financing of exports

04/10/2304/10/23 11

Workshop on Export ManagementWorkshop on Export Management

FINANCE AS A MARKETING TOOLFINANCE AS A MARKETING TOOLDepartment of Management StudiesDepartment of Management Studies

Sir M.Visvesvaraya Institute of Technology,Sir M.Visvesvaraya Institute of Technology,

BYBY

CA N.VENKATAKRISHNANCA N.VENKATAKRISHNAN

04/10/2304/10/23 22


Topics to be coveredTopics to be covered WHY FINANCING AS A MARKETING TOOL?WHY FINANCING AS A MARKETING TOOL? FINANCING OPTIONS FOR AN EXPORT ORDERFINANCING OPTIONS FOR AN EXPORT ORDER INSTITUTIONAL FRAMEWORK FOR EXPORT FINANCEINSTITUTIONAL FRAMEWORK FOR EXPORT FINANCE ROLE OF COMMERCIAL BANKSROLE OF COMMERCIAL BANKS ROLE OF EXIM BANKROLE OF EXIM BANK ISLAMIC BANKING METHODS FOR EXPORTSISLAMIC BANKING METHODS FOR EXPORTS CASE STUDY OF HMT-WATCHES –RANIBAG(UP)CASE STUDY OF HMT-WATCHES –RANIBAG(UP)

04/10/2304/10/23 33


WHY FINANCING AS A MARKETING TOOL?WHY FINANCING AS A MARKETING TOOL?

Finance is the bloodstream of any businessFinance is the bloodstream of any businessBusinesses are run to make profits and make moneyBusinesses are run to make profits and make moneyFinancing, Financial control, Financial Management, Financial Financing, Financial control, Financial Management, Financial Engineering, Financial Discipline etc are derivatives of Engineering, Financial Discipline etc are derivatives of FINANCE.FINANCE.

04/10/2304/10/23 44


Why is Financing a Marketing Tool?Why is Financing a Marketing Tool? Finance and Marketing are Interwoven for success Finance and Marketing are Interwoven for success

of any organization.of any organization. Evolution of Finance and Marketing functions.Evolution of Finance and Marketing functions. Effective Marketing per-se embraces effective use Effective Marketing per-se embraces effective use

of Financial resources leading to revenue/profit of Financial resources leading to revenue/profit maximization.maximization.

Concept of Revenue ManagementConcept of Revenue Management Optimizing revenues through effective MarketingOptimizing revenues through effective Marketing

04/10/2304/10/23 55


FINANCING OPTIONS FOR AN EXPORT ORDERFINANCING OPTIONS FOR AN EXPORT ORDER

Obtain 100% Advance PaymentObtain 100% Advance Payment Letter of creditLetter of credit Financial InstitutionsFinancial Institutions FactoringFactoring ForfaitingForfaiting

04/10/2304/10/23 66

Workshop on Export ManagementWorkshop on Export ManagementThe areas where finance would be essentially needed, after The areas where finance would be essentially needed, after

one obtains an export order will beone obtains an export order will be::

Procuring raw materials and components, and Procuring raw materials and components, and manufacturing the product. manufacturing the product.

Refinance facilities so as to get the proceeds of export Refinance facilities so as to get the proceeds of export bills at the time of negotiation of export benefits are bills at the time of negotiation of export benefits are realized. realized.

Refinance facilities for long-term credits offered for the Refinance facilities for long-term credits offered for the export of products.export of products.

04/10/2304/10/23 77


INSTITUTIONAL FRAMEWORK FOR EXPORT INSTITUTIONAL FRAMEWORK FOR EXPORT FINANCEFINANCE;;

1)Reserve Bank of India.1)Reserve Bank of India.

2)Commercial Banks.2)Commercial Banks.

3)Export Import Bank (EXIM BANK).3)Export Import Bank (EXIM BANK).

4)Export credit and Guarantee corporation 4)Export credit and Guarantee corporation (ECGC).(ECGC).

04/10/2304/10/23 88

Workshop on Export ManagementWorkshop on Export ManagementRole of RESERVE BANK OF INDIA;Role of RESERVE BANK OF INDIA;

1)As Central Bank of India, lays down policy frame 1)As Central Bank of India, lays down policy frame work and provides guidelineswork and provides guidelines

2)Refinances short and Medium term loans 2)Refinances short and Medium term loans respectively provided by commercial Banks/Exim respectively provided by commercial Banks/Exim bank.bank.

3) Rationalization and liberalization of export credit 3) Rationalization and liberalization of export credit interest rates, interest rates,

4)Flexibility in repayment/prepayment of pre-shipment 4)Flexibility in repayment/prepayment of pre-shipment credit, credit,

5)Special financial package for large value exporters, 5)Special financial package for large value exporters,

04/10/2304/10/23 99

Workshop on Export ManagementWorkshop on Export ManagementRBI-RBI-6)export finance for agricultural exports, 6)export finance for agricultural exports,

7)Gold Card Scheme for exporters etc.7)Gold Card Scheme for exporters etc.

