Normally people have questions relating to exports and export finance. They have many questions but they could not ask all the questions at a time. So for those here is the complete details for export business in India.
- How can I get an order from another country?
- Which are the countries with whom doing business is safe and secure?
- What are the types of items which are good moving (produced in India) in foreign markets?
- How would I do sourcing?
- Can I get any help in finance from Government?
Answer:
EXPORT FINANCE
Normally this finance are in terms of credit guarantee or credit limits and advance payments.
Here is the details and procedure of export finance.
This article will provide you entire information about export finance.
RBI assures:
- Timely finance assistance.
- Interest rates should be cheaper.
Different types of Exports (From the viewpoint of Banker)
1. Cash exports: payment here is received within 6 months from the date of shipment.
2. Project Exports:
- Exports of capital goods on deferred payment (beyond 6 months)
- Civil construction abroad.
- Turnkey projects.
- Service exports / consultancy services abroad.
3. Deemed Exports: A Supplier to advance license holder or SEZ or EOU are known as deemed exporters.
4. Software Exports:
- On-site software development.
- Offshore projects.
- Branded software sales.
- customized projects: foreign company floating tenders and Indian software engg. Develops projects (tailor made / customized projects)
Different types of exporters (From the viewpoint of Banker)
- Manufacturer exporters
- Merchant exporters.
- EOUS / Units operating under EPZs / SEZs
- Status holder exporters.
Export Finance is a short term, working capital finance allowed to an exporter. An exporter may need financial assistance for execution of an export order from the date of receipt of an export order till the date of realization of the export proceeds at any stage. Financial assistance extended to the exporter from the date of receipt of export order till the date of shipment is known as pre-shipment credit.
Pre-shipment finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports.
- Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as post-shipment credit.
- Interest for availing Pre-shipment finance is charged at PLR (Prime Landing Rate) in case of Indian Rupee currency loan.
- Conditions for availing packing credit loan
1. sanctioning of the loan amount depends upon every bank as per their relationship with their clients. Banks can sanction upto 100% of the pre-shipment finance. Generally banks avoid doing that. It sanctions around 80% finance.
2. Maximum Period: Till the date of shipment / date of submission of the documents OR up to a maximum period of 180 days from date of loan whichever is earlier.
3. Extension of 90 days: (180 days + 90 Days = 270 Days): if the exporter can’t ship the goods then, further extension up to 90 days is given at concessional rate of interest.
4. Beyond 270 days: Packing credit can continue but at no concessional rate of interest.
Interest rate slabs
| Description |
Slab |
Rupee Loan |
PCFC |
| 1 – 180 Days |
1st Slab |
PLR – 2.5 % (Max) |
LIBOR + .75B.P |
| 181 – 270 days |
2nd Slab |
PLR – 0.5 % (Max) |
LIBOR + .75bp+ 2% |
| Beyond 270 days |
No Extension (in terms of discount percent) is granted |
E.g. if an exporter has availed loan for 240 days then for 1 – 180 days à interest rate = PLR -2.5% & 181 days to 240 days – Interest rate = PLR – 0.5%
Types of Pre-shipment finance:
i. Extended Packing Credit Loan (PCL): it is granted to the clients (exporters) for the advance payment to the suppliers to acquire goods to be exported. Thus, it is specific and simple and is usually extended to only those parties who are rated as first class, for a very short duration. Bank should assess the acquiring period and once the goods are acquired it is converted as the mortgage as PCL hypothecation.
ii. Packing Credit loan (Hypothecation): It is extended where the raw goods, goods which are in progress and ready made for exports. The processing may be undertaken by the exporter only in his/her factories or through sub-contractors unit.
iii. Packing Credit Loan (Pledge): The PCL is granted as loan in the form of pledge in cases where exporters have to collect / raw material, which is seasonal and available sometimes only in a year and the exports take place in installment as the shipping timings and order agreed by the overseas parties.
iv. Secured shipping loan: Once the goods are prepared for shipment, and exporter/supplier has transfered the goods to the C&F agent for dispatchment the advances can be given as secured shipping loan. Here bank ensures that the goods are transfered to approved C & F agents.
