specialized segment of trade finance that exclusively provides
financing for exports. Export financing includes a variety of financial products and
financial services that have in common the similar purpose or objective of providing
the international financing and methods of payment that are needed to produce and
ship export transactions. Examples of export financing include invoice factoring,
forfeiting, accounts receivable factoring, open accounts, consignment purchases and
export letters of credit, all of which are offered by Global Trade Funding.

CONCEPT OF EXPORT FINANCE:

The exporter may require short term, medium term or long term finance depending
upon the types of goods to be exported and the terms of statement offered to
overseas buyer.
The short-term finance is required to meet “working capital” needs. The working
capital is used to meet regular and recurring needs of a business firm. The regular
and recurring needs of a business firm refer to purchase of raw material, payment of
wages and salaries, expenses like payment of rent, advertising etc. The exporter may
also require “term finance”. The term finance or term loans, which is required for
medium and long term financial needs such as purchase of fixed assets and long term
working capital. Export finance is short-term working capital finance allowed to an
exporter. Finance and credit are available not only to help export production but also
to sell to overseas customers on credit.

4
OBJECTIVES OF EXPORT FINANCE:

 To cover commercial & Non- commercial or political risks attendant

on granting credit to a foreign buyer.
 To cover natural risks like an earth quake, floods etc.

An exporter may avail financial assistance from any bank, which considers
the ensuing factors:

 To analyze Availability of the funds at the required time to the exporter.

 To study on the Affordability of the cost of funds.

5
HISTORY OF EXPORT FINANCE INSTITUTION:

The first export credit insurance programs in the world were offered by Switzerland
starting in 1906. Federal is a privately owned company still operating as of today. The
first government export credit insurance programs were established in the United
Kingdom thirteen years later in 1919. The rationale for the British programs then, was
“to aid unemployment and to re-establish export trade disrupted by the conditions of
war”. In addition to export credit insurance, the British government established a trade
finance program, offering up to six-year financing of exports at a preferential rate.
The British programs were administered by the Board of Trade with the consent of the
Treasury, with the provision that income should be sufficient to meet possible losses.
Success of British and Swiss model of export financing led to the establishment in
several other European of guarantee and insurance schemes, including
Belgium(1921), Denmark (1922), the Netherlands (1923), Finland (1925), Germany
(1926), Austria and Italy (1927), France and Spain (1928), and Norway (1929).
Export Import Bank of India(1982)
The ECAs or Exim Banks own financial condition – particularly the size of their
capital and reserves – serves to limit the total amount of exports they can support.
ECAs or Exim Banks can help finance short/medium/ long-term transactions, and the
conditions of financing assistance are usually quite different depending on the
tenor .A short- term transaction is usually defined as up to one year, medium-term as
one to five years and long-term as over five years. The OECD Agreement on Export
Credit currently limits the maximum term to ten years. Normally, export credit
agencies provide assistance that does not exceed 90 percent of post shipment
financing, with the exporter or bank taking the balance of the risk for its own account.
Pre-shipment assistance is also usually limited to a maximum of 90 percent of
required credit. On medium- and long- term transactions, official schemes require the
foreign buyer to make an advance payment of at least 15 percent. On short-term
coverage, no advance payment is required from the foreign buyer.
Governments support export credits in, broadly, two ways: through direct loan and
some form of subsidy programs and through insurance and guarantee programs.

6
Under direct loan programs, government institutions extend export credits directly,
often in association with private financing. Under subsidy programs, governments
operate indirectly on export credits by extending preferential refinancing and interest
subsidies to private lenders. In the United States, Canada, and Japan, official export
institutions lend directly to both domestic exporters and foreign importers at fixed
subsidized rates. In Germany, France, the United Kingdom, and Italy, official
institutions combine direct lending, refinancing of private export credits at preferential
rates, and interest rate subsidies to achieve similar results. The subsidy in officially
supported export credits arises in several ways: loans are made at fixed rates to
borrowers who would normally qualify only for variable rate loans, at maturities
generally longer than available in the private market for comparable loans to such
borrowers, and at lower rates than these borrowers would otherwise pay.
Governments also subsidize exports through loan insurance and guarantee programs
when they sell insurance and guarantees at prices below their true market value.
When a government guarantees or insures a loan made to finance an export, it creates
a financial instrument against which the lending institution, either a bank or any
exporter, can borrow at rates close to the government borrowing rate. In fact, nearly
100 countries operate ECA that extend export credit insurance or guarantees. Through
these institutions the government assumes a large proportion of the credit risk
only an sto foreign buyers. Although the subsidy element on an insured or guaranteed
loan is generally smaller than on a directly supported export credit, there are about
three times more insured or guaranteed export credits outstanding than direct loans.
Therefore, the total subsidy on such programs may still be substantial.
ECAs or Exim Banks primarily provide long and mid-term financing which can be in
form of financial credit, credit insurance and guarantees. They also provide short term
financing for trade transactions. Most industrialized nations have at least one ECAs or
Exim Banks. Most of them have separated their insurance and guarantees business
from their credit finance and international partnership functions. This usually helps
them to classify their transactions, operations and focus. ECAs or Exim Banks are
typically each nation’s policy bank, used as the instrument of strategic cooperative
partnerships between the Exim nation and a foreign country.
They form the channels used to grant concessionary loans and preferential export
buyers’ credit to foreign countries so as to promote the purchase of locally-produced

7
goods.

8
Exim Banks as a concept are channels of stabilizing foreign trade, promoting cross-
border investments, advancing the internationalization of a country’s currency,
growing SMEs, (Small & Medium Enterprises) facilitating greater economic openness
and raising long term capital (particularly through Bonds). Many of the world’s ECAs
provide larger levels of financing than Exim Bank of India. For example, China
financed more than $100 billion of Chinese exports in 2013. Likewise, it is estimated
that South Korea, also finances more than $100 billion per year to support exports
from South Korea. United States exports of all kinds, whether by providing loan
guarantees to overseas airlines for the purchase of Boeing jets.

9
RECENT DEVELOPMENTS IN EXPORT FINANCING:

As stated earlier, offer of attractive credit terms is a crucial factor in winning export
contracts. Hence, financial institutions are offering several innovative financial
services to exporters. Some of these services are discussed below:

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
its 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 has been
permitted to provide International Export Factoring. In this system, the exporter enters
into an export factoring agreement with exporter's 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
Importers 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'sfactor remits the fund to the exporter's factor. The exporter's factor
pays to the exporterafter deducting the amount of prepayments.

Forfeiting: Forfeiting refers to the non-recourse discounting of export receivables. It

is a mechanism of financing exports that involves less risk and enhances international
competitiveness. It converts a credit sale into cash sale for an exporter. In this system
agency discounts inl.ernationa1 trade receivables of the exporter. The forfeiter pays
the exporter in cash and undertakes the risk associated with the export deal. The
exporter surrenders, without recourse to him, his rights to Clair for payment on goods
delivered to an importer.

10
All exports of capital goods and other goods made on medium to long term credit are
eligible to be financed through forfeiting. In India, EXIM bank plays an intermediary
role between the Indian exporter and the overseas forfeiting agency. The exporter
approaches EXIM bank for forfeiting transaction. EXIM bank obtains details from
overseas agencies related to the transaction. The bank receives bills of exchange or
promissory notes from the exporter and sends them to the forfeiter for discounting.
Suilse quently, the bank arranges for the discounted proceeds to be exited to the
Indian exporter. The bank issues appropriate certificates to enable Indian exporters to
remit commitment fees and other charges. According to the Monetary Policy
(announced on October 22, 1997), RBI has allowed

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SOME IMPORTANT CONCEPTS IN EXPORT FINANCE:

1. FORFEITING:

Forfeiting is a mechanism of financing exports.

• By discounting export receivables
• Evidenced by bills of exchange or promissory notes
• Without recourse to the seller (viz. exporter)
• Carrying medium to long term maturities
• On a fixed rate basis (discount)
• Up to 100 percent of the contract value.
The word `forfeit' is derived from the French word `a forfeit' which means the
surrender of rights. Simply put, Forfeiting is the non-recourse discounting of export
receivables. In a forfeiting transaction, the exporter surrenders, without recourse to
him, his rights to claim for payment on goods delivered to an importer, in return for
immediate cash payment from a forfeiter. As a result, an exporter in India can convert
a credit sale into cash sale, with no recourse to the exporter or his banker.

CONCEPT OF FORFEITING:
1. All exports of capital goods and other goods made on medium to long term credit
are eligible to be financed through forfeiting.

2. Receivables under a deferred payment contract for export of goods, evidenced by

bills of exchange or promissory notes, can be forfeited. Bills of exchange or
promissory notes, backed by co-acceptance from a bank (which would generally be
the buyer's bank), are endorsed by the exporter, without recourse, in favor of the
forfeiting agency in exchange for discounted cash proceeds. The co accepting bank
must be acceptable to the forfeiting agency.

3. The bills of exchange or promissory notes should be in the prescribed format.

4. The role of Exim Bank will be that of a facilitator between the Indian exporter and
the overseas forfeiting agency.

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5. On a request from an exporter, for an export transaction which is eligible to be
forfeited, Exim Bank will obtain indicative and firm forfeiting quotes - discount rate,
commitment and other fees - from overseas agencies. Exim Bank will receive availed
bills of exchange or promissory notes, as the case may be, and send them to the
forfeiter for discounting and will arrange for the discounted proceeds to be remitted to
the Indian exporter. Exim Bank will issue appropriate certificates to enable Indian
exporters to remit commitment fees and other charges.

6. A forfeiting transaction has typically three cost elements:

• Commitment fee
• Discount fee
• Documentation fee

7. Converts a deferred payment export into a cash transaction, improving liquidity and
cash flow Frees the exporter from cross-border political or commercial risks
associated with export receivables Finance up to 100 percent of the export value is
possible as compared to 80-85 percent financing available from conventional export
credit program As forfeiting offers without recourse finance to an exporter, it does not
impact the exporter's borrowing limits. Thus, forfeiting represents an additional
source of funding, contributing to improved liquidity and cash flow Provides fixed
rate finance; hedges against interest and exchange risks arising from deferred export
credit Exporter is freed from credit administration and collection problems Forfeiting
is transaction specific. Consequently, a long term banking relationship with the
forfeiter is not necessary to arrange a forfeiting transaction Exporter saves on
insurance costs as forfeiting obviates the need for export credit insurance.