8)Further, banks have been granted freedom by 8)Further, banks have been granted freedom by RBI to source funds from abroad without any RBI to source funds from abroad without any limit for exclusively for the purpose of granting limit for exclusively for the purpose of granting export credit in foreign currency, which has export credit in foreign currency, which has enabled banks to increase their lendings under enabled banks to increase their lendings under export credit in foreign currency substantially export credit in foreign currency substantially during the last three years.during the last three years.

04/10/2304/10/23 1010

Workshop on Export ManagementWorkshop on Export ManagementROLE OF COMMERCIAL BANKS;ROLE OF COMMERCIAL BANKS;

Facilities provided –Facilities provided –

Non- Fund BasedNon- Fund Based Letters of credit Letters of credit Bank GuaranteesBank Guarantees

Fund basedFund based Pre shipment FinancePre shipment Finance Post Shipment FinancePost Shipment Finance Project FinanceProject Finance

Limits are fixed by the banks for these facilitiesLimits are fixed by the banks for these facilities

04/10/2304/10/23 1111

Workshop on Export ManagementWorkshop on Export ManagementHow does LC workHow does LC workBuyer-------seller-----seller issues a Proforma Invoice---- Buyer-------seller-----seller issues a Proforma Invoice----

Buyer Goes to his bank (A)—opens LC in favour of Buyer Goes to his bank (A)—opens LC in favour of sellers Bank (B)---Bank A sends the LC to seller-on sellers Bank (B)---Bank A sends the LC to seller-on receiving the LC seller checks the LC to see whether it is receiving the LC seller checks the LC to see whether it is as per terms discussed and agreed-If OK, seller ships as per terms discussed and agreed-If OK, seller ships the goods as agreed.the goods as agreed.

Seller collects all relevant documents as mentioned in the Seller collects all relevant documents as mentioned in the LC and submits to his bank B---Bank B sends all LC and submits to his bank B---Bank B sends all documents to Bank A who opened the LC.----Bank A documents to Bank A who opened the LC.----Bank A checks all documents are as required under the LC and checks all documents are as required under the LC and makes payment to bank B who credits it to sellers makes payment to bank B who credits it to sellers account.account.

Bank A releases the documents to buyer who takes all the Bank A releases the documents to buyer who takes all the original documents and gets the goods cleared from the original documents and gets the goods cleared from the Air/sea freight agents.Air/sea freight agents.

04/10/2304/10/23 1212

Workshop on Export ManagementWorkshop on Export ManagementTypes of LCsTypes of LCs a) Irrevocable LCa) Irrevocable LC-- Irrevocable LC is one which cannot -- Irrevocable LC is one which cannot

be revoked or cancelled without the consent of the be revoked or cancelled without the consent of the beneficiary. This form of LC is generally used by beneficiary. This form of LC is generally used by Importers and Exporters Importers and Exporters

b)b)Confirmed LC--Confirmed LC-- is a LC which is confirmed by a third is a LC which is confirmed by a third bank, Sometimes the beneficiary wants the LC of buyers bank, Sometimes the beneficiary wants the LC of buyers bank to be confirmed by a bank in his countrybank to be confirmed by a bank in his country

c)c)Transferable LC—Transferable LC—In Transferable LC, the buyer can In Transferable LC, the buyer can transfer a part of the value of LC or the full value of LC in transfer a part of the value of LC or the full value of LC in favour of one or more beneficiaries. Transferability favour of one or more beneficiaries. Transferability should be expressed specifically in the LC. Since the should be expressed specifically in the LC. Since the buyer relies on the integrity of beneficiary, transferability buyer relies on the integrity of beneficiary, transferability in favour of someone unknown has risks.in favour of someone unknown has risks.

04/10/2304/10/23 1313

Workshop on Export ManagementWorkshop on Export Management d) d) Back to Back LCsBack to Back LCs—In back to back LCs, Beneficiary's —In back to back LCs, Beneficiary's

banks open several LCs within the value of the mother banks open several LCs within the value of the mother LC. This is also known as countervailing LCs.. The terms LC. This is also known as countervailing LCs.. The terms and conditions of the second LC are exactly the same as and conditions of the second LC are exactly the same as that of the first LC. The second LC may be a Domestic that of the first LC. The second LC may be a Domestic LC. Any change in the second LC is possible only when LC. Any change in the second LC is possible only when the opener of the original LC agrees to such a change in the opener of the original LC agrees to such a change in the mother LC.the mother LC.

e) e) Red clause LC—Red clause LC—In Red clause LC, advance payment In Red clause LC, advance payment is provided against the supply of certain documents like is provided against the supply of certain documents like drawings and manufacturing schedule as mobilization drawings and manufacturing schedule as mobilization advance for manufacture of capital goods whose advance for manufacture of capital goods whose manufacturing cycle time is high. The Advance payment manufacturing cycle time is high. The Advance payment details are printed in RED thereby being called Red details are printed in RED thereby being called Red clause LC.clause LC.

..

