UNIT-1- Introduction to Export credit finance

Export credit finance, also known as export finance, refers to financial arrangements that support businesses engaged in international trade.
Working Capital Loans: These short-term loans provide working capital to cover costs related to fulfilling export orders. For example, they help with purchasing raw materials, manufacturing goods, and managing transportation and logistics1.
Export Credit Insurance: This type of insurance protects businesses against non-payment risks due to insolvency, default, or political events by foreign buyers.
Liquidity and Risk Management: Export finance facilitates global trade by providing liquidity and risk management tools needed for international transactions.

Different types of export credit:
1.Pre-shipment Credit
2.Packing Credit in Indian Rupee (EPC)�
3.Packing Credit in Foreign Currency (PCFC)�

1. Financing of Export Credit Needs Introduction to Export credit finance Export credit finance , also known as  export finance , refers to financial arrangements that support businesses engaged in international trade

2. Some key points to Export credit finance are as follows . Working Capital Loans : These short-term loans provide working capital to cover costs related to fulfilling export orders.  For example, they help with purchasing raw materials, manufacturing goods, and managing transportation and logistics 1 . Export Credit Insurance : This type of insurance protects businesses against non-payment risks due to insolvency, default, or political events by foreign buyers. Liquidity and Risk Management : Export finance facilitates global trade by providing liquidity and risk management tools needed for international transactions.

3. Features of packing credit Self-liquidating loan Boost your budget :  Cover your manufacturing expenses Low rates of interest:   Flexible terms of credit Choose your currency :  Keep your business running with an advance :

4. Types of export credit There are different types of export credit available depending on your needs and challenges: Pre-shipment Credit This type of export credit is the most common one offered. Within this, there are two categories: Packing Credit in Indian Rupee (EPC) Pre-shipment credit is extended to exporters in Indian Rupees. Packing Credit in Foreign Currency (PCFC) Pre-shipment credit is provided to exporters in a foreign currency such as US Dollars, Euros, Pounds Sterling (GBP), and so on, depending on the availability of funds. Although, this is subject to forex fluctuations as PCFC rates of interest depend on international benchmarks.

5. Post-shipment Credit Post-shipment finance is provided after the shipment of goods to allow your business to sustain operations and manage expenses as you wait for your shipped goods to register revenue. It's a collateral-free finance option for Indian exporters, which addresses their cash flow needs after shipping goods. It provides financial support as you wait for payment from the importer.  Banks typically provide post-shipment credit until you receive payment for the exported goods. It's also important to note that Goods and Service Tax (GST) may apply to imported goods, but the criteria or features are not affected by it. This type of credit can be in the form of.. Export bills discounted, purchased or negotiated Advances against bills for collection Advances against duty drawbacks received from the Government

6. What are the benefits of export packing credit? Let's explore how this financial tool can be advantageous for exports:  Improved cash flow : As a borrower, you can enhance cash flow at the pre-shipping stage. This allows you to manage your current account and day-to-day operations. Optimized cash flow management : This credit facility allows you to efficiently manage your operating capital by utilizing the export proceeds to repay the loan once your export revenue is realized.  Coverage of manufacturing-related expenses : This credit covers the production, processing, manufacturing, and packing of goods, which helps you fulfil your production obligations without straining resources. Support for the exporter's supply chain : The funds can be used for your operating expenses between exporting goods and receiving the payment for your shipment.  Capacity to handle large orders : With the financial resources provided, your business can confidently handle large orders for export.

7. Benefits of using export Credit finance Export finance offers several benefits for businesses engaged in international trade: Risk Mitigation : Export credit insurance protects against non-payment risks due to insolvency, default, or political events by foreign buyers. This ensures that businesses receive payment even if the buyer faces financial difficulties. Working Capital Support : Working capital loans provide necessary funds for fulfilling export orders. They cover costs related to raw materials, manufacturing, transportation, and logistics. This liquidity support helps businesses meet demand efficiently. Enhanced Cash Flow : Export finance improves cash flow by bridging the gap between production and payment. It allows businesses to operate smoothly without waiting for extended payment terms from overseas buyers. Competitive Advantage : Access to export finance enables businesses to compete globally. It allows them to offer credit terms to foreign buyers, making their products more attractive in international markets. Currency Risk Management : Export finance tools help manage currency fluctuations. For instance, forward contracts allow businesses to lock in exchange rates, reducing uncertainty.