DOCUMENTS REQUIRED for the finance: The following documents are required with application for for packing credit loan.
- Confirmed export order, contract order, or L/C etc original. This undertaking is required only where the exporter wants to aquire packing credit in advance against advanced information of contract while at the later stage the contract or L/C may be will be received by him.
- An undertaking that the advances will be used only for the specific purpose of procuring & manufacturing the raw materials and finished goods.
- Audited reports of past 3/5 years.
- Copies of RBI’s Exporter’s code number (CNX)
- Appropriate guarantee of the ECGC.
- Any other document required by the bank.
PCL is generally sanctioned on secured basis. However, clean packing advances may also be sanctioned. In such cases, rules related to submission of stock statements and insurance would have to be complied with.
Loan agreement: Before sanctioning the loan, the banks require the exporter to prepare a formal “loan agreement.” The format of this document defers with banks.
Who is eligible for pre-shipment credit?
An exporter, who holds an export order, or Letter of Credit (LC) on his own name to perform the export contract can avail of pre-shipment credit.
How much financing do banks give to an exporter?
The banks normaly practise is that the exporter can obtain only 90% of the F.O.B value of the order or 75% of the C.I.F value of the order.
A manufacturer who is an exporter and dealing in any of the notified item is able to get the packing credit at concessional R.O.I up to 365 days. RBI has listed 10 products and 43 countries to implement above concern.
POST-SHIPMENT FINANCE
- Post-shipment finance is a kind of a loan and advance money sanctioned by a bank to the exporter from India. This facility is provided to an exporter after the date of shipment of goods till the date of realization of payment from overseas party.
- Some key features of post-shipment finance are as follows:
- This finance is extended against evidence of shipping documents.
- This finance provides working capital to the exporter from the date of shipment to the date of realization of export payments.
- Concussive R.O.I is available for the maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are submitted within 21days from the date of shipment.
- 0-90 days – Ist slab – PLR – 2.5% / LIBOR + 0.75 BP
- 91-180 days – IInd slab – PLR – 0.5% / LIBOR +0.75 + 2 BP
The quantum of this finance
Post shipment finance can be extended upto 100% of the invoice value of goods.
EXPORT FINANCING INSTITUTIONS
In India, export finance is undertaken by COMMERCIAL BANKS as well as by FINANCIAL INSTITUTIONS.
Following are the institutions, which are directly or indirectly concerned with export financing:
- Commercial Banks
- Exim Bank of India
- SIDBI
- RBI
- EPC
If you have any questions or queries, you can ask your questions.
EXPORT FINANCE
Here is the details and procedure of export finance.
This article will provide you entire information about export finance.
RBI assures:
Ø Timely finance assistance.
Ø Interest rates should be cheaper.
Different types of Exports (From the viewpoint of Banker)
1. Cash exports: payment here is received within 6 months from the date of shipment.
2. Project Exports:
v Exports of capital goods on deferred payment (beyond 6 months)
v civil construction abroad.
v Turnkey projects.
v Service exports / consultancy services abroad.
3. Deemed Exports: A Supplier to advance license holder or SEZ or EOU are known as deemed exporters.
4. Software Exports:
v On-site software development.
v offshore projects.
v Branded software sales.
v customized projects: foreign company floating tenders and Indian software engg. Develops projects (tailor made / customized projects)
Different types of exporters (From the viewpoint of Banker)
a. Manufacturer exporters
b. Merchant exporters.
c. EOUS / Units operating under EPZs / SEZs
d. Status holder exporters.
Export Finance is a short term, working capital finance allowed to an exporter. An exporter may need financial assistance for execution of an export order from the date of receipt of an export order till the date of realization of the export proceeds at any stage. Financial assistance extended to the exporter from the date of receipt of export order till the date of shipment is known as pre-shipment credit. Pre-shipment finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. It is also known as “Packing Credit” facility.
Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as post-shipment credit.
Interest for availing Pre-shipment finance is charged at PLR (Prime Landing Rate) in case of Indian Rupee currency loan.
Conditions for availing packing credit loan
1. sanctioning of the loan amount depends upon every bank as per their relationship with their clients. Banks can sanction upto 100% of the pre-shipment finance. Generally banks avoid doing that. It sanctions around 80% finance.
2. Maximum Period: Till the date of shipment / date of submission of the documents OR up to a maximum period of 180 days from date of loan whichever is earlier.
3. Extension of 90 days: (180 days + 90 Days = 270 Days): if the exporter can’t ship the goods then, further extension up to 90 days is given at concessional rate of interest.
4. Beyond 270 days: Packing credit can continue but at no concessional rate of interest.
Interest rate slabs
|
Description
|
Slab
|
Rupee Loan
|
PCFC
|
|
1 – 180 Days
|
1st Slab
|
PLR – 2.5 % (Max)
|
LIBOR + .75B.P
|
|
181 – 270 days
|
2nd Slab
|
PLR – 0.5 % (Max)
|
LIBOR + .75bp+ 2%
|
|
Beyond 270 days
|
No Extension (in terms of discount percent) is granted
|
E.g. if an exporter has availed loan for 240 days then for 1 – 180 days à interest rate = PLR -2.5% & 181 days to 240 days – Interest rate = PLR – 0.5%
Types of Pre-shipment finance:
i. Extended Packing Credit Loan (PCL): it is granted to the clients (exporters) for making advance payment to the suppliers for acquiring goods to be exported. Thus, it is clean in nature and is usually extended to the parties who are rated as first class, for a very short duration. However, bank should assess the procurement period and once the goods are acquired and are in the custody of the exporter client, convert the clean advance into PCL hypothecation.
ii. Packing Credit loan (Hypothecation): It is extended where raw materials, Work-in Progress and finished goods meant for export are available as security. The processing / manufacturing may be undertaken by the exporter himself or thru sub-contractors unit.
iii. Packing Credit Loan (Pledge): The PCL is granted as loan in the form of pledge in cases where exporters are required to collect / raw material, which is seasonal in nature and the exports take place in due course in installment as the shipping schedules agreed upon by the overseas buyers.
iv. Secured shipping loan: Once the goods are ready for shipment and exporter/supplier has handed over the goods to the clearing and forwarding agent for dispatch the advances can be granted as secured shipping loan. Here bank ensures that the goods are handled by approved transport operators / C & F agents.
DOCUMENTS REQUIRED: The following documents are to be submitted along with application form for packing credit.
v Confirmed export order / contract or L/C etc. in original. This undertaking is required where the exporter wants to avail him of packing credit advance against preliminary information of contract whereby at the later stage the contract or L/C, as the case may be, will be received by him.
v An undertaking that the advances will be utilized for the specific purpose of procuring / manufacturing etc..
v Where the exporter asking for the PCL is a sub-supplier and wants to supply the goods to the Export / Trading / Super Star Trading House stating that they have not / will not avail themselves of packing credit facility against the same transaction for the same purpose till the original packing credit is liquidated.
v Letter of hypothecation, partnership deed in case of partnership firm or Memorandum of Association, Articles of Association for public/private business.
v Audited reports of past 3/5 years.
v Copies of RBI’s Exporter’s code number (CNX)
v Appropriate guarantee of the ECGC.
v Any other document required by the bank.
v PCL is generally granted on secured basis. Nevertheless, clean packing advances may also be granted. Money advances are clean at their initial stage when goods are not yet acquired. Once the goods are acquired and are in the custody of the exporter, banks usually convert the clean advance into hypothecation. In such cases, rules regarding submission of stock statements and insurance would have to be complied with.