2. FACTORING:
Factoring may be defined as “A contract by which the factor is to provide at least two
of the services, (finance, the maintenance of accounts, the collection of receivables
and protection against credit risks) and the supplier is to assigned to the factor on a
continuing basis by way of sale or security, receivables arising from the sale of goods

13
or supply of services”.

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Factoring offers smaller companies the instant cash advantage that was once available
only to large companies with high sales volumes. With Factoring, there's no need for
credit or collection departments, and no need to spend your profits on maintaining
accounts receivables.
In simple words...Factoring turns your receivable into cash today, instead of waiting
to be paid at a future date.

International Export Factoring Scheme:

RBI has approved the above scheme evolved by SBI Factors and Commercial
Services Pvt. Ltd Mumbai for providing “International Export Factoring Services” on
“with recourse” basis. The salient features of the scheme are as follows:

A. An exporter should submit to SBI Factors & Commercial Services Pvt. Ltd i.e. the
Export Factor(EF) a list of Buyers(customers) indicating their names & street
addresses and his credit line needs .

B. The Import Factor (IF) located in the importer’s country selected by EF, will rate
the buyer’s list and the results will be reported to the exporter through EF. The
exporter will apply for a credit limit in respect of overseas importer. IF will grant
credit line based on the assessment of credit-worthiness of the overseas importer.

C. The exporter will thereafter enter into an export factoring agreement with EF. All
export receivable will be assigned to the EF, who in turn will assign them to IF.

D. The exporter will ship merchandise to approved foreign buyers. Each invoice is
made payable to a specific factor in the buyer’s (importer) country. Copies of invoices
& shipping documents should be sent to IF through EF. EF will make prepayment to
the exporter against approved export receivables.

E. EF will report the transaction in relevant ENC statement detailing full particulars,
such as Exporter’s Code Number, GR Form Number, Custom Number, Currency,
Invoice value etc.

F. On receipt of payments from buyers on the due date of invoice, IF will remit funds
to EF who will convert foreign currency remittances into rupees and will transfer
15
proceeds to the exporter after deducting the amount of prepayments, if made.
Simultaneously, EF will report the transaction in the relative ‘R’ returns enclosing
duplicate copy of the respective GR form duly certified. The payment received will be
the net payment after deduction of a service fee, which ranges from 0.5 % to 2% of
the value of the invoices.

G. If an approved buyer (importer) is unable to pay the proceeds of exports, IF will

pay the receivables to EF, 100 days after the due date. The transactions of this nature
will be reported by EF in the half yearly statements which are to be submitted to RBI,
indicating therein the reasons for delay /nonpayment.

3. SUPPLIER’S CREDIT FOR DEFERRED PAYMENR

EXPORTS: Definition of Deferred Payment Exports:

In terms of Regulation 9 of the Foreign Exchange Management Act 1999, the amount
representing the full export value of goods exported must be realized and repatriated
to India within 6 months of date of export. Exports where more than 10% of the value
is realized beyond the prescribed period, i.e. 6 months from date of shipment, are
treated as Deferred Payment Exports.

Exim Bank offers Supplier's Credit in Rupees or in Foreign Currency at post-

shipment stage to finance export of eligible goods and services on deferred payment
terms.

Supplier's Credit is available both for supply contracts as well as project exports; the
latter includes construction, turnkey or consultancy contracts undertaken overseas.

Exporters can seek Supplier's Credit in Rupees/ Foreign Currency from Exim Bank in
respect of export contracts on deferred payment terms irrespective of value of export
contracts.

General terms of supplier’s credit

Extent of Supplier's Credit: 100% of post-shipment credit extended by exporter to

overseas buyer.

Currency of Credit: Supplier's Credit from Exim Bank is available in Indian Rupees
16
or in Foreign Currency.

Rate of Interest: The rate of interest for Supplier's Credit in Rupees is a fixed rate
and is available on request. Supplier's Credit in Foreign Currency is offered by Exim
Bank on a floating rate basis at a margin over LIBOR dependent upon cost of funds.
Security: Adequate security by way of acceptable letter of credit and/or guarantee
from a bank in the country of import or any third country is necessary, as per RBI
guidelines.

17
CHALLENGES OF EXPORT FINANCE IN INDIA:
Export Finance instruments do not match requirements of exports. The share of
export credit in total non food credit is extremely low and not commensurate with the
share of India’s exports in the GDP around 20%. Also percentage of export
transactions covered by export credit guarantee/insurance is much smaller in India
compared to the international average of 10-12%. In India critical supply and
demand side constraints prevent Export Finance from playing a more proactive role
in facilitating and promoting exports. The availability as well as utilization of Export
Finance in terms of lines of credit in particular is low. The supply side constraints are
institutional deficiencies and the limited portfolio of Export Finance instruments
available in the market. The demand side constraints are the low risk and static
export structure of the country. Information gaps and asymmetries are constraints
that affect both the demand for and supply of Export Finance in the country. India’s
Export Finance sector suffers from two types of information asymmetries
particularly for SMEs; first is lack of market information and second is lack of
awareness among exporters about Export Finance instruments and its benefits.
Difficulty and high cost of accessing information from India about foreign markets
and buyers tend to result in the level of risk being overestimated and therefore in
many cases over-priced. This is particularly the case with institutions where the risk
assessors have limited international experience. Further the low level of awareness
about Export Finance result in low demand and use of even the available export
financing instruments. India has a number of institutions that facilitate and promote
the use of Export Finance. These include the Exim Bank, ECGC Ltd. (Formerly
Export Credit Guarantee Corporation of India Ltd.) and commercial banks but
coordination and specialization in terms of market and products needs to be
strengthened and streamlined. The low understanding and demand for Export
Finance in the country is partly the result of the low risk and static export structure
of the country. Export revenue is still dependent on traditional exporters, products,
markets and buyers with long standing relationships; along with the low level of
understanding the supply has also failed to respond to the emerging needs of non-
traditional exports and smaller exporters. The variety, availability and sophistication
of Export Finance solutions available in the market are quite limited. While there is
some availability of Export

18
Finance instruments such as value chain financing (VCF), export credit and payment
default guarantee schemes, understanding of their applications and adoption is weak
and they remain underutilized.

19
Export Financing Solutions:
Demand for export financing continues to rise amid the growing world shortage of
trade finance. As it is becoming increasingly difficult to secure adequate trade
financing, especially for small to medium-sized enterprises (SME) Global Trade
Funding truly stands out as we continue to provide an uninterrupted flow of trade
financing. We also enhance every application with unparalleled underwriting
expertise and every transaction with Deal Structuring and Due Diligence advisory
services. If you are having difficulty securing trade financing or if you applied for
financing and were turned down by other lenders, submit a Trade Finance Request
now and we’ll get the financing for your deal started today.

1. Letters of Credit: We provide export financing services that include drafting

instructions for Letters of Credit you accept from buyers as well as letter of credit
confirming services for exporters.

Export Letters of Credit Overview: Export Letters of Credit are the most common
trade finance method used to finance exports. They are versatile, secure and can be
used for almost any international trade transaction. Export Letters of Credit are
financial instruments issued by banks that represents the commitment of the bank on
behalf of an importer that guarantees payment will be made to the beneficiary
(exporter) provided the terms and conditions specified in the Letter of Credit have
been met. Conditions which specified in Letters of Credit are typically evidenced by
the presentation of specified documents. Since they are credit instruments, issuing
banks rely on the creditworthiness of importers when issuing Letters of Credit.

The importer pays the issuing bank a fee to render this service. Letters of Credit are
useful when there is insufficient credit information about a foreign buyer or the foreign
buyer’s credit is unacceptable to the seller/exporter, but the exporter is comfortable
with the creditworthiness of the issuing institution. Letters of Credit also serve to
protect the importer since the documents required to trigger payment provide evidence
that goods have been shipped as agreed. However, documentary discrepancies in
Export Letters of Credit could potentially negate payment to the

20
exporter; documents must be prepared by trained professionals.

Tips for Exporters for Letters of Credit:

 Exporters should consult with their bank before the importer applies for a
Letter of Credit
 Exporters must consider whether a confirmed Letter of Credit is necessary
 Importers and exporters should negotiate and agree upon detailed terms and
conditions to be incorporated into the Letter of Credit
 Exporters must determine if all of the terms of the Letter of Credit can be
met within the prescribed time limits
 Exporters must ensure that all documents are consistent with the requirements
of the Letter of Credit
 Exporters must be very cautious in watching for discrepancies that may delay
or prevent payment.

Export Letters of Credit Key Features:

 An Export Letter of Credit, which is also referred to as documentary credit, is

a contractual agreement on the part of the issuing bank, on behalf of an
importer, promising to pay the beneficiary or exporter provided conditions
specified in the Letter of Credit have been satisfied.
 The issuing bank will typically use intermediary banks to facilitate the
transaction and make payment to the exporter.
 The Letter of Credit is a separate contract from the contract for the transaction
on which it is based. Thus the banks are not concerned with the quality of the
underlying merchandise or whether either party fulfills the terms of the sales
contract.
 The issuing bank’s obligation to pay is solely conditioned on seller’s
compliance with the terms and conditions specified in the Letter of Credit.
 In Letter of Credit transactions, banks are only concerned with documents, not
goods.

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Using Letter of Credit Financing:

 Letters of credit are a highly recommended method of funding international

trade, especially for high-risk situations, for transactions with new or less-
established trade relationships and for transactions where the exporter is
satisfied with the creditworthiness of the issuing bank.
 When Letters of Credit are used to finance trade, the transaction risk is fairly
balanced between exporter and importer, assuming that all terms and
conditions specified in the Letter of Credit are performed.
 Payment in Letter of Credit transactions is only made after the goods are
shipped by the exporter. A variety of payment, financing and risk mitigation
options available to both the importer and exporter with Letters of Credit.
 Letters of Credit are a tremendously popular and effective method of financing
international trade. They are, however, labor intensive and are a relatively
expensive method of financing international transactions.

Letter of Credit Process:

 The importer arranges for the issuing bank to open an LC in favor of the
exporter.
 The issuing bank transmits the LC to the nominated bank, which forwards it
to the exporter.
 The exporter forwards the goods and documents to a freight forwarder.
 The freight forwarder dispatches the goods and either the dispatcher or the
exporter submits documents to the nominated bank.
 The nominated bank checks documents for compliance with the LC and
collects payment from the issuing bank for the exporter.
 The importer’s account at the issuing bank is debited.
 The issuing bank releases documents to the importer to claim the goods from
the carrier and to clear them at customs.