04/10/2304/10/23 1414

Workshop on Export ManagementWorkshop on Export Management f)f)Green clause LC—Green clause LC—In this type of LC ,advance is In this type of LC ,advance is

provided against goods, which are manufactured and provided against goods, which are manufactured and kept in a warehouse for a buyer against warehouse kept in a warehouse for a buyer against warehouse receipt, before the same is shipped.receipt, before the same is shipped.

g)g)Sight LC or DP LC—Sight LC or DP LC—Sight LC or Document against LC Sight LC or Document against LC means that as soon as the Bill of Exchange of seller is means that as soon as the Bill of Exchange of seller is presented to the buyer ,he should make payment for the presented to the buyer ,he should make payment for the same. And only then the documents would be handed same. And only then the documents would be handed over to the buyer. Thus no credit is given to the buyer.over to the buyer. Thus no credit is given to the buyer.

h)h)Usance LC OR DA LC –Usance LC OR DA LC –Usance LC or Documents Usance LC or Documents against Acceptance means that payment can be made against Acceptance means that payment can be made after a particular period from presentation of Bill of after a particular period from presentation of Bill of Exchange presented to him .By DA or Usance ,credit is Exchange presented to him .By DA or Usance ,credit is given to the buyergiven to the buyer

04/10/2304/10/23 1515

Workshop on Export ManagementWorkshop on Export ManagementBANK GUARANTEES;BANK GUARANTEES; Bid Bond Guarantee -Bid Bond Guarantee - Advance Payment Guarantee Advance Payment Guarantee Performance Guarantee Performance Guarantee Down Payment Guarantee Down Payment Guarantee Retention Money GuaranteeRetention Money Guarantee Maintenance GuaranteeMaintenance Guarantee

Overseas Borrowing GuaranteeOverseas Borrowing Guarantee

04/10/2304/10/23 1616


PACKING CREDIT;PACKING CREDIT;Pre shipment Finance-Pre shipment Finance- Provided to the exporter for purchasing raw materials, Provided to the exporter for purchasing raw materials,

processing them and converting them finished goods.processing them and converting them finished goods. It is a short term credit against exportable goodsIt is a short term credit against exportable goods Loans at a concessional rate and for a period of 180 Loans at a concessional rate and for a period of 180

days. Extendable for 90 days if need be and justified.days. Extendable for 90 days if need be and justified. Documents required;Documents required;

1)Export order copy/LC copy/contract copy, in original.1)Export order copy/LC copy/contract copy, in original.

2)Undertaking that loan will be used only for 2)Undertaking that loan will be used only for procuring/manufacturing and will be used for specific procuring/manufacturing and will be used for specific export orderexport order

3)Other documents as required by the Bank3)Other documents as required by the Bank

04/10/2304/10/23 1717

Workshop on Export ManagementWorkshop on Export ManagementADVANCE AGAINST DRAFTSADVANCE AGAINST DRAFTS Depending on the exporters standing ,the bank can provide Depending on the exporters standing ,the bank can provide

temporary finance against Draft received from the buyer as temporary finance against Draft received from the buyer as advance and adjust it against the proceeds when credited.advance and adjust it against the proceeds when credited.

PACKING CREDIT IN FOREIGN CURRENCY(PCFC)PACKING CREDIT IN FOREIGN CURRENCY(PCFC) Advance given in Foreign currency at concessional rate-Libor Advance given in Foreign currency at concessional rate-Libor

plus depending on the currencyplus depending on the currency In USD, Pound sterling, Japanese Yen, Euro etcIn USD, Pound sterling, Japanese Yen, Euro etc Risks associated with the currencies are that of exporters.Risks associated with the currencies are that of exporters.PC FOR DEEMED EXPORT AND CONSULTANCY SERVICESPC FOR DEEMED EXPORT AND CONSULTANCY SERVICESRUNNING ACCOUNT FACILITY-RUNNING ACCOUNT FACILITY-Even without lodgment of LC Even without lodgment of LC

or Firm order/contractor Firm order/contract Loan amounts depends on the export order and credit rating Loan amounts depends on the export order and credit rating

of the exporter. Generally will not exceed FOB value or their of the exporter. Generally will not exceed FOB value or their domestic value whichever is less.domestic value whichever is less.

Interest rate less than the PLR.Interest rate less than the PLR.

04/10/2304/10/23 1818


POST SHIPMENT FINANCE;POST SHIPMENT FINANCE; Loan or Advance or any other credit provided Loan or Advance or any other credit provided After shipment of Goods to date of realisation of proceeds.After shipment of Goods to date of realisation of proceeds.

VARIOUS TYPES OF POST SHIPMENT FINANCEVARIOUS TYPES OF POST SHIPMENT FINANCE Negotiation of Export documents-as per conditions and Negotiation of Export documents-as per conditions and

stipulations of LCstipulations of LC Purchase/Discount of Foreign Bills-Depends upon the Purchase/Discount of Foreign Bills-Depends upon the

creditworthiness of Exporter/buyer.-creditworthiness of Exporter/buyer.- Advance against Bills sent for collection-Post shipment finance Advance against Bills sent for collection-Post shipment finance

against bills sent on collection basis in the following cases;against bills sent on collection basis in the following cases; a) When the discount/purchasing limits have been exceededa) When the discount/purchasing limits have been exceeded b) when export bills drawn under L/C have discrepanciesb) when export bills drawn under L/C have discrepancies

04/10/2304/10/23 1919

Workshop on Export ManagementWorkshop on Export Management Advance against Export Incentives-Advance against Export Incentives-

The practice is to obtain a Power of Attorney from the The practice is to obtain a Power of Attorney from the exporter in the banks favour .It is then sent to the DGFT, exporter in the banks favour .It is then sent to the DGFT, Commissioner of Customs etc .Commissioner of Customs etc .