Loan agreement: Before disbursement of loan, the banks require the exporter to execute a formal “loan agreement.” The format of this agreement differs from bank to bank.
Who is eligible for pre-shipment credit?
An exporter who holds an export order or Letter of Credit (LC) in his own name to perform an export contract can avail of pre-shipment credit.
What is the purpose of this finance?
Pre-shipment finance can be availed of only for the specific purpose of procuring raw materials / purchasing / manufacturing / processing / transporting / warehousing / packing and shipping the goods meant for export.
How much financing can an exporter get?
The banking practice is that the exporter can obtain 90% of the FOB value of the order or 75% of the CIF value of the order.
A manufacturer exporter dealing in any of the notified item is eligible for packing credit at concessional rate of interest up to 365 days. RBI has enlisted 10 products and 43 countries to implement above case.
POST-SHIPMENT FINANCE
Post-shipment finance is a loan or advance granted by a bank to an exporter of goods from India. This facility is available to an exporter subsequent to the date of shipment of goods up to the date of realization of export proceeds. Post shipment finance bridges the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof.
Some key features of post-shipment finance are as follows:
v Finance is extended against evidence of shipping documents.
v Finance provides working capital to the exporter from the date of shipment to the date of realization of export proceeds.
v Concessive rate of interest is available for a maximum period of 180 days, starting from the date of submission of documents. Normally, the documents are to be submitted within 21days from the date of shipment.
v 0-90 days – Ist slab – PLR – 2.5% / LIBOR + 0.75 BP
v 91-180 days – IInd slab – PLR – 0.5% / LIBOR +0.75 + 2 BP
What is the quantum of this finance?
Post shipment finance can be extended upto 100% of the invoice value of goods.
Post-shipment finance can be further classified as under:
a. Export Bill Purchased (D / P Bills).
b. Export Bills discounted (D / A Bills).
Above two bills are Non – L/C Bills.
c. Export Bills negotiated (L/C Bills): An exporter can avail of post-shipment credit by drawing bills or drafts under the L/C. The bank insists on production of the necessary documents as stated in the L/C. If documents are in order, the bank negotiates the bill and advance is granted.
d. Advance against incentives / DBK: DBK means refund of custom duties paid on the import of raw materials, components and packing material used in the export product. Banks offer pre-shipment advances against claims for DBK. Banks offer pre-shipment as well as post shipment advances against claims for DBK.
e. Advances against goods sent on consignment basis: Banks may grant post-shipment advances against goods sent on consignment basis.
f. Advances against Retention Money: Banks advance against retention money, which is payable within one year from date of shipment.
EXPORT FINANCING INSTITUTIONS
In India, export finance is undertaken by COMMERCIAL BANKS as well as by FINANCIAL INSTITUTIONS.
Following are the institutions, which are directly or indirectly concerned with export financing:
Ø COMMERCIAL BANKS (SHORT TERM LOAN)
Ø EXIM BANK (MEDIUM & LONG TERM LOAN)
Ø SIDBI (LONG TERM LOANS TO EXPORTERS)
Ø RBI
Ø EXPORT CREDIT GUARANTEE CORPORATION (ECGC)
ROLE OF COMMERCIAL BANKS IN EXPORT FINANCE
Ø IT PROVIDES MAJOR PART OF FINANCE TO EXPORTERS
Ø ALSO PROVIDES OTHER FACILITIES AND SERVICES TO EXPORTERS.
Related Posts
Hello Sir,
Iam Snigdha from A.P in India.Iam interested in chocolate or biscuit manufacturing industry.Can u please guide me with the scope of such business.
I will be very happy to receive any other information apart from those in any field like Glass manufacturing,cement manufacturing, etc,. Im open to any prospects for that matter of succeeding a good small scale business.
Can u guide with the necessary information and the finance required for a small scale business and also the scope.
Looking forward for your reply.
Thank you
Aare Snigdha.
