Preshipment Finance Slide New
Published on: Mar 4, 2016
Transcripts - Preshipment Finance Slide New
PRE SHIPMENT FINANCEAcorporate banking product<br />DEFINITION:<br /> Funds to cover an exporter’s cost before goods are sent overseas.<br />Pre shipment finance is issued by a financial institution when the seller want the payment of goods before shipment.The main objectives are to enable exporter to:<br /><ul><li>Procure raw materials
Carry out manufacturing process
Provide a secure warehouse for goods & raw materials
Process & pack the goods
Ship goods to buyers
Meet other financial costs of the business</li></li></ul><li><ul><li>TYPES OF PRE SHIPMENT FINANCE:
Packing Credit – A loan or advance granted or any other credit provided by a bank to an exporter for financing the purchase, processing, manufacturing & packing of goods before shipment.
Advance against cheques/drafts received as </li></ul> advance payment – where exporters receive direct payments from abroad by means of cheques/drafts etc.<br /><ul><li>QUANTUM OF FINANCE:</li></ul>It is granted to an exporter against the L/C or an export order. The only guideline principle is the concept of need-based finance. Banks determine the percent of margin depending on factors such as:<br /><ul><li>Nature of order
Nature of commodity
Capability of exporter to bring in the requisite contribution
Nature of Importer
Importers country profile </li></li></ul><li><ul><li>SALIENT FEATURES:
Pre shipment credit is issued to that exporter who has the export order in his own name.
Repayment of packing credit advance can be only from the proceeds of the bills drawn under the export order or L/C.
EXIM Bank has floated a new scheme with the approval of RBI for Indian exporters to enable them to avail of pre shipment in foreign currencies (PCFC)to finance cost of imported inputs for manufacture of export products. PCFC is repaid only with proceeds of the export bill tendered.
Finance is available from EXIM Bank for co. executing export contracts involving cycle time exceeding 6 months
Export incentives take the form of cash assistance on export of certain items & duty draw-backs i.e. a refund of central excise & custom duties levied on raw materials & components used in the manufacture of exports. Air freight subsidy on the export of certain products.
The credit limits for pre shipment advance are considered simultaneously along with other facilities & generally made a sub-limit within the overall cash credit limit sanctioned to the borrower.</li></li></ul><li>RATE OF INTEREST<br />RBI has instructed the banks to give concessional pre shipment finance as under:<br /><ul><li>Up to the period of 180 days : at the rate of 10%
From 180 days to 27o days : at the rate of 13%
From 270 days to 360 days : subject to the bank</li></ul>FREE ON BOARD (FOB):<br />"Free on board " means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.<br />COST, INSURANCE & FREIGHT(CIF):"Cost, insurance and freight " means that the seller delivers when the goods pass the ship's rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage.<br /> <br /> <br />
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