22
Special Letters of Credit:
Letters of credit can take many forms. When they are made transferable, the
payment obligation under the original letter of credit can be transferred to one or
more second beneficiaries. With a revolving letter of credit, the issuing bank restores
the credit to its original amount each time it is drawn down.
A standby letter of credit is not intended to serve as the means of payment for goods
but can be drawn in the event of a contractual default, including the failure of an
importer to pay invoices promptly when due. Similarly, standby letters of credit are
often posted by exporters in favor of an importer to pay invoices when due. Standby
letters of credit are often posted by exporters in favor of importers because they can
serve as bid bonds, performance bonds, and advance payment guarantees. In
addition, standby letters of credit are often used as counter guarantees against the
provision of down payments and progress payments on the part of foreign buyers.

2. Bank Guarantee:

When export financing involves Bank Guarantees to guarantee the importer’s

obligations, we advise the exporter and negotiate terms if the importer fails to pay
pursuant to the contract.
Although a Bank Guarantee seems very similar to a letter of credit, and there are
similarities, they are very different instruments which are used for very different
purposes. A letter of credit is used in trade finance to ensure that a transaction
proceeds as planned. Bank Guarantees are used to mitigate losses if a transaction
doesn’t go as planned.
A letter of credit is an obligation by a bank to make a payment once certain
contractual criteria are met. Once the required terms are completed and confirmed,
the bank will transfer the funds. The clear purpose is to ensure payment will be made
as long as the services are performed.
Similarly, a Bank Guarantee is a financial instrument issued by a bank that
guarantees that a stipulated sum will be paid to a beneficiary. However, unlike a
letter of credit,

the sum is only paid if the opposing party in the subject transaction does not fulfill

23
the stipulated obligations under the contract. Thus, a Bank Guarantee essentially
serves to ensure a buyer or seller against losses or damage due to nonperformance of
the other party to the transaction.
Bank Guarantees for Imports Overview:
Bank Guarantees just may be the perfect method of financing import trade. They
offer numerous benefits, protecting both importers and exporters in cross-border
trade transactions. Chief among the benefits of using bank guarantees is that they
grant an absolute guarantee of performance and payment to the exporter in
international trade deals.
With a bank guarantee in a cross-border trade transaction, the exporter no longer
bears any payment default risk. With no risk of default and the exporter feeling much
more secure with the transaction, an importer is in a much better position to negotiate
favorable deal terms.
» Bank Guarantees provide comfort to exporters who get an absolute guarantee of
payment
» Importer almost certainly gains the ability to negotiate favorable trade terms
» Bank Guarantees give small businesses immediate acceptance in global trade deals
» They are universally accepted, giving importers the leverage to buy anywhere in
the world
» They eliminate payment default risk which gives importers and exporters
flexibility in negotiating terms.

Using Bank Guarantees for Imports:

Bank Guarantees might be used when a buyer obtains goods from a seller but is then
unable to pay the seller as agreed. The Bank Guarantee would pay the seller in the
transaction a contractually agreed upon amount.
Similarly, if a seller was unable to deliver the goods according to the terms of a
contract, a BG would obligate the bank to pay the purchaser the contractually agreed-
upon amount. Essentially, Bank Guarantees are a safety mechanism for the opposing
party in the transaction.
Bank Guarantees are often used in trade financing when buyers and sellers are
purchasing and selling goods to and from overseas customers with whom they have
no established relationship, in which case a BG is designed to reduce the risk which
is

24
borne by each party to a transaction.

Benefits of Using Bank Guarantees For Imports:

Global Trade Funding provides world-class advisory services to assist clients in the
deal structuring of every transaction undertaken. This includes Bank Guarantee
advisory support to structure and negotiate the terms of Bank Guarantees. See
Advisory Services.
Bank Guarantees give small businesses the ability to reassure the opposing parties to
a contract that they have the ability to pay for and finance projects that would
otherwise seem beyond their capacity
Bank Guarantees provide financial credibility and creditworthiness backed by a bank
Bank Guarantees can be used in virtually every market around the globe and in
virtually every business sector
Bank Guarantees give the parties to a transaction a great deal of flexibility in
negotiating contract terms over geography and currency

3. Monetization:
We monetize financial instruments to provide export financing and pre-export
financing for working capital and shipping expenses with little cost and almost no
risk.

Financial Instruments Monetization Overview:

While Global Trade Funding has decades of experience and unparalleled expertise
across the entire range of trade finance, project finance, and commodity finance
products we offer, nowhere are our experience and innovation more evident than in
Monetization. There is no better partner for monetizing bank instruments in the
world than Global Trade Funding.
We monetize an expansive range of bank instruments effectively and precisely and
usually within ten days, and all with a transparency you’ll find refreshing. We have
decades of experience monetizing bank instruments. We can monetize owned or
leasedbank instruments. Our typical turnaround for monetization is 10 days.
If you’re ready to monetize your bank instruments click to Request Funding to get
25
started today or continue learning about bank instrument monetization.
While Global Trade Funding has decades of experience and unparalleled expertise
across the entire range of trade finance, project finance, and commodity finance
products we offer, nowhere are our experience and innovation more evident than in
Monetization. There is no better partner for monetizing bank instruments in the
world than Global Trade Funding.
We monetize an expansive range of bank instruments effectively and precisely and
usually within ten days, and all with a transparency you’ll find refreshing. We have
decades of experience monetizing bank instruments. We can monetize owned or
leased bank instruments. Our typical turnaround for monetization is 10 days.
If you’re ready to monetize your bank instruments click to Request Funding to get
started today or continue learning about bank instrument monetization.

Financial Instruments Monetization Services:

Bank Instrument Monetization is a low cost, low-risk method of trade finance that
monetizes inactive financial instruments by converting them into cash or cash
equivalent by liquidating the instruments.
Monetization is quick, easy and is accomplishable using a wide range of financial
instruments such as certificates of deposit, corporate bonds and bank guarantees, to
name but a few. See a more complete list of financial instruments we can monetize to
the right.
Monetization converts unused assets into cash which can then be used to fund
imports, exports and international trade transactions, so there is very little actual cost
and only limited opportunity cost because the assets were disused.
Our financial instrument monetization expertise, when coupled with an impressive
list of strategic partners, ideally positions Global Trade Funding to monetize
financial instruments anywhere in the world at very attractive pricing.
This is a partial list of the types of financial instruments we can monetize.
 Corporate Bonds
 Municipal Bonds
 Treasury Bonds
 Treasury Bills
 Bearer Bonds

26
  Certificates of Deposit
 Letters of Credit
 Standby Letter of Credit

Monetization Terms:
We monetize financial instruments through our individual, corporate, private and
institutional lenders, including investment banks, merchant banks, private
international banks, trusts, and other lending institutions. In so doing, we never have
to rely on brokers as a source of funding. That means we serve our clients directly. It
also results in lower cost monetization for imports and more responsive turnaround
time for clients. We perform quickly and precisely and offer reasonable terms and
pricing for monetization services. Our Standard Monetization Terms are listed below.

Standard Monetization Terms:

Financial Instruments to be monetized can be owned or leased
We prefer monetization transactions of $100 million or more, but we will accept
transactions as low as $10 million transaction amount
Transaction turnaround time normally 10 days or less
Exceptions can be made to minimum transaction
Brokers and intermediaries must have a legally binding agreement
In brokers and intermediary transactions, contact to be between principals after initial
introductions

Monetization Process:
Global Trade Funding offers bank instrument monetization services for individuals,
companies, governments and other organizations (NGOs) for transactions with a $10
million minimum and no maximum limit. Monetization funding is arranged through
our network of individual, corporate, private and institutional lenders which include
investment banks, merchant banks, private international banks, and trusts. Our
Monetization services are backed by a wealth of experience and unsurpassed
expertise, in addition to the most advanced financing solutions available anywhere in
the world.

We are also pleased to offer our clients all forms of bank and capital market financing
27
and can combine different project funding methods for particularly complex
transactions. Our experience providing financing that involves multiple project
funding sources – including multilateral, developmental and export credit institutions
– is extensive. When specialized expertise is necessary, we draw on relationships
with a team of highly experienced advisers. When coupled with our international
capital market relationships, we are perfectly positioned to advise clients on every
aspect of the transaction and financing. Our worldwide network of lenders positions
us to execute funding on advantageous terms, and to provide funding solutions for
funding requirements outside the conventional market.

4. Factoring:

We offer very low-cost non-recourse accounts receivable factoring for export

financing when you offer attractive purchase terms to foreign importers to gain a
competitive edge.