Advance against Retention Money-Advance against Retention Money-

Advance against money held by the customer.Advance against money held by the customer.

Post shipment credit in Foreign Currency-Post shipment credit in Foreign Currency- Credit granted under Rediscounting of Export Bills Credit granted under Rediscounting of Export Bills

Abroad Scheme. The rates are linked to LIBOR. The Abroad Scheme. The rates are linked to LIBOR. The advance is for 180 daysadvance is for 180 days

04/10/2304/10/23 2020

Workshop on Export ManagementWorkshop on Export Management PROJECT FINANCEPROJECT FINANCE;;

Conditions;Conditions;1)Commercial banks who are ADs in foreign exchange can 1)Commercial banks who are ADs in foreign exchange can

provide in principle clearance for contracts valued up toprovide in principle clearance for contracts valued up to Rs 25 crores. They can avail refinance from Exim Bank.Rs 25 crores. They can avail refinance from Exim Bank.

2)Exim Bank is empowered to give clearances for contracts 2)Exim Bank is empowered to give clearances for contracts of value of above Rs 25 crores up to Rs 100 crores.of value of above Rs 25 crores up to Rs 100 crores.

3) Above Rs 100 Crores,it would be cleared by a working 3) Above Rs 100 Crores,it would be cleared by a working group from all Institutions.group from all Institutions.

Normally allowed only for export of engineering goods, Normally allowed only for export of engineering goods, turnkey projects involving rendering of services like turnkey projects involving rendering of services like designing, civil construction etc.designing, civil construction etc.

04/10/2304/10/23 2121

Workshop on Export ManagementWorkshop on Export Management PROJECT FINANCE (contd)PROJECT FINANCE (contd) Exports of Engineering goods under Deferred payments-- contracts for Exports of Engineering goods under Deferred payments-- contracts for

export of goods and services against payment to be secured partly or export of goods and services against payment to be secured partly or fully BEYOND 180 days.fully BEYOND 180 days.

TURNKEY PROJECTS-These projects involve supply of equipment TURNKEY PROJECTS-These projects involve supply of equipment along with related services design, detailed engineering ,civil along with related services design, detailed engineering ,civil construction, erection and commissioning. (EPC CONTRACTS)construction, erection and commissioning. (EPC CONTRACTS)

CONSTRUCTION projects---involve civil works, steel structural works as CONSTRUCTION projects---involve civil works, steel structural works as well as equipment supply.well as equipment supply.

Technical and Consultancy service contracts-which include feasibility Technical and Consultancy service contracts-which include feasibility studies, project reports etc, Front End Engineering Design (FEED studies, project reports etc, Front End Engineering Design (FEED services). services).

04/10/2304/10/23 2222

Workshop on Export ManagementWorkshop on Export Management EXIM BANK-EXIM BANK- Established in 1981Established in 1981

LOANS TO INDIAN COMPANIESLOANS TO INDIAN COMPANIES Indian exports through direct financial assistance,Indian exports through direct financial assistance, Overseas investment finance-JVs in which Indian companies Overseas investment finance-JVs in which Indian companies

participate.participate. Term finance for export production and export development,Term finance for export production and export development, Pre-shipping credit, Pre-shipping credit, Relending facility, Relending facility, Export bills rediscounting, Export bills rediscounting, Refinance to commercial banks.Refinance to commercial banks.

04/10/2304/10/23 2323

WORKSHOP ON EXPORTWORKSHOP ON EXPORT MANAGEMENTMANAGEMENT Non-funded facility to Indian exporters in the form of Non-funded facility to Indian exporters in the form of

guarantees. guarantees. The diversified lending programme of the Exim Bank now The diversified lending programme of the Exim Bank now

covers various stages of exports, i.e., from the development covers various stages of exports, i.e., from the development of export to expansion of production capacity for exports, of export to expansion of production capacity for exports,

Production for exports and post- shipment financing. Production for exports and post- shipment financing.

LOANS TO FOREIGN,GOVERNMENTS,COMPANIES,LOANS TO FOREIGN,GOVERNMENTS,COMPANIES,

INSTITUTIONSINSTITUTIONS;;Overseas Buyer's CreditOverseas Buyer's Credit : : Credit is granted directly/jointly with an authorized dealer, Credit is granted directly/jointly with an authorized dealer,

to foreign buyers for import of capital goods and turnkey to foreign buyers for import of capital goods and turnkey projects from India, on deferred payment. The buyers have projects from India, on deferred payment. The buyers have to comply with the terms of export contracts. to comply with the terms of export contracts.