8. Eligibility of packing credit It's important to meet certain eligibility criteria for this term loan. Here's what you need to qualify: Importer-Exporter Code (IEC)  : Make sure you  have a valid IEC - a unique identification code that helps track your export activities. Compliance with RBI and ECGC : Ensure that you're not Caution Listed by the Reserve Bank of India (RBI) and that you're on the Specific Approval List (SAL) of the Export Credit Guarantee Corporation (ECGC). These are regulatory measures to ensure the credibility of exporters. Export Commitment/Order : You should have a solid export commitment or order and the capability to fulfil it. Confirmed Export Order or Letter of Credit (LC) : It's essential to have a confirmed exporting order or an irrevocable Letter of Credit (LC) in your favour to provide the bank assurance regarding your export transactions to apply for a packing credit loan. Formal Application and Documentation : Submit a formal application along with the required documentary proof to avail of the packing credit facility. Bank Evaluation : While there are no disclaimers about this loan, the loan amount and duration will be determined by the banks based on factors such as the nature of your export, confirmed orders through LCs, and your track record as an exporter. The export credit is typically granted based on your export receivables, ensuring that the expected payments from the importer back the loan. Banks may also require you to undergo the KYC (Know Your Customer) process for risk assessment.

9. What are the Risk involved in Export credit finance some potential risks with export financing services. 1. Risks include late payments, especially with recourse factoring where you’re responsible for payment collection. 2. Non-recourse factoring can help mitigate this risk, as it involves a financial arrangement where businesses sell their invoices to a factoring company, which then assumes the responsibility for collection, allowing exporters to obtain immediate cash.  3. Additionally, currency risks due to exchange rate fluctuations can impact your financial projections when trading in different currencies. 4. This risk can be mitigated with forward contracts, allowing you to lock in an exchange rate for a specific date in the future, regardless of fluctuations in the currency market.  

10. How to get export financing We can get export financing through a variety of providers, including traditional lenders such as banks and alternative lenders like invoice factoring companies. Conventional banks : Banks are a good option for larger exporters as their credit facility allows you to finance higher volumes at a comparatively lower interest rate. Invoice factoring companies : This is a good option if you are a new business and in need of cash. You can ‘sell’ your outstanding invoices to invoice factoring companies. The factoring company then will pay your invoices and collect payment directly. Government agencies : In many countries, government agencies offer grants and resources to help businesses and SMEs expand overseas.

11. FAQs What are PCFC and EPC? What is the repayment period? How is the loan repaid? 

12. Thank you

13. What are PCFC and EPC? Export Packing Credit in Foreign Currency (PCFC) is a financing option that allows you to obtain funds in foreign currencies such as USD, EURO, or GBP, depending on the availability of funds. The credit limit for PCFC is based on the exporter's creditworthiness and can be sanctioned in Indian Rupees (INR) and international currency. Export Packing Credit in Indian Rupees (EPC) provides financing to exporters in the local currency. To access the EPC, you must present a copy of the irrevocable Letter of Credit (LC) opened by the overseas buyer in their favor or a valid export order.  What is the repayment period? The repayment period is determined by each export's manufacturing/trade cycle or specific requirements, typically not exceeding 180 days. In exceptional circumstances beyond your control, you can request an extension of up to 90 days. Banks determine the actual period of finance based on factors such as the nature of the export, confirmed orders, and your track record. How is the loan repaid?  Once you receive the payment for your exported goods, the loan repayment uses the export bill's proceeds. The repayment terms are designed to be flexible, aligning with your customer's final payment back to you as the supplier. In this case, the clearing period for post-shipment credit is generally 12 months from the date the goods are shipped. You may also use the Unified Payments Interface ( UPI ) as a convenient payment method to settle dues with the bank. You can also consider contributing a portion of proceeds to the National Pension System (NPS) for long-term financial planning and investment.