Accounts Receivable Factoring Overview:

Accounts receivable factoring services that deliver fast liquidity for your business.
This is the ultimate export financing solution. We provide Accounts Receivable
Factoring services for exporters that factor or sell their foreign accounts receivable.
The accounts receivable are sold at a discount but they are also sold without
recourse, which means you have no continuing liability or exposure of any kind.
That is incredible peace of mind for business owners.
Factoring accounts receivable is an ideal solution for small businesses who are
exporting overseas and offering financing terms to your foreign buyers. We provide
you with an immediate influx of cash from the invoices that are already on your
books or which will be created upon the export of goods to your foreign buyer. You
access cash immediately without having to wait for payment from overseas buyers
and without any exposure to payment default. You’re paid in full and working on
your next deal.
We offer accounts receivable factoring as needed or on a continuing basis. Factoring
accounts receivable provides companies the ability to offer terms to international
customers but still receive cash when the goods are delivered. We are fast, decisive
and will provide the financing your business needs, usually within ten days if we
haven’t done business before. We’re much faster if we have an established
28
relationship, where we can often provide the liquidity you need within 48 hours.
Request accounts Receivable Factoring right now.
Accounts Receivable Factoring
Factoring accounts receivable is a common method of export financing that provides
exporters with liquidity by factoring or selling their accounts receivable. The
accounts receivable are sold at a discount but they are also sold without recourse.
Factoring accounts receivable is an ideal solution for companies that need extra cash
for inventory, payroll or marketing because it creates an immediate influx of cash
from the invoices already on your books. Companies can access quick cash from
their invoices to start their next project. Factoring accounts receivable can be utilized
as needed or on a continuing basis. Factoring accounts receivable provides
companies the ability to offer terms to international customers but still receive cash
when the goods are delivered.
Traditional factoring is an ideal solution for companies that need extra cash flow to
purchase inventory, cover payroll or invest in marketing. You are able to create an
immediate influx of cash based on the invoices already on your books. The finance
provider known as the factor purchases all of your accounts receivables and advances
you 70 % to 90 % of the total amount within 24 to 48 hours. The factor pays you the
remainder of what you’re owed once your client pays the factor, usually 30 to 45
days later. It deducts a small fee, based on the size and age of each invoice.
Accounts Receivable Factoring, which is known by several names, is commonly
called accounts receivable factoring, invoice factoring, and sometimes accounts
receivable financing, although accounts receivable financing is a term more
accurately used to describe a form of asset based lending against accounts receivable.
Accounts Receivable Factoring is a financial transaction that is a common method
of trade finance that provides immediate liquidity to companies that sell their
accounts receivable at a discount. Although the discount in the face value of the
accounts receivable is a cost, companies benefit in converting their accounts
receivable to immediate cash, and their accounts receivable are typically sold
without recourse.
Factoring is often an ideal solution for companies that need extra cash for inventory,
payroll or marketing because it provides immediate cash based solely on invoices
already on their books, so it requires no borrowing. Companies can access quick

29
cash from their invoices to start their next project. Accounts Receivable Factoring
can be

30
utilized as needed or on a continuing basis.
In the world of global trade finance, Accounts Receivable Factoring can be a
tremendous advantage to companies who use factoring as a trade funding method to
put them in a position to offer credit terms to international customers in export
finance transactions while still receiving cash when the goods they are exporting are
shipped. The offering of credit terms to customers can be a tremendous competitive
advantage. Traditional Accounts Receivable Factoring is an ideal solution for
companies that need extra cash flow to purchase inventory, cover payroll, invest in
marketing, or virtually any use of immediate liquidity. Companies that factor their
accounts receivable create an immediate influx of cash based entirely on invoices
which are already on their books. In a typical Accounts Receivable Factoring
transaction, the finance provider, who is known as the factor, purchases the accounts
receivables and advances 70% to 90% of the total amount to the company in 24 to 48
hours. The factor then pays the remainder of what is owed to the company once the
client pays the factor for the outstanding invoices, which is usually 30 to 45 days
later.
Factoring is not the same as invoice discounting which is called an “Assignment of
Accounts Receivable” in American accounting, as propagated by FASB within
GAAP. Factoring is the sale of receivables, whereas invoice discounting (technically
“assignment of accounts receivable” in American accounting) is borrowing that
involves the use of the accounts receivable assets as collateral for the loan.
Export factoring is a very common form of accounts receivable factoring that is
ideally suited for exporters. If you are an exporter, Export Factoring is the perfect
trade finance vehicle for companies that are going to start offering terms to their
international customers but who are not themselves in a position to wait to receive
payment for the goods they are shipping. This is a very common position for
exporters. In this increasingly competitive global environment, offering terms will
likely help you keep your customers and may even attract new ones exporters must o
keep their customers and land new ones make more sales waiting to get paid what
they’re owed receive monies they are owed wait for payment offering payment terms
rather than lose or lose their customers than not Say your company has decided it
must offer terms to your buyers in order to remain competitive and keep the
customer. Obviously, buyers are much more likely to do business with them their

31
buyers bust

32
still have to receive cash up front when the goods are delivered. The financier acting
as their factor purchases your receivables and forwards payment, usually 70% to
90%, once it has the receivables documentation. The client pays the factor, not you,
once it receives the goods. The factor pays you the balance when it receives payment
from thecustomer, less a small fee.

Understanding Accounts Receivable Factoring:

A factor is a financial intermediary that purchases receivables from a company. The
factor is essentially a financier and funding source that agrees to pay the company
the value of their invoices less a discount for commission and fees. The factor
advances most of the invoiced amount to the company immediately, with the balance
paid upon receipt of funds from the invoiced party.
Factoring helps a business to obtain immediate capital based on the future income
attributed to a particular amount due on an account receivable or business invoice.
Accounts receivable function as a record of the credit extended to another party
where payment is still due. Factoring allows other interested parties to purchase the
funds due at a discounted price in exchange for providing cash up front.
The terms and conditions set forth by a factor may vary depending on their own
internal practices. Most commonly, accounts receivable factoring is performed by
third-party financiers who are known as factors. Factors often release funds
associated with newly purchased accounts receivable within 24 hours. Repayment
terms can vary in length depending on the amount involved.
Additionally, the percentage of funds provided for the particular account receivables
referred to as the advance rate, can also vary. Accounts receivable factoring is not
considered a loan because the parties don’t issue or acquire debt as part of the
transaction. The funds provided to the company in exchange for the accounts
receivable is also not subject to any restrictions regarding use.

Accounts Receivable Factoring Best Practices:

A factor is a financial intermediary that purchases receivables from a company. A
factor is essentially a funding source that agrees to pay the company the value of the
invoice less a discount for commission and fees. The factor advances most of the
invoiced amount to the company immediately and the balance upon receipt of funds

33
from the invoiced party.

34
A factor allows a business to obtain immediate capital based on the future income
attributed to a particular amount due on an account receivable or business invoice.
Accounts receivable function as a record of the credit extended to another party
where payment is still due. Factoring allows other interested parties to purchase the
funds due at a discounted price in exchange for providing cash up front.
The terms and conditions set forth by a factor may vary depending on their own
internal practices. Most commonly, factoring is performed through third party
financial institutions, referred to as factors. Factors often release funds associated
with newly purchased accounts receivable within 24 hours. Repayment terms can
vary in length depending on the amount involved. Additionally, the percentage of
funds provided for the particular account receivables referred to as the advance rate,
can also vary.
Factoring is not considered a loan because the parties don’t issue or acquire debt as
part of the transaction. The funds provided to the company in exchange for the
accounts receivable is also not subject to any restrictions regarding use.

35
ROLE OF EXPORT FINANCE:

International trade is costly and risky. Shipping goods across borders takes longer
than shipping domestically and thus requires more working capital. Shipping longer
distances also increases the risk of damage, adding to insurance costs. In an
international trade transaction the exporter faces the risk that the importer might
default, and the importer faces the risk that the exporter might fail to meet the
product quality specifications set out in the contract. Such risks and costs are further
heightened in light of the fact that international trade involves partners located in
different countries with different jurisdictions. This makes conflicts both harder and
more costly to resolve.
Financing/payment terms in international trade fall under three broad categories.
Under open account (OA) terms, goods are shipped and delivered before a payment
is made by the importer. Under cash-in-advance (CIA) terms, the payment is
received before the ownership of the goods is transferred. If a transaction is on letter
of credit (LC) terms, the importer’s bank commits to make the payment to the
exporter upon the verification of the fulfillment of the terms and conditions stated in
the LC. Each payment method places the financing burden on a different actor: the
entire burden is on the exporter in a transaction on OA terms, and on the importer in
a transaction on CIA terms. LC is the safest financing instrument for both trade
partners: the exporter obtains a bank guarantee to secure payment, and the importer
is protected against potential losses arising from exporter misbehavior. Nevertheless,
LC is a costly instrument as banks levy fees and charges for issuing LCs. Another
widely-used payment method in international trade is documentary collection. If a
transaction takes place on documentary collection terms, the exporter’s bank is
authorized to collect the payment on behalf of the exporter. Since the bank acts only
as an intermediary, without any obligation to make the payment in case of default, a
documentary collection is very similar to OA terms.
Institutional quality and financial sector efficiency are important factors in
determining the choice of financing terms. In particular, a transaction is more likely
to occur on CIA terms if the importer is located in a country with weak enforcement
(low institutional quality) and/or with low financing costs (efficient financial
sector),and on OA terms if the exporter is located in a country with weak
enforcement and/or with low financing costs. If both trade partners are located in
36
countries with weak

37
enforcement, then the transaction is more likely to occur on lC terms. These
theoretical predictions have important implications for developing countries. Given
their relatively weak institutions, exporters located in such countries are likely to
bear the financial burden associated with their international trade transactions.
Therefore, access to cheap trade finance is particularly important for exporters
located in developing countries.
The relative risk associated with each financing term is an important determinant of
the choice of financing terms. One should expect trade partners to choose the
financing term that minimizes the default risk.
Furthermore, the choice should minimize the potential losses that would result from
a breach of the contract. Further, resolving disputes pertaining to breach of trade
transactions takes time as verifying/ refuting what is claimed is, at best, difficult.
Another difficulty arises in identifying the law applicable in the event of a dispute.
Such uncertainty adds to the risks associated with an international trade transaction.
One way to deal with such uncertainty is to harmonies international sales law across
countries. To achieve this goal, the United Nations Convention on Contracts for the
International Sales of Goods was signed in Vienna in 1980. This treaty, also known
as the Vienna Convention, came into force in 1988. As of today, 89 countries have
ratified the Vienna Convention. India is not yet a party to it. Its benefits can be
expected to grow even further as more countries ratify the convention.
The choice of financing terms in international trade also depends on the availability
of working capital. Ideally, the party that can access financing more cheaply should
finance the transaction. Trade partners may rely on their internally generated capital
or seek external financing to finance their international trade transactions. Roughly
80–90 percent of global trade relies on some form of trade finance. Thus, the
availability of trade finance becomes a vital determinant of international trade flows.
The literature, for instance, identifies a shortage of trade finance as one of the drivers
behind the Great Trade Collapse.
In 2008/09, the International Monetary Fund (IMF) and the Bankers’ Association for
Finance and Trade, merged with the International Financial Services Association,
(BAFTIFSA) jointly conducted a series of surveys of commercial banks located in
developed and developing countries on their perception of the use of bank-
intermediation in international trade. The results of the surveys show that OA and LC

38
terms each account for about 40 percent of international trade transactions, and the

39
rest is accounted for by CIA terms (IMF 2011). Although the patterns presented by
the IMF/ BAFT-IFSA surveys are valuable, they are based only on the perception of
commercial banks.
According to informed sources a large part of annual manufacturing exports are
financed on OA terms, which are followed by LC and CIA terms. Under LC terms
the exporter receives the payment only after the documents are cleared by the
importer’s bank at the destination, requiring the exporter to pre-finance the
transaction. This implies that majority of export shipments require pre-financing on
the exporter’s side. In other words, Indian exporters usually bear the financing
burden of the international transactions they engage in.
Role of financial markets in facilitating international trade, especially in developing
countries, is vital. In particular, the goal of these countries to diversify exports both
in terms of products and destinations, i.e. towards new markets, calls for additional
trade financing. Given their shallow financial markets, access to trade finance still
remains a challenge. One possible remedy would be to extend short-term credit lines
to exporters through Exim banks, with a view to meeting their working capital needs.
Another remedy would be to create new instruments linked, for instance, to LCs,
which can be used by beneficiary exporters to obtain short-term financing in their
home countries. Bankers’ acceptance is one such instrument. However, these
instruments are seldom used because of their complexity and inconvenience.