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Scott Wilson Reply:
May 8th, 2010 at 12:52 am
Mr. Aare,
There is a special column on this website which give every single information obout the small business and ideas. Here is the link
http://www.professionz.com/in/jobs-in-india/how-to-start-a-small-business.html
Just visit this page and read some comments, you will get enough information.
Thank you.
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Hi Mr. Wilson,
I’m into export and import business. I’ve the following products,
High quality 60% Centrifuged Latex
Iron scrap materials
Which finance I should apply for? Please guide me. I will be thankful to you and waiting for your reply.
You help every one and it is really good job you are doing.
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Scott Wilson Reply:
May 8th, 2010 at 7:42 pm
Mr. Gopinath,
You have the ready made materials for exporting. Now you need to find the customers so that you can export these products.
You should approach the EPCG of India which can help you to find trustworthy customers.
You should apply for only post shipment finance.
If you need any further assistance, you can ask your questions. We are here to guide you.
Thank you.
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Hello sir,
Basically i am M.sc graduate I would like to do the Export Business, i dn’t have any knowledge on this Export Business.But i have interest to do this Business. From today itself i started to gather the information on this.so plz guide me on this and respond for the below question.
1. What are the initial process need to fallow for this E.Buss.
2. what items that we can exports?.(from India)
3. Provide some URL’s to improve my knowledge on this.
Thanks in Advance
Raja
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Scott Wilson Reply:
May 12th, 2010 at 8:36 am
Mr. Raja,
To start an export business, you need to register your firm as an export enterprise and then you have to register your firm to get the IE no. which is Import Export no. Then you need to register with the export promotion council of India.
To get detailed information of what type of products etc., you should visit the EPC department of the government. They have their website as well with lots of information.
Thank you.
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Dear Sir,
I am Neha from gujarat.I want to start my export firm of cumin seeds, Red chillies,mustered and wheat.if you can plz guide do i have to have manufacturing unit or i can purchase from domestic market and sell it to forieng market? how should i start my business? what is the first step i have to take??
waiting for your reply.
Thank you
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Scott Wilson Reply:
May 15th, 2010 at 5:25 am
Ms. Neha,
You can have your manufacturing unit and you can purchase these stuff from the market as well. There is no compulsion on that.
The process, finance, documentation etc. are described in the other post of this same website. Just visit this link and you will get maximum details.
http://www.professionz.com/in/businesses-in-india/export-business-opportunity.html
If you need further assistance, please ask question in detail so that I can be in a better position to guide you.
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Dear Sir,
Thnak you so much for your reply.i went through the processes.
how much investment is required if i only purchase goods and sell it to foreign market?what are threats in this business? which countries imports such food items from india??
Plz plz reply.
Neha
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Scott Wilson Reply:
May 17th, 2010 at 12:12 am
Ms. Neha,
Investment depends upon the type of the goods which you are exporting. It is calculated on the basis of the market price of the goods.
As far as the threats are concerned, you should be very careful about the payment terms.
If you know the importer, then you may accept the D.A bill payment method. Otherwise, the letter of credit is the best way to do this.
New comers in this market should prefer the L.C only to get the payment.
If you need any further assistance, you can ask your questions.
Thank you.
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Neha Reply:
May 18th, 2010 at 2:55 am
Dear sir,
Thank you so much.
I am planing for commodities product or cotton as production of both the product is very good where i stay.
here there is one private institute running the course of export – import about 2 months and other institute organize workshop for 1 day. i think i should join 2 months course provide detail information.plz suggest me what should i do? what is the requirement of manpower initially and is there any websites where we can get the buyers??
Thank you
Neha Thakker
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Scott Wilson Reply:
May 18th, 2010 at 9:19 am
Ms. Neha,
If you want to step in to export business, you can surely take the course and learn the initial formalities about the same.
There are many websites where you can registere your self and start your business online. E-bay is the best for this option. You need to have an internet money transfer facility with some organization. That’s it.
