Page 118 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 5: Methods of Financing Exporters and Business Risk Management

In international trade, forfeiting may be defined as the purchasing of an exporter’s Notes
receivables at a discount price by paying cash. By buying these receivables, the forfeiter
frees the exporter from credit and the risk of not receiving the payment from the importer.

Export Credit Guarantee Corporation of India Ltd. (ECGC) has announced introduction of
its non-recourse maturity export factoring. The scheme has certain unique features and
does not exactly fit into the conventional mould of maturity factoring.
Pre-shipment inspection in India is conducted for quality control of export goods under
the overall supervision of the Export Inspection Council (EIC), which falls under the
Ministry of Commerce, Government of India. The Export Inspection Council (EIC) was set
up by the Government of India under Section 3 of the Export (Quality Control and
Inspection) Act, 1963 (22 of 1963), as an advisory body to the Central Government, which
is empowered under the Act to: Notify commodities which will be subject to quality
control and/or inspection prior to export, establish standards of quality for such notified
commodities and specify the type of quality control and/or inspection to be applied to
such commodities.

5.8 Keywords

Currency Swaps: A currency swap is defined as an exchange of principal and/or interest payments
on a loan or asset in one currency for principal and/or interest payments on equivalent loan or
asset in another currency at pre-fixed spot/forward rate agreed on the trade date.

ECGC: Export Credit Guarantee Corporation of India Limited was set up in the year 1957 by the
Government of India to strengthen exports by covering the payment risk in exports.
EXIM Bank: Export-Import Bank of India, set up in 1982, for the purpose of financing, facilitating,
and promoting foreign trade in India,
Foreign Currency Options: A currency option gives the buyer the right, not the obligation, to
exchange two currencies at a fixed rate at a future point of time.
Non-recourse Factoring: In non recourse factoring, factor undertakes to collect the debts from
the customer. Balance amount is paid to client at the end of the credit period or when the
customer pays the factor whichever comes first..
Post-shipment Finance is provided at concessional interest rates as per RBI guidelines. The
proof of shipment of goods, serves as the basis of grant of such facility.
Pre-shipment Credit: It is provided to the exporters for meeting their need of getting the shipment
ready.

Recourse Factoring: The client collects the money from the customer but in case customer don’t
pay the amount on maturity then the client is responsible to pay the amount to the factor. It is
offered at a low rate of interest and is in very common use.
Turnover Policy: Turnover policy is a variation of the standard policy for the benefit of all large
exporters who pay a total premium of ` 10 lakh or more in a year.

5.9 Review Questions

1. What is the need for export finance? Discuss the two types of facilities available keeping in
view the export cycle.
2. Discuss pre-shipment finance in foreign currency in detail.

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