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Unit 5: Methods of Financing Exporters and Business Risk Management

Finance for Rupee Expenditure for Project Export Contracts (FREPEC): This scheme seeks Notes
to Finance Rupee Expenditure for Project Export Contracts, to enable Indian project
exporters to meet rupee expenditure incurred/required to be incurred for execution of
overseas project export contracts such as for mobilisation/purchase/acquisition of
materials and equipment, mobilisation of personnel, payments to be made in India to
staff, subcontractors, consultants and to meet project related overheads in Indian rupees.
The purpose of the programme is to provide a boost to project export efforts of companies
having a good track record and sound financials.

Pre-Shipment Rupee Credit: Pre-shipment Rupee Credit is extended to finance temporary
funding requirement of export contracts. This facility enables the provision of rupee
mobilisation expenses for construction/turnkey projects. Exporters could also avail of
pre-shipment credit in foreign currencies to finance the cost of imported inputs for the
manufacture of export products to be supplied under the projects.

Refinance of Export Credit: Authorised dealers in foreign exchange can obtain from Exim
Bank, 100% refinance of deferred payment loans extended for the export of eligible Indian
goods.
Forfeiting: Forfeiting is a mechanism of financing exports through:
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% of the contract value.
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 a cash sale, with no
recourse to the exporter or his banker.
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 favour of the
forfeiting agency in exchange for discounted cash proceeds. The banker’s co-acceptance is known
as availisation. The co-accepting bank must be acceptable to the forfeiting agency.
Exim Bank works as a facilitator between the Indian exporter and the overseas forfeiting agency.
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 avalised 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.

Advantages to Exporters: Forfeiting offers the following benefits to the exporters
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

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