If you want any further information, you can ask your question without any hesitation.
Thank you.
Dear Sir,
first i have to search the buyers or i have to get license and export code from concerned authority?? i have to arrange for packaging as brand name of my export firm?
Sir, its a great help and you are doing fantastic job providing info to people like me..
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Scott Wilson Reply:
May 21st, 2010 at 4:48 am
Ms. Neha,
First of all, you need to get license and then you need to get IE no. Then you need to register to EPC.
Then you need to get orders from the buyers. The packaging is the last step of exporting.
Thank you.
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Hi,
I want to start export business of footwear. Can you please suggest me where to find out buyers and what all legal documents I need to have to start the business. Where can I contact to start the business.
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Scott Wilson Reply:
May 25th, 2010 at 7:34 pm
Mr. Shrinath,
The documents you will require are IE no., registration from EPC, registration with export-import department of India.
You may search the business directories to find the buyers or you can approach to your personal contacts.
If you have some experience in this field, it would be great. Even this is not so late, you can get orders and start your business.
You can get list of buyers from the EPC’s register. EPC is Export Promotional Council which keeps a register and it helps the exporters to find the buyers.
Thank you.
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Hi, I m living in Melbourne, Australia. I want to do export business from India. I have few products in my mind which I can export from India to Aust. such as garments, jewelry. But I am still confused about what is the best product which I can export from India. If you can guide me with that and give me some initial steps of starting up small scale export business, it would be appreciated.
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AD Reply:
January 24th, 2011 at 12:52 pm
Hello DD,
Its been a year since I started my E-Commerce business. I basically build stores for eBay sellers in the USA. Now I have a set of clients in the USA & I am planning on starting an export business. If you are serious about exporting items please shoot an email & I shall respond.
Best Regards
AD
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Hi I am PNK, I want to start a business exports of garments. Can you suggest me which kind of things I require for it. I do not want manuf. garments I just want to trade it for export.
• From where I get buyers?
• How much investment require in this business.
• Is it possible to start with 1000,000 capital?
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Hello,
We own a Granite Quarry in MD. Many Granite companies purchases material from our quarry and exports the same to many countries.
Now, we would like to export ourselves to various countries overseas. Advice me on the further formalities/ requirements that need to be fulfilled by us to carry out a export business and also let me know how to market my quarry stones on international markets and how could I get a order/Responses from Various Granite Purchasers in International Market and how to get in touch with these clients.
Requesting to share your mail id and your Contact Details also for further clarifications if needed.
Thank you.
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Dear Sir,
I want to start my export firm of cumin seeds,wheat.if you can please guide me? Do I have to have manufacturing unit or I can purchase from domestic market and sell it to foreign market? how should i start my business? What is the first step I have to take?
waiting for your reply.
Thank you.
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Dear Sir,
For Export business you have given suggestion to many off. I want to clarify from you No 1. first register firm as an export enterprise. No 2. get IE no. No.3.registration of EPC., No4. Register with Export- import Dept., of India. Is the above said 4 steps suggested by you are absolutely required. If so kindly guide me Where I can register my firm as an export enterprise, and the need and benefits to register with Export-Import Department of India, since I have also come to do Export Business near future. I am expecting your valuable guidelines in this regard from you,by return reply to my mail as given above, at your earliest convenience
Thanks and Warm Regards
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Mr. Jitendra,
Today, in India, exports are getting a huge amount of support from the government. In union budget 2010-2011, around 100 millions of USD capital is drawn to help export business in India. So there are fantastic opportunities. The all you need for this is first of all, registration of your firm as an export unit, acquiring the IE no. then registering with EPC (Export Promotional Council).
These steps are musts to carry out an export business.
If you need any further guidance, you can surely ask your questions. We are always here to guide you.
Thank you.
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Mr. Sharma,
Do you want to know the entire process of export or some particular questions?
I would like to know your problem in detail, so please be specific in your question and I will definitely guide you.
Thank you.
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