40
 INDIA’S EXPORT FINANCE INSTITUTIONAL FRAMEWORK:

International trade typically takes place on the basis of cash or short-term credit,
without intermediation through financial markets. Up to two thirds of the value of
global merchandise trade is organized using either ‘open account’ or ‘cash-in-
advance’ terms (Amundsen et al. 2011). In these transactions, the buyer and the
seller are able to agree on terms to share the credit or country risk without
intermediaries, although they may mitigate and manage their risks in other ways (for
example, diversifying by selling to a number of buyers across a range of markets).
Where transactions are undertaken on open account terms, the exporter delivers the
goods to the buyer without payment, and the buyer is expected to pay on delivery
according to the sales contract. Under this arrangement the exporter draws on working
(or other sources of) capital and bears much of the credit risk involved in the
transaction. For cash in advance arrangements, the buyer is extending working capital
to the exporter and bears much of the credit risk. India’s institutional architecture of
foreign trade finance comprises of following actors.

Table: 1 Institutional Structure for Export

Finance:
Institution Role and Functions
Central Bank Ensuring through conduct of monetary policy, adequate liquidity
for financing exports;

Administering interest rates / interest equalization schemes. In

some countries, Governments directly provide the support

Commercial Banks Providing short term finance for exports typically upto 6 months /
12 months
Exim Bank Providing medium and long term finance for exports typically : 1
year - 15 years

Export Credit Insurance Providing export credit insurance to exporters, guarantees to banks
Agencies

41
Reserve Bank of India (RBI):

Trade finance is a crucial element in the design of trade policies. From time to time,
the RBI has undertaken several measures to ensure adequate and timely availability of
credit for exports at competitive interest rates. The Reserve Bank’s export credit
refinance schemes have played a pivotal role in this area. Commercial banks have
been providing credit to exporters at pre-shipment and post-shipment stages, both in
rupees as well as foreign currency. The rupee export credit has been generally
available at rate of interest linked to the Prime lending Rate (PLR). The export credit
in foreign currency is provided at internationally competitive interest rates linked to
London Inter-Bank offer Rate (LIBOR) or similar interest rates. The RBI has been
adjusting interest rates on rupee export credit from time to time taking into account
the need to maintain competitiveness by looking at interest rate differentials, as also
other factors like inflation and developments in financial markets. The RBI has also
taken measures to support institutional arrangements for export promotion, such as
policy initiatives to provide a liberalized environment for the operations of Special
Economic Zones (SEZ)units.

Commercial banks:
In most countries including India, commercial banks are by far the largest providers
of trade finance services. The main role of banks is to act as facilitators and/or
intermediaries between savers and borrowers. Banks provide short-term financing for
trade transactions by various means, including advances against (or discounting of)
export bills. They also help to reduce the risk inherent in trade transactions by
providing documentary credit (e.g., letters of credit) services or alternative methods of
payment and by facilitating access to foreign exchange markets to hedge against a
possible currency risk. While private commercial banks make up the largest share of
trade financing activities, they generally tend to favour lending to well-established and
larger firms, or to the government, in order to reduce their risk exposure. As a result,
small and medium-sized enterprises may not find it easy to secure trade financing
through traditional commercial banks.

42
Exporters had lower risk exposures before 1990s, with limited buyer and country
risks, given that overwhelming share of exports were mainly destined to Europe and
the United States. However, the world dynamics have changed since the 1990s and
exporters now require more export finance products, including credit insurance and
guarantees. Time has shown that the impact of export promotion is not as much as the
impact of the risk mitigating instruments. Export finance can broadly be classified
under tow heads:
a) Pre-shipment Finance: This includes (i) packing Credit, and (ii) Advance against
receivables from the Government like duty back, international price reimbursement
scheme (IPRS) etc..
b) Post-shipment Finance: This consists of (i) negotiation of export documents
under letters of credit, (ii) Purchase/discount of export documents, (iii) Advance
against bills sent on collection basis, (iv) Advance against exports on consignment
basis, (v) Advance against indrawn balances, and (vi) Advance against receivables
form the Government like duty draw back etc.
Besides, the short term trade financing above, banks on participation with Exim Bank,
the apex coordinating agency for export financing in the country, extend project
financing (through working group or otherwise) for export projects. Banks are also
involved in issuance of letters of guarantee (bid bonds, performance guarantees,
advance payment guarantees etc.) on behalf their constituents. The institutional
framework also comprises of Export Credit Guarantee Corporation of India (ECGC)
limited which, through its various policies and guarantees issued to the exporters and
banks, endeavors to minimize the risks involved in international trade financing

43
Exim Bank of India:

Exim banks are typically Government-owned banks established to facilitate and

encourage the development of trade. They are often conceived as a one-stop shop for
export-import financing. Experience of the Exim Bank of India indicates that it has
been effective in stimulating the development of trade finance, by introducing new
products and services and by disseminating relevant information to potential
exporters. Offeringa wide array of products and services has made it easier for Exim
Bank of India to market its services and satisfy the needs of its clients (and be
profitable). Sinceit enjoys a sovereign credit rating [ Exim Banks Credit Rating:
Sovereign Moody’s: Baa3 (Positive); S&P: BBB- (Stable); Fitch: BBB- (Stable);
JCRA: BBB+ (Stable), Highest ratings (AAA)/(AI+] as it is backed by the
Government. Such a rating makes it easier for the bank to access international credit
markets as compared with domestic banks. An Exim bank can also help to
regulate/benchmark the cost of the trade finance services offered by commercial
banks. However, An Exim bank should be managed asa self- sustainable organization,
without subsidized interest rates, but with a modern and creative risk assessment
Trade finance, a traditionally paper-based and labor-intensive process, has undergone
tremendous changes. Many banks and financial institutions have developed e-trade
finance systems and services. The term “e-trade finance” refers to trade finance
services delivered through the Internet. E-trade finance will therefore include loan
applications,foreign exchange, letters of credit, factoring, credit rating services, cargo
insurance andother financial services offered or available online. It may be viewed as
a subset of e- finance, which covers the whole spectrum of financial services delivered
online

44
Exhibit 1: Exim Bank of India: Loan and Non Funded Portfolio (Rs crore as on
end March)

Exhibit2: Exim Bank of India Loan Portfolio (as on end March, 2017)

45
As on March 31, 2017, the Exim Bank’s total Resources including paid-up capital of
Rs 68.59 billion and reserves of Rs 51.64 billion aggregated Rs 1,080.96 billion. The
Bank’s Resource base, inter alia, includes Rupee Bonds, Certificates of Deposit,
Commercial Papers, Term Deposits, FC Bonds, FC loans and long term swaps.
During the year 2016-17, the Bank raised borrowings of varying maturities (excluding
raised and repaid during the year) aggregating Rs 404.08 billion, comprising Rupee
Resources of Rs216.04 billion and Foreign Currency Resources of US$ 2.90 billion
equivalent. As on March 31, 2017, the Bank had a pool of Foreign Currency
Resourcese quivalent to US$ 11.47 billion. Exhibit 3 provides snap shot of financial
highlights.

Exhibit: 3 Exim Bank of India Financial Highlights:

46
The Bank continued to maintain its stature and benchmarks in the international debt
capital markets. The Bank, during the year, tapped the deep capital markets of the
USA in a debut US$ 1 billion issuance under Rule 144A. The maiden issue was well
received by investors, with over 2 times oversubscription and an investor allocation
of61 per cent in USA, which is the highest-ever for any Bank / FI out of India. The
Bank’s high domestic credit rating, and the international credit rating at par with the
sovereign, helps the Bank to raise resources at finer rates and pass on the benefits to
Indian exporters

Asset quality: As per the Reserve Bank of India (RBI) prudential norms for Financial
Institutions, a credit/ loan facility in respect of which interest and/or principal has
remained overdue for more than 90 days, is defined as a non-Performing Asset (NPA).
The Bank’s gross NPAs at Rs 99.62 billion worked out to 9.24 per cent of the total
loans and advances as of March 31, 2017. The Bank’s NPAs (net of provisions) of Rs
48.03 billion as of March 31, 2017, were at 4.68 per cent of the net loans and
advances (net of provisions) as of March 31, 2017.
The Capital to Risk Assets Ratio (CRAR) was 15.81 per cent as on March 31, 2017,
as compared to 14.55 per cent as on March 31, 2016, as against a minimum 9 per cent
norm stipulated by RBI. The Debt-Equity Ratio as on March 31, 2017 was 7.99:1, as
compared to 8.12:1 as on March 31, 2016.

47
TYPES OF EXPORT FINANCE:

The export finance is being classified in to two types viz.

 PRE - SHIPMENT FINANCE.
 POST – SHIPMENT FINANCE.

Export finance may be broadly classified as 'Pre-Shipment' and 'Post-Shipment'

finance depending upon the stage at which the finance is extended. Finance extended
to the exporters, prior to shipment of goods is termed as 'Pre-Shipment Finance'
while that extended after shipment of goods is termed as 'Post-Shipment Finance'.
'Pre shipment' means any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing, manufacturing or packing
of goods prior to shipment/ working capital expenses towards rendering of services,
on the basis of letter of credit opened in his favors or in favors of some other
person, by an overseas buyer or a confirmed and irrevocable order for the export
of goods from India or any other evidence of an order for export from India
having been placed on the exporter or some other person, unless lodgment of export
orders or letter of credit with the bank has specifically been waived.