04/10/2304/10/23 2424

Workshop onWorkshop on Export ManagementExport Management Lines of CreditLines of Credit : Besides foreign governments, finance is : Besides foreign governments, finance is

available to foreign financial institutions and government available to foreign financial institutions and government agencies to on-lend in the respective country for import of agencies to on-lend in the respective country for import of goods and services from India.goods and services from India.

Relending Facility to Banks OverseasRelending Facility to Banks Overseas : Relending facility is : Relending facility is

extended to banks overseas to enable them to provide term extended to banks overseas to enable them to provide term

finance to their clients world-wide for imports from Indiafinance to their clients world-wide for imports from India

04/10/2304/10/23 2525

Workshop on Export ManagementWorkshop on Export ManagementLOANS TO COMMERCIAL BANKS IN INDIALOANS TO COMMERCIAL BANKS IN INDIA ; ;

Export Bills RediscountingExport Bills Rediscounting : Commercial Banks in India who : Commercial Banks in India who are authorized to deal in foreign exchange can rediscount are authorized to deal in foreign exchange can rediscount their short term export bills with Exim Banks, for an their short term export bills with Exim Banks, for an unexpired usance period of not more than 90 days.unexpired usance period of not more than 90 days.

Refinance of Export Credit : Authorized dealers in foreign Refinance of Export Credit : Authorized dealers in foreign

exchange can obtain from Exim Bank 100% refinance of exchange can obtain from Exim Bank 100% refinance of deferred payment loans extended for export of eligible deferred payment loans extended for export of eligible Indian goods.Indian goods.

04/10/2304/10/23 2626

Workshop onWorkshop on Export ManagementExport Management

Guaranteeing of ObligationsGuaranteeing of Obligations Exim Bank participates with commercial banks in Exim Bank participates with commercial banks in

India in the issue of guarantees required by Indian India in the issue of guarantees required by Indian companies companies

for the export contracts and for execution of for the export contracts and for execution of overseas construction and turnkey projectsoverseas construction and turnkey projects

FACTORINGFACTORING--Factoring services include coverage of Factoring services include coverage of credit risk, collection of export proceeds, credit risk, collection of export proceeds, maintenance of accounts receivable etc. Purchase maintenance of accounts receivable etc. Purchase of receivables of its clients without recourse to the of receivables of its clients without recourse to the exporter is the most important service of a Factor. exporter is the most important service of a Factor.

04/10/2304/10/23 2727


FORFAITINGFORFAITING-refers to non recourse discounting of export receivables. It -refers to non recourse discounting of export receivables. It converts a credit sale into cash sale for exports Forfaiting is a transaction converts a credit sale into cash sale for exports Forfaiting is a transaction

based operation. In Forfaiting, the firm sells one of its transactions.based operation. In Forfaiting, the firm sells one of its transactions. Characteristics of a Forfaiting transaction are:Characteristics of a Forfaiting transaction are: Credit is extended by the exporter for period ranging between 180 days to Credit is extended by the exporter for period ranging between 180 days to

7 years. 7 years. Minimum bill size should be US$ 250,000/- (US$ 500,000/- is preferred) Minimum bill size should be US$ 250,000/- (US$ 500,000/- is preferred) The payment should be receivable in any major convertible currency. The payment should be receivable in any major convertible currency. An L/C or a guarantee by a bank, usually in importer's country. An L/C or a guarantee by a bank, usually in importer's country. The contract can be for either goods or services.The contract can be for either goods or services. Normally exports of capital goods made on medium to long term credit Normally exports of capital goods made on medium to long term credit

are eligible to be financed through forfaiting. In India EXIM Bank plays an are eligible to be financed through forfaiting. In India EXIM Bank plays an Intermediary role between exporter and overseas Forfaiter.Intermediary role between exporter and overseas Forfaiter.

04/10/2304/10/23 2828

DIFFERENCE BETWEEN DIFFERENCE BETWEEN FACTORING AND FORFAITINGFACTORING AND FORFAITING

FACTORINGFACTORING

1.Suitable for ongoing open 1.Suitable for ongoing open account sales, not backed account sales, not backed by LC or accepted bills or by LC or accepted bills or exchange.exchange.

2.2. Usually provides financing Usually provides financing for short-term credit period for short-term credit period of upto 180 days.of upto 180 days.

FORFAITINGFORFAITING

1. Oriented towards single 1. Oriented towards single transactions backed by LC transactions backed by LC or bank guarantee.or bank guarantee.

2.2. Financing is usually for Financing is usually for medium to long-term credit medium to long-term credit periods from 180 days periods from 180 days upto 7 years though upto 7 years though shorterm credit of 30–180 shorterm credit of 30–180 days is also available for days is also available for large transactions.large transactions.

04/10/2304/10/23 2929


3.Requires a continuous 3.Requires a continuous arrangement between arrangement between factor and client, whereby factor and client, whereby all sales are routed all sales are routed through the factor.through the factor.