PRE-SHIPMENT FINANCE

MEANING:
Pre-shipment is also referred as “packing credit”. It is working capital finance
provided by commercial banks to the exporter prior to shipment of goods. The
finance required to meet various expenses before shipment of goods is called pre-
shipment finance or packing credit.

DEFINITION:
Financial assistance extended to the exporter from the date of receipt of the export
order till the date of shipment is known as pre-shipment credit. Such finance is
extended to an exporter for the purpose of procuring raw materials, processing,
packing, transporting, warehousing of goods meant for exports.

48
IMPORTANCE OF FINANCE AT PRE-SHIPMENT STAGE:

 To purchase raw material, and other inputs to manufacture goods.

 To assemble the goods in the case of merchant exporters.

 To store the goods in suitable warehouse still the goods are shipped.
 To pay for packing, marking and labeling of goods.

 To pay for pre-shipment inspection charges.

 To import or purchase from the domestic market heavy machinery and

other capital goods to produce export goods.
 To pay for consultancy services.

 To pay for export documentation expenses.

FORMS OR METHODS OF PRE-SHIPMENT FINANCE:

1. Cash Packing Credit Loan: In this type of credit, the bank normally grants
packing credit advantage initially on unsecured basis. Subsequently, the bank may
ask for security.

2. Advance against Hypothecation: Packing credit is given to process the goods for
export. The advance is given against security and the security remains in the
possession of the exporter. The exporter is required to execute the hypothecation
deedin favor of the bank.

3. Advance against Pledge: The bank provides packing credit against security. The
security remains in the possession of the bank. On collection of export proceeds, the
bank makes necessary entries in the packing credit account of the exporter.

4. Advance against Red L/C: The Red L/C received from the importer authorizes
the local bank to grant advances to exporter to meet working capital requirements
relating to processing of goods for exports. The issuing bank stands as a guarantor
for packing credit.

49
5. Advance against Back-To-Back L/C: The merchant exporter who is in possession
of the original L/C may require these bankers to issue Back-To-Back L/C against the
security of original L/C in favor of the sub-supplier. The sub-supplier thus gets the
Back-To-Bank L/C on the basis of which he can obtain packing credit.

SCHEMES IN PRE-SHIPMENT STAGE OF FINANCE:

1. PACKING CREDIT:
SANCTION OF PACKING CREDIT ADVANCES:
There are certain factors, which should be considered while sanctioning the packing
credit advances viz.

i. Banks may relax norms for debt-equity ratio, margins etc but no compromise
in respect of viability of the proposal and integrity of the borrower.
ii. Satisfaction about the capacity of the execution of the orders with in the
stipulated time and the management of the export business.
[Link] of finance.
iv. Standing of credit opening bank if the exports are covered under letters of
credit.
v. Regulations, political and financial conditions of the buyer’s country.

DISBURSEMENT OF PACKING CREDIT:

After proper sanctioning of credit limits, the disbursing branch should ensure:
To inform ECGC the details of limit sanctioned in the prescribed format within 30
days from the date of sanction.
a) To complete proper documentation and compliance of the terms of sanction
i.e. creation of mortgage etc.

50
PACKING CREDIT (PC): ELIGIBILITY:

Packing Credit is normally available to an exporter who fulfils the following

requirements:
 Exporter who is holding the Importer Exporter Code (IEC) Number
allotted by DGFT.
 Exporter who is holding Registration Cum Membership Certificate (RCMC)
wherever required (as in the case of quota items)
 Exporter who has not been CAUTIONLISTED by RBI.

 Exporter who is not on the Specific Approval List (SAL) of ECGC.

 Exporter who has an export commitment/order and has capacity to fulfill the
same.
 Commodity to be exported should be freely exportable as per the Foreign
Trade policy. If the commodity comes under restricted list, the relevant
export license should be available with the exporter.
 If commodity is subjected to floor price restrictions/quota, relevant FTP
guide lines should be complied with.
 Import of rough/polished diamonds should not be from conflict countries
(conflict diamonds-Diamonds originated from Siera Leone, Angola and
Cango, Liberia as per UN Resolution No.1173, 1176 and 1343
dated22.7.2000 and 21.9.2001). Declaration to that effect should be obtained
as per Annexure– 4(1)
 Importing country should be the one on which no trade ban is in force.

 Methods of payment, export related payments and all other terms should
conform to FEMA Guidelines.

51
PURPOSE:

Packing Credit is an advance granted to an exporter or a sub-supplier for financing

the procurement of raw materials, processing, manufacturing, packing, transporting,
warehousing and shipping of goods meant for export/working capital expenses
towards rendering of services. Packing Credit is generally granted to an exporter who
has an export order/LC in his own name/LCs transferred in his name and will
actually export the goods. However, Packing Credit canal so be granted to
supporting manufacturers or suppliers of goods who do not have export orders or
LCs in their own names but are exporting through merchant exporters or export
houses. The advance is granted against pledge or hypothecation of stocks to be
processed/ produced to execute the export order. In exceptional circumstances, where
there is a need, a portion of the Packing Credit can be released as a clean advance for
the purpose of procuring stocks based on the export order / LC, under Branch
Manager's sanction. An undertaking from the borrower that the advance will be
backed by security of stocks with in a period not exceeding 15 days should be taken
in such cases. Branches should closely monitor such clean facilities and ensure that
the advance is covered by adequate stocks within 15 days. In exceptional cases,
taking into account the peculiarity of trade, industry practice, this period of 15days
can be extended to areas unable extent with the prior approval of the branch head.

52
2. FOREIGN CURRENCY PRE-SHIPMENT CREDIT (FCPC):

 The FCPC is available to exporting companies as well as commercial banks for

lending to the former.
 It is an additional window to rupee packing credit scheme & available to cover
both the domestic i.e. indigenous & imported inputs. The exporter has two
options to avail him of export finance.
 To avail him of pre-shipment credit in rupees & then the post shipment credit
either in rupees or in foreign currency denominated creditor
discounting/rediscounting of export bills.
 To avail of pre-shipment credit in foreign currency & discounting/rediscounting
of the export bills in foreign currency.
 FCPC will also be available both to the supplier EOU/EPZ unit and the receiver
EOU/EPZ unit.
Pre-shipment credit in foreign currency shall also be available on exports to ACU
(Asian Clearing Union) countries with effect from 1.1.1996.

Eligibility: PCFC is extended only on the basis of confirmed/firms export orders or

confirmed L/C’s. The “Running account facility will not be available under the
scheme. However, the facility of the liquidation of packing credit under the first in
first out method will be allowed.

Order or L/C: Banks should not insist on submission of export order or L/C for
every disbursement of pre-shipment credit, from exporters with consistently good
track record. Instead, a system of periodical submission of a statement of L/C’s or
export orders in hand, should be introduced.

Sharing of FCPC: Banks may extend FCPC to the manufacturer also on the basis
of the disclaimer from the export order.

53
POST-SHIPMENT FINANCE:

MEANING: Post shipment finance is provided to meet working capital

requirements after the actual shipment of goods. It bridges the financial gap between
the date of shipment and actual receipt of payment from overseas buyer thereof.
Whereas the finance provided after shipment of goods is called post-shipment
finance.

DEFENITION: Credit facility extended to an exporter from the date of shipment of

goods till the realization of the export proceeds is called Post-shipment Credit.

The features of post shipment finance are:

Purpose of Finance: Post shipment finance is meant to finance export sales
receivable after the date of shipment of goods to the date of realization of exports
proceeds. In cases of deemed exports, it is extended to finance receivable against
supplies made to designated agencies.

Basis of Finance: Post shipment finances are provided against evidence of shipment
of goods or supplies made to the importer or seller or any other designated agency.

IMPORTANCE OF FINANCE AT POST-SHIPMENT STAGE:

 To pay to agents/distributors and others for their services.

 To pay for publicity and advertising in the overseas markets.

 To pay for port authorities, customs and shipping agents charges.

 To pay towards export duty or tax, if any.

 To pay towards ECGC premium.

 To pay for freight and other shipping expenses.

 To pay towards marine insurance premium, under CIF contracts.

 To meet expenses in respect of after sale service.

 To pay towards such expenses regarding participation in exhibitions and trade

54
fairs in India and abroad.

55
  To pay for representatives abroad in connection with their stay board.

Types of Post Shipment Finance:

The post shipment finance can be classified as:

1. Export Bills purchased/discounted.

2. Export Bills negotiated
3. Advance against export bills sent on collection basis.
4. Advance against export on consignment basis
5. Advance against undrawn balance on exports
6. Advance against claims of Duty Drawback.

1. Export Bills Purchased/ Discounted.(DP & DA Bills): Export bills (Non L/C
Bills) is used in terms of sale contract/ order may be discounted or purchased by the
banks. It is used in indisputable international trade transactions and the proper limit
has to be sanctioned to the exporter for purchase of export bill facility.

2. Export Bills Negotiated (Bill under L/C): The risk of payment is less under the
LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank
guarantees the payments by confirming the LC. Because of the inborn security
available in this method, banks often become ready to extend the finance against bills
under LC. However, this arises two major risk factors for the banks:

1. The risk of nonperformance by the exporter, when he is unable to meet his

terms and conditions. In this case, the issuing banks do not honor the letter
of credit.
2. The bank also faces the documentary risk where the issuing bank refuses to
honor its commitment. So, it is important for the for the negotiating bank,
and the lending bank to properly check all the necessary documents before
submission.

56
3. Advance Against Export Bills Sent on Collection Basis: Bills can only be sent on
collection basis, if the bills drawn under LC have some discrepancies. Sometimes
exporter requests the bill to be sent on the collection basis, anticipating the
strengthening of foreign currency.
Banks may allow advance against these collection bills to an exporter with a
concessional rates of interest depending upon the transit period in case of DP Bills
and transit period plus since period in case of since bill.
The transit period is from the date of acceptance of the export documents at the
bank’s branch for collection and not from the date of advance.

4. Advance Against Export on Consignments Basis: Bank may choose to finance

when the goods are exported on consignment basis at the risk of the exporter for sale
and eventual payment of sale proceeds to him by the consignee. However,
in this case bank instructs the overseas bank to deliver the document only against trust
receipt /undertaking to deliver the sale proceeds by specified date, which should be
within the prescribed date even if according to the practice in certain trades abill for
part of the estimated value is drawn in advance against the [Link] case of export
through approved Indian owned warehouses abroad the times limit for realization is
15 months.

5. Advance against Undrawn Balance: It is a very common practice in export to

leave small part undrawn for payment after adjustment due to difference in rates,
weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance
is in conformity with the normal level of balance left undrawn in the particular line of
export, subject to a maximum of 10 percent of the export value. An undertaking is
also obtained from the exporter that he will, within 6 months from due date of
payment or the date of shipment of the goods, whichever is earlier surrender balance
proceeds of the shipment.

6. Advance Against Claims of Duty Drawback: Duty Drawback is a type of

discount given to the exporter in his own country. This discount is given only, if the
in house cost of production is higher in relation to international price. This type of
financial support helps the exporter to fight successfully in the international markets.

57
In such a situation, banks grants advances to exporters at lower rate of interest for a
maximum period of 90 days. These are granted only if other types of export finance
are also extended to the exporter by the same bank. After
the shipment, the exporters lodge their claims, supported by the relevant documents
to the relevant government authorities. These claims are processed and eligible
amount is disbursed after making sure that the bank is authorized to receive the claim
amount directly from the concerned government authorities.

7. 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.

8. Post-shipment Export Credit Guarantee and Export Finance Guarantee:

Past- 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 risk.
Export Finance Guarantee covers post-shipment advances granted by banks to
exporters against export incentives receivable in the form of duty drawback, etc

9. Post-shipment Credit in Foreign Currency: The exporters have the option of

availing of export 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
since 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 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.

58
 CHAPTER NO 02
RESEARCH METHODOLOGY
This report is based on primary as well secondary data, however primary data
collection was given more importance since it is overhearing factor in attitude
[Link] of the most important users of research methodology is that it helps in
identifying the problem, collecting, analyzing the required information data and
providing an alternative solution to the problem .It also helps in collecting the vital
information thatis required by the top management to assist them for the better
decision making both day to day decision and critical ones.

Data sources:
Research is based on primary data as well as Secondary data. Secondary data can be
used only for the reference. Research has been done by primary data collection, and
primary data has been collected by interacting with various people. The secondary
data has been collected through various journals and websites.

Sampling:
 Sampling procedure: The sample was selected of them who are the person
which does the Exports of goods at regular basis. It was collected through
personal visits to persons, by formal and informal talks and through filling up
the questionnaire prepared. The data has been analyzed by using
mathematical/Statistical tool.

 Sample size: The sample size of my project is limited to 30 people only. Out
of which only 20 people had made Exports of Goods. Other 10 people did not
made any Exports of Goods.

 Sample design: Data has been presented with the help pie charts.

59
Limitation:

 Some of the persons were not so responsive.

 Possibility of error in data collection because many of Exports may have not
given actual answers of my questionnaire
 Sample size is limited to 30 persons
 Out of these only 20 persons made exports of goods. The sample. Size may
not adequately represent the whole market.
 Some respondents were reluctant to divulge personal information which can
affect the validity of all responses.
 The research is confined to a certain part of Mumbai.

Objectives:
 To know / study the challenges of Export Finance in India.
 To study the importance of Letter of Credit in Export Finance.
 To analyze the different types of bank guarantees available for Exporters.

60
 CHAPTER NO 03
LITERATURE REVIEW
Finance is the element that helps in the creation of new businesses and expansion of
the existing ones thereby allowing them to take advantage of opportunities to grow,
employ local labor and support the government through the payment of income
taxes. In this direction, the efficient use of financial instruments, such as loans, is key
to the success of every business. Financial support is considered a fundamental
resource for exporting. MSMEs on account of the emergence and prevalence of
ingenious non- price competitive techniques encountered by exporters in various
countries to enlarge their share of world markets (Ram and Garg, 2013). Hence,
financial resources are considered one of the most important elements for research
on MSMEs resources and strategies (Borch, Huse and Senneseth, 1999).
For exporters, finance is all the more crucial as exporting involves selling and
shipping in overseas markets, therefore, it takes longer to get paid. Extra time and
energy is required to make sure that buyers are reliable and creditworthy. Also,
foreign buyers
- just like domestic buyers - prefer to delay payment until they receive and resell the
goods. Due diligence and careful financial management can make the difference
between profit and loss in each transaction. Exporters require financing resources for
many reasons: for the working capital through trade credit, to run their export
business, to manufacture or acquire goods to fill an order, and to reduce their cash
cycle, anticipating revenues after shipping goods, as firms often sell on credit and
have to wait to obtain payments at maturity (Kawas 1997). As per Zahra et al (2000)
it is important to understand how MSMEs access the financial capital, particularly
exporting MSMEs. As for them it is very important because entering international
markets requires substantial finance resources.
According to OECD (2006) inadequate access to external finance is an essential
barrier faced by SMEs in many countries, especially by exporter firms. As per OECD,
the capacity to internationalize is often dependent on the accessible financing,
especially for new exporters, because owners’ personal finances are usually limited.
Also, MSMEs are in general more informational opaque than larger firms, due to the
differences in asymmetric information, therefore, these types of enterprises rely more
on banks and trade credits for financing (Bartholdy and Mateus, 2008). Therefore, it is
61
important to understand how MSMEs acquires the financial capital, particularly
exporting units. Beck et al. (2008) argue that firms with larger financing needs are

62
more probable to rely on different sources of external finance. Study examined
financing source as the proportion of investment financed by external sources: bank
debt (includes financing from domestic as well as foreign banks), equity, leasing,
supplier credit, development banks (including finance from both development and
public sector banks), or informal sources. Riding et al. (2012) too examined different
sources of financing: external financing, external equity capital, external debt capital
and trade credit, to reveal that growth-oriented exporter enterprises are more likely to
apply for financial capital.
Berger and Udell (1998) stated that firms’ growth cycle influences its sources of
finance. Considering small firms with high growth, venture capital, trade credit, short
and intermediate-term financial institution loans are the most typical sources of
finance used. Taking medium-sized firms and large firms in account, public equity,
commercial paper, medium term notes and public debt are more often used. Cavusgil
(1984) and Tannous (1997) too show that financial needs depending on which stage is
exporting firms. In early stages, financial export activities more at risk, for example
the higher risk of payment from foreign buyers and the lack of international
experience, and therefore, they seek venture capital rather traditional financing. On the
other hand, in committed/advanced stages, export activities require large investments
in working capital and, usually, bank loans are the major sources of credit of MSMEs.
Moreover: since payment from firms in other countries involves aspects of uncertainty
much higher than those faced by local firms, credit risk becomes more of a hindrance.
That is why, since the financial crisis of 2008, firms have begun using trade finance
instruments to mitigate the risk inherent to exports. IMF (International Monetary
Fund)refers to the importance of letter of credit (letters of credit are used primarily in
international trade for large transactions between a supplier in one country and a
customer in another), export credit insurance, trade-related lending, trade credit and
the products promoted bymultilateral development banks (MDBs).
This study deals with two major constructs: ‘Firm’s Export Performance’ and
‘Export Financing Resources’. This section describes briefly the theoretical
underpinning of the two as mentioned in the previous literature in this field. Firm’s
export performance can be defined as - “the extent to which a firm’s objectives (both
economic and strategic) for exporting a product into a foreign market are achieved
through the planning and execution of export strategy” (Cavusgil and Zou, 1994).

63
Researchers have largely focused their attention on three major export performance

64
dimensions which incorporate important management areas. The first is the financial
performance of the exporting activity which includes the use of such indicators like
export sales, export sales growth, and export profitability (Madsen, 1987; Soham,
1998; Chunga, 1993, 1997, 1998), etc. The second dimension is based on capturing
the strategic outcome of exporting (Singh and Chunga, 2013, 2013a, 2013b). The key
idea of this method is that firms often have a set of strategic goals in exporting which
they desire to fulfill using various capabilities and resources available at their
disposal (Cavegirl and Zou, 1994). The third is the use of perceptual dimension
measuring the satisfaction derived from exporting. The logic behind this is that
satisfaction with export operations is a strong indication of management’s booming
spell in exporting (cavegirl and Zou, 1994). The present study adopts ‘Perceived
Export Profitability’ (the ratio of net profits to total sales in the financial statement of
exporting firms) measured subjectively on a five-point scale, as the measure of
firm’s export performance.
The second construct, ‘Export Financing’ refers to the firms’ resource that enables
them to compete effectively in overseas markets. For instance, at the pre-shipment
stage, financing facilitates the purchase or production of goods, while at the post-
shipment stage; financing is required as overseas buyers generally pay on a deferred
basis (Ling-yee and Ogunmokun, 2001). Sufficient export finance also helps in
building production capacity of the firms and creating economies of scale that makes
the exporter compete effectively on price factors against competitors (Kats keas,
1994). Similarly, finance also aids in employing sufficient staff in specialized export
functions and utilizing modern technology and equipment that further enables the
exporter to effectively compete on the non-price factors as well, against rivals in
global markets (Piercy et al, 1998).

65
 CHAPTER NO 04
DATA ANALYSIS & INTERPRETATION
Q.1) ARE YOU AWARE ABOUT THE EXPORT FINANCE?

ANS: [Link]
2. NO
3. OTHERS

RESULTS
10.00%

YES
50.00% NO
OTHERS
40.00%

ANALYSIS:
50.00 % People are aware about the Export Finance.
40.00 % People are not aware about the Export Finance.
10.00 % People are those who are belongs to others category.

INTERPRETATION:
This suggested that the half people know the concept of Export Finance.

66
Q.2) DO YOU AGREE THAT EXPORT OF GOODS IS BETTER THAT
IMPORT OF GOODS?

ANS: 1. YES

2. NO
3. OTHERS

RESULTS
0.00%

10.00%

YES
NO
OTHERS

90.00%

ANALYSIS:
90.00% People are agree that the Export of goods is better than Import of
goods. 10.00% People are not agree that Export of goods is better than Import
of goods. 00.00% People are belongs to the others category.

INTERPRETATION:
This depicts that majority of people are thinks that Export of goods is better than
Import of goods.

67
Q.3) DO YOU AGREE THAT EXPORTS WILL INCREASES COUNTRY’S
ECONOMIES?
ANS: 1. YES

2. NO
3. OTHERS

RESULTS
0.00%
10.00%

YES NO
OTHERS

90.00%

ANALYSIS:
90.00% of people agree that exports will increase the countries’ economies.
00.00% of peoples are not agrees that exports will increase the countries’ economies.
10.00% of people are belongs to others category.