4.4. Factor assumes Factor assumes responsibility for collection, responsibility for collection, helps client to reduce his helps client to reduce his own overheads.own overheads.

3. Seller need not route or 3. Seller need not route or commit other business to commit other business to the forfaiter. Deals are the forfaiter. Deals are concluded transaction-concluded transaction-wise.wise.

4.4. Forfaiter’s responsibility Forfaiter’s responsibility extends to collection of extends to collection of forfeited debt only. Existing forfeited debt only. Existing financing lines remains financing lines remains unaffected.unaffected.

04/10/2304/10/23 3030


5. Separate charges are 5. Separate charges are applied for applied for — — financingfinancing— — collectioncollection— — administrationadministration— — credit protection and credit protection and

— — provision of information.provision of information.

5. Single discount charges is 5. Single discount charges is applied which depend onapplied which depend on— — guaranteeing bank and guaranteeing bank and country risk,country risk,— — credit period involved credit period involved and and — — currency of debt. currency of debt. Only additional charges is Only additional charges is commitment fee, if firm commitment fee, if firm commitment is required commitment is required prior to draw down during prior to draw down during delivery period. delivery period.

04/10/2304/10/23 3131


6. Service is available for 6. Service is available for domestic and export domestic and export receivables.receivables.

7.7. Financing can be with Financing can be with or without recourse; or without recourse; the credit protection the credit protection collection and collection and administration services administration services may also be provided may also be provided without financing.without financing.

6. Usually available for 6. Usually available for export receivables only export receivables only denominated in any denominated in any freely convertible freely convertible currency.currency.

7.7. It is always ‘without It is always ‘without recourse’ and recourse’ and essentially a financing essentially a financing product.product.

04/10/2304/10/23 3232


8. Usually no restriction on 8. Usually no restriction on minimum size of minimum size of transactions that can be transactions that can be covered by factoringcovered by factoring..

9.9. Factor can assist with Factor can assist with completing import completing import formalities in the buyer’s formalities in the buyer’s country and provide country and provide ongoing contract with ongoing contract with buyers. buyers.

8. Transactions should be of 8. Transactions should be of a minimum value of USD a minimum value of USD 250,000.250,000.

9.9. Forfaiting will accept only Forfaiting will accept only clean documentation in clean documentation in conformity with all conformity with all regulations in the regulations in the exporting/importing exporting/importing countries countries

04/10/2304/10/23 3333


PROJECT FINANCE(CONTDPROJECT FINANCE(CONTD))

Exim Bank has been closely associated with the growth of Exim Bank has been closely associated with the growth of project exports from India by way of providing finance, project exports from India by way of providing finance,

information and business advisory services.information and business advisory services. The bank supports Indian companies at all stages of the The bank supports Indian companies at all stages of the

project cycle from advance tender information, guidance in project cycle from advance tender information, guidance in preparation of competitive bids to providing financial preparation of competitive bids to providing financial

facilities, including loans and guaranteesfacilities, including loans and guarantees.. The bank extends funded and non-funded facilities for The bank extends funded and non-funded facilities for

overseas industrial turnkey projects, civil construction overseas industrial turnkey projects, civil construction contracts, as well as technical and consultancy service contracts, as well as technical and consultancy service

contractscontracts

04/10/2304/10/23 3434


. . Exim Bank has in place a specialized cell to provide advance Exim Bank has in place a specialized cell to provide advance information to Indian companies on projects being funded by information to Indian companies on projects being funded by multilateral funding agencies in various countries.multilateral funding agencies in various countries.

Lines of Credit (Locs) signed by Exim Bank with a number of Lines of Credit (Locs) signed by Exim Bank with a number of countries provide for financing specific projects instead of countries provide for financing specific projects instead of

project exportsproject exports . .Examples include railway line project in Angola, Mozambique Examples include railway line project in Angola, Mozambique and Myanmar; cricket stadium in Guyana, road network in and Myanmar; cricket stadium in Guyana, road network in Myanmar, electrification projects in Sudan and Ghana; cement Myanmar, electrification projects in Sudan and Ghana; cement plant in Djibouti; electrification project in Surinam and plant in Djibouti; electrification project in Surinam and

AzerbaijanAzerbaijan. .

04/10/2304/10/23 3535

Workshop on Export ManagementWorkshop on Export ManagementMULTIPLE VS CONSORTIUM BANKINGMULTIPLE VS CONSORTIUM BANKING;;Multiple banking—a situation when one borrower is banking Multiple banking—a situation when one borrower is banking with many banks. Different banks provide finance and different with many banks. Different banks provide finance and different banking facilities to a single borrower banking facilities to a single borrower without having a without having a commoncommon arrangement and understandingarrangement and understanding between the between the lending bankslending banks

Under consortium financing, several banks (or financial Under consortium financing, several banks (or financial institutions) finance a single borrower with a institutions) finance a single borrower with a common common appraisal, common documentation, joint supervision and appraisal, common documentation, joint supervision and follow-up exercises.follow-up exercises.

The practice of multiple banking has increased tremendously The practice of multiple banking has increased tremendously during the last years . This is due to the increasing competition during the last years . This is due to the increasing competition

and the bankers desire to grow in a short span of timeand the bankers desire to grow in a short span of time. .

04/10/2304/10/23 3636


Islamic Banking method of Financing Exports-Islamic Banking method of Financing Exports-An Islamic bank plays two very important roles in Exports. It acts as a An Islamic bank plays two very important roles in Exports. It acts as a negotiating bank and charge a fee for this purpose, which is allowed in negotiating bank and charge a fee for this purpose, which is allowed in Shariah. Secondly it provides export-financing facility to the exporters and Shariah. Secondly it provides export-financing facility to the exporters and charge interest on this service.charge interest on this service.

These services are of two typesThese services are of two typesPre shipment financingPre shipment financingPre shipment financing needs can be fulfilled by two methodsPre shipment financing needs can be fulfilled by two methods

1.Musharakah / Mudarabah1.Musharakah / Mudarabah2.Murabahah2.Murabahah

Post shipment financingPost shipment financingAs interest cannot be charged in any case, experts have proposed certain As interest cannot be charged in any case, experts have proposed certain methods for financing exports.methods for financing exports.

04/10/2304/10/23 3737


Islamic Banking method of Financing Exports-Islamic Banking method of Financing Exports-

Musharakah / Mudarabah:Musharakah / Mudarabah:

The most appropriate method for financing exports is Musharakah or The most appropriate method for financing exports is Musharakah or Mudarbah. Mudarbah. Bank and exporter can make an agreement of Mudarabah (zero % margin) Bank and exporter can make an agreement of Mudarabah (zero % margin) provided that the exporter is not investing; provided that the exporter is not investing; other wise Musharakah agreement (with margin) can be made. Agreement other wise Musharakah agreement (with margin) can be made. Agreement in such case will be easy, as cost and expected profit is known.in such case will be easy, as cost and expected profit is known.

The exporter will manufacture or purchase goods and the profit obtained by The exporter will manufacture or purchase goods and the profit obtained by exporting it will be distributed between the bank and the exporter according exporting it will be distributed between the bank and the exporter according

to the agreed ratioto the agreed ratio..

04/10/2304/10/23 3838


Islamic Banking method of Financing Exports-Islamic Banking method of Financing Exports-

MurabahahMurabahahMurabahah is being used in many Islamic Banks for export financing. Banks Murabahah is being used in many Islamic Banks for export financing. Banks purchases goods that are to be exported at price that is less than the price purchases goods that are to be exported at price that is less than the price agreed between the exporter and the importer. It then exports goods at the agreed between the exporter and the importer. It then exports goods at the original price and thus earns profit.original price and thus earns profit.

Murabahah financing requires bank and exporter to sign at least two Murabahah financing requires bank and exporter to sign at least two agreements separately, one for the purchase of goods and the other for agreements separately, one for the purchase of goods and the other for appointing the exporter as the agent of the bank (that is agency agreement). appointing the exporter as the agent of the bank (that is agency agreement). Once these two agreements are signed, the exporter can negotiate and Once these two agreements are signed, the exporter can negotiate and finalize all the terms and conditions with the importer on behalf of the bankfinalize all the terms and conditions with the importer on behalf of the bank

04/10/2304/10/23 3939


Islamic Banking method of Financing Exports-Islamic Banking method of Financing Exports-Post shipment financing-Post shipment financing-Post shipment finance is similar to the discounting of the bill of exchangePost shipment finance is similar to the discounting of the bill of exchange The exporter with the bill of exchange can appoint the bank as his agent to The exporter with the bill of exchange can appoint the bank as his agent to collect receivable on his behalf.collect receivable on his behalf. The bank can charge a fee for this service and can provide interest free The bank can charge a fee for this service and can provide interest free loan to the exporter, which is equal to the amount of the bill, and the exporter loan to the exporter, which is equal to the amount of the bill, and the exporter will give his consent to the bank that it can keep the amount received from will give his consent to the bank that it can keep the amount received from the bill as a payment of the loan.the bill as a payment of the loan.Here two processes are separated, and thus two agreements will be made. Here two processes are separated, and thus two agreements will be made. One will authorize the bank to collect the loan on his behalf as an agent, for One will authorize the bank to collect the loan on his behalf as an agent, for which he will charge a particular fee. The second agreement will provide which he will charge a particular fee. The second agreement will provide interest free loan to the exporter, and authorize the bank for keeping the interest free loan to the exporter, and authorize the bank for keeping the amount received through bill as a payment for loan.amount received through bill as a payment for loan. These agreements are allowed according to Shariah because collecting These agreements are allowed according to Shariah because collecting

fee for service and giving interest free loan is permissiblefee for service and giving interest free loan is permissible

04/10/2304/10/23 4040

Workshop on Export ManagementWorkshop on Export ManagementCASE STUDY-HMT RANIBAG PROJECTCASE STUDY-HMT RANIBAG PROJECT

1.1. 1985-With the success of Tumkur plant for manufacture of Mechanical 1985-With the success of Tumkur plant for manufacture of Mechanical watches 2mlln per annum, the then Min of Heavy Industries Mr N D watches 2mlln per annum, the then Min of Heavy Industries Mr N D Tiwari, wanted a similar plant in his home state UP to produce Tiwari, wanted a similar plant in his home state UP to produce components to be assembled at satellite Assembly units components to be assembled at satellite Assembly units

2.2. No proper Commercial and economic feasibility was done, the No proper Commercial and economic feasibility was done, the Bureaucrats simply agreed for the project and Govt approved it.Bureaucrats simply agreed for the project and Govt approved it.