INTERPRETATION:
This depicts that majority of the people thinks that the Export will increase the
countries’ economies.

68
Q.4) DO YOU THINK THAT TRADE FINANCE AND EXPORT FINANCE
BOTH ARE SIMILER CONCEPTS?
ANS: [Link]

2. NO
3. OTHERS

RESULTS

10.00%
20.00%

YES
NO
OTHERS

70.00%

ANALYSIS:
20.00% of the people’s are thinks that Trade Finance and Export Finance both are
similar concepts.
70.00% of the people’s are thinks that Trade Finance and Export Finance both are not
similar concepts.
10.00% of the people’s are belongs to the others category.

INTERPRETATION: This depicts that majority of the people thinks that Trade
Finance and Export Finance both are not similar concepts.

69
Q.5) THERE IS ANY GST ON EXPORTS OF GOODS?

ANS: 1. YES

2. NO
3. OTHERS

Sales
10.00%

40.00%
YES NO
OTHERS
50.00%

ANALYSIS:
40.00% of the people are thinks that the GST on Exports of goods.
50.00% of the people are thinks that the there is no GST on Exports of goods.
10.00% of the people are belongs to the others category.

INTERPRETATION: This depicts that majority of the people are thinks that there
is no GST on Exports of Goods.

70
Q.6) WHICH TYPE OF METHOD WILL YOU PREFER FOR EXPORTS OF
GOODS?
ANS: 1. DIRECT EXPORTING
2. INDIRECT EXPORTING
3. OTHERS

RESULTS
0.00%

20.00%

YES NO
OTHERS

80.00%

ANALYSIS:
80.00% of the people’s will prefer the Direct Exporting method for Exports of goods.
20.00% of the people’s will prefer the Indirect Exporting method0 for Exports of
goods.
00.00% of the people’s are belongs to the others category.

INTERPRETATION: This depicts that many people’s will prefer the Direct
Exporting method for exporting of goods.

71
Q.7) WHICH TYPE OF TRASPORTATION SERVICE WILL YOU PREFER
WHILE EXPORTS OF GOODS?

ANS: 1. SEA TRANSPORTATION

2. AIR TRASNPORTATION
3. OTHERS

RESULTS

22.22%

YES
44.44%
NO
OTHERS

33.33%

ANALYSIS:
44.44% of people will prefer Sea Transportation while Exports of goods.
33.33% of people will prefer Air Transportation while Exports of goods.
22.22% of people will prefer others Transportation while Exports of goods.

INTERPRETATION: This depicts that people will prefer both types of the
Transportation. It is almost similar percentage I got from the people.

72
Q.8) DO YOU AGREE THAT EXPORTS OF GOODS IS BENIFICIAL FOR
EXPORTERS?

ANS: 1. YES

2. NO
3. OTHERS

0.00%
RESULTS

10.00%

YES
NO
OTHERS

90.00%

ANALYSIS:
90.00% of the people agree that the exports of goods are beneficial for the
exporters. 10.00% of the people agree that the exports of goods are beneficial for
the exporters. NO people are belong to the others category.

INTERPRETATION: This depicts that majority of the people agrees that

the Exports of goods are beneficial for Exporters.

73
Q.9) DO YOU AGREE THAT EXPORTING OF AGRICULTURAL
PRODUCT IS MAIN REASON FOR INCREASES IN INDIAN ECONOMIES?

ANS: 1. YES

2. NO
3. OTHERS

RESULTS
0.00%

33.33%
YES NO
OTHERS

66.67%

ANALYSIS:

66.67% of the people agree that the Exporting of Agricultural products is main reason
for increases the Indian Economies.
33.33% of the people agree that the Exporting of Agricultural products is main reason
for increases the Indian Economies.
NO people belongs to the others category.

INTERPRETATION: This depicts that majority of the people agrees that the
Exporting of the Agricultural products is main reason for the increase Indian
Economies.

74
Q.10) DO YOU AGREE THAT INDIA IS THE LARGEST EXPORTS OF
GOODS COUNTRY IN THE WORLD?

ANS: 1. YES

2. NO
3. OTHERS

RESULTS
11.11%

33.33%
YES NO
OTHERS
55.66%

ANALYSIS:
33.33% of the people agree that the India is the largest exports of goods country in the
world.
55.66% of the people agree that the India is the India is the largest exports of goods
country in the world.
11.11% of people belongs to the others category.

INTERPRETATION: The figure depicts that the majority of the people agrees that the
India is not India is the largest exports of goods country in the world.

75
CHAPTER NO 05: FINDINGS, SUGGESTION & CONCLUSION
As per the data analysis & interpretation:
A) 50.00 % People are aware about the Export Finance.
40.00 % People are not aware about the Export Finance.
10.00 % People are those who are belongs to others category.

B) 90.00% People are agree that the Export of goods is better than Import of
goods. 10.00% People are not agreeing that Export of goods is better than Import
of goods. 00.00% People are belongs to the others category.

C) 90.00% of people agree that exports will increase the countries’ economies.
00.00% of people are not agreeing that exports will increase the countries’
economies.
10.00% of people are belongs to others category.

D) 20.00% of the people’s are thinks that Trade Finance and Export Finance both are
similar concepts.
70.00% of the people’s are thinks that Trade Finance and Export Finance both are not
similar concepts.
10.00% of the people’s are belongs to the others category.

E) 40.00% of the people are thinks that the GST on Exports of goods.
50.00% of the people are thinks that the there is no GST on Exports of
goods. 10.00% of the people are belongs to the others category.

F) 80.00% of the people’s will prefer the Direct Exporting method for Exports of
goods.
20.00% of the people’s will prefer the Indirect Exporting method0 for Exports of
goods.
00.00% of the people’s are belongs to the others category.

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G) 44.44% of people will prefer Sea Transportation while Exports of
goods. 33.33% of people will prefer Air Transportation while Exports of
goods. 22.22% of people will prefer others Transportation while Exports
of goods.

H) 90.00% of the people agree that the exports of goods are beneficial for
the exporters.
10.00% of the people agree that the exports of goods are beneficial for the exporters.
NO people are belong to the others category.

I) 66.67% of the people agree that the Exporting of Agricultural products is main
reason for increases the Indian Economies.
33.33% of the people agree that the Exporting of Agricultural products is main reason
for increases the Indian Economies.
NO people belongs to the others category.

J) 33.33% of the people agree that the India is the largest exports of goods country in
the world.
55.66% of the people agree that the India is the India is the largest exports of goods
country in the world.
11.11% of people belongs to the others category.

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SUGGESTION AND RECOMENDATION:

The most vital problem spotted is of ignorance. Export should be made aware of the
benefits. Nobody will Export until and unless he is fully convinced. Exporter should
be made to realize that ignorance is no longer bliss and what they are losing by not
Exporting of goods.
If the Ministry of Finance wants to ensure that only neutralization of duty takes place,
and no subsidy is given, then this is a good method to neutralize the customs duty paid
on imported raw-materials which are used in the manufacture of goods that are finally
exported. This has the benefit of being amenable to implementation without much of a
formality and it is easy to administer by the Ministry of Finance alone.
There are a large number of export-oriented schemes such as Drawback, Duty
Entitlement Pass Book (DEPB), Export Promotion Capital Goods (EPCG), Advance
Authorization Scheme (DEEC), Duty Free Import Authorization Scheme (DFIA),
Rule 18 & 19 of Central Excise Rules and many more.
The idea is to relieve the goods of the burden of indirect tax. None of the schemes
officially gives any subsidy, though DEPB actually does. WTO permits only zero
rating of export goods. For that purpose, only for customs duty, a very straightforward
blanket exemption in customs can serve the purpose. The modality will be the
following:
In Customs Tariff, there are already exemptions for allowing duty free import for
manufacture of goods for indigenous market on the fulfillment of condition No. 5 that
is as follows: "If the importer follows the procedure set out in the Customs (Import of
Goods at Concessional Rate of Duty for manufacture of Excisable Goods) Rules,
1996." These Rules provide that the importer has to declare and give a bond to the
Central Excise Officers in control of the factory where the manufacture takes place.
The officers have to be shown proof that the goods have actually been manufactured.
One existing example is relating to bulk drugs imported and used in manufacture of
life saving drugs or medicine sold domestically.
All that I am suggesting is to extend the same procedure for export also. The
manufacturer will be required to follow the same existing SION, fixed by the
Commerce Ministry and satisfy the Central Excise Officers that the goods have been

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exported to the extent manufactured on the basis of this SION. The manufacturer has
only to show the shipping bills after export to the factory officers, who would then
discharge the bond.
Thus, by merely extending the existing system of end use exemption to the exporters,
the same purpose would be achieved which is now done by granting license and
following other formalities in DEEC scheme (now Advance Authorization).
So, the Advance Authorization and the DFRC (now Replenishment License) can be
abolished as they will be superfluous. This will be a simple scheme solely operated by
the Department of Revenue. Exporters do not have to switch between the finance and
commerce ministries.
This scheme, however, does not replace other schemes such as DEPB or Drawback
because the latter are for both Customs and Excise duties together. The proposed
exemption is only for Customs duty.

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Helped me to reorganize that the how the export finance are to be developed and the
how it is manage in the systematic manner. This may be attributed to the facts that the
exports of goods are to be better than the import of goods. So many people know the
concepts about the export finance in India. This report indicates that the exports of
goods to foreign country will help to increases the countries’ economies. It means that
the exports will boost the Indian economies as per the report. Maximum people are
wants to using the service of the export finance. There are many types of thee services
for the customers.

The very big fact is that the people not aggress that the India is the largest exports of
goods country in the world that’s the big report that we found as per the research
project and the data analysis. This makes the country more knowledgeable and
stronger. This report also state that the Exports the agricultural products to the foreign
country that’s the main reason to increases the Indian economies and it’s the positive
sign for our country that the our agricultural are more demanded in foreign country.
That’s that big positive sign for our farmers and the percentage of this exports is
increases every year.

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CHAPTER NO 06: BIBLIOGRAPHY:

1) WWW. EXPORT FINANCING [Link]

2) WWW. INDIAN EXPORT FINANCE INSTITUTONAL [Link]

3) [Link]

4) EXPORT FINANCE RESEARCH [Link]

5.) [Link]

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