3.3. Approx Rs 60 Cr was needed in FE. SBI Tokyo agreed to finance at 1 Approx Rs 60 Cr was needed in FE. SBI Tokyo agreed to finance at 1 or 2% interest rate. Exchange rate was 1 yen= 15 paise approx. or 2% interest rate. Exchange rate was 1 yen= 15 paise approx. Repayment was 3 years moratorium and 10 yearly installments.Repayment was 3 years moratorium and 10 yearly installments.

4.4. Mechanical watches went out of vogue. Electronics watches took over. Mechanical watches went out of vogue. Electronics watches took over. Tumkur plant was converted into Quartz unit. Ranibag unit was Tumkur plant was converted into Quartz unit. Ranibag unit was retained to produce Mechanical watches to cater to rural areas, where retained to produce Mechanical watches to cater to rural areas, where it was assumed will take considerable time to go in for quartz.it was assumed will take considerable time to go in for quartz.

04/10/2304/10/23 4141


55 Every thing went wrong. Ranibag unit stated losing. During 90s Every thing went wrong. Ranibag unit stated losing. During 90s Liberalization, Privatization and Globalization (LPG) led to starting of Liberalization, Privatization and Globalization (LPG) led to starting of industries like Titan, who started outsourcing.industries like Titan, who started outsourcing.

66 Outsourced components brought down the cost of production and the Outsourced components brought down the cost of production and the competition became fierce.competition became fierce.

77 Profits dwindled. Installment- repayments got postponedProfits dwindled. Installment- repayments got postponed..88 Meanwhile yen strengthened and touched to 40 paise., In about 10-12 Meanwhile yen strengthened and touched to 40 paise., In about 10-12

years time 300 yen/Dollar became 80 yen/Dollaryears time 300 yen/Dollar became 80 yen/Dollar..99 Loan principal more than got doubled plus interest on that had to be Loan principal more than got doubled plus interest on that had to be

paid.paid.

1010 Ranibag was a mill stone around neck for HMT Watches. Finally Gov Ranibag was a mill stone around neck for HMT Watches. Finally Gov gave some money in the Rs 850 Cr rehabilitation package. A mile- gave some money in the Rs 850 Cr rehabilitation package. A mile-

stone project became a mill-stone Project.stone project became a mill-stone Project.

04/10/2304/10/23 4242

Workshop on Export ManagementWorkshop on Export Management(US $ Million)

DEPARTMENT OF COMMERCEECONOMIC DIVISION

EXPORTS & IMPORTS : (PROVISIONAL) in USD MILLIONS

March APRIL-March

EXPORTS (including re-exports)

2007-2008 17254 163132

2008-2009 11516 168704

%Growth 2008-2009/ 2007-2008 -33.3 3.4

IMPORTS

2007-2008 23574 251654

2008-2009 15561 287759

%Growth 2008-2009/ 2007-2008 -34.0 14.3

TRADE BALANCE

2007-2008 -6320 -88522

2008-2009 -4045 -119055

*Figures for 2007-08 are the latest revised whereas figures for 2008-09 are provisional.

04/10/2304/10/23 4343

Workshop on Export ManagementWorkshop on Export ManagementDEPARTMENT OF COMMERCE

ECONOMIC DIVISION

EXPORTS & IMPORTS : (PROVISIONAL) RS CRORES

March APRIL-March

EXPORTS (including re-exports)

2007-2008 69630 655863

2008-2009 58997 766935

%Growth 2008-2009/ 2007-2008 -15.3 16.9

IMPORTS

2007-2008 95134 1012312

79717 79717 1305503

%Growth 2008-2009/ 2007-2008 -16.2 29.0

TRADE BALANCE

2007-2008 -25504 -356449

2008-2009 -20720 -538568

04/10/2304/10/23 4444


I define Globalization asI define Globalization as

““SSourcing capital where it is cheapestourcing capital where it is cheapest

sourcing Talent from where it is best availablesourcing Talent from where it is best available

producing where it is most cost-effectiveproducing where it is most cost-effective

and selling where the Markets are without being and selling where the Markets are without being constrained by national boundariesconstrained by national boundaries””

Mr N.R. NARAYANAMURTHY Mr N.R. NARAYANAMURTHY

Founder-InfosysFounder-Infosys

04/10/2304/10/23 4545

Thank youThank you

N.VENKATAKRISHNANN.VENKATAKRISHNAN

financing of exports

Economy & Finance

export management finance

lc seller

value of lc

bank aopens lc

lc of buyers bank

irrevocable lc

original lc

mother lc