EXPORT MARKETING ASSIGNMENT II

INTRODUCTION
Export in simple words means selling goods abroad. International market being a very wide market, huge quantity of goods can be sold in the form of exports. Export refers to outflow of goods and services and inflow of foreign exchange. Export occupies a very prominent place in the list of priorities of the economic set up of developing countries because they contribute largely to foreign exchange pool. Exports play a crucial role in the economy of the country. In order to maintain healthy balance of trade and foreign exchange reserve. It is necessary to have a sustained and high rate of growth of exports. Exports are a vehicle of growth and development. They help not only in procuring the latest machinery, equipment and technology but also the goods and services, which are not available indigenously. Exports leads to national self-reliance and reduces dependence on external assistance which howsoever liberal, may not be available without strings. Though Indias export compared to other countries is very small, but one of the most important aspects of our export is the strong linkages it is forging with the world economy which is a great boon for a developing nation like India. Credit and finance is the life and blood of any business whether domestic or international. It is more important in the case of export transactions due to the prevalence of novel nonprice competitive techniques encountered by exporters in various nations to enlarge their share of world markets. The selling techniques are no longer confined to mere quality; price or delivery schedules of the products but are extended to payment terms offered by exporters. Liberal payment terms usually score over the competitors not only of capital equipment but also of consumer goods. The payment terms however depend upon the availability of finance to exporters in relation to its quantum, cost and the period at pre-shipment and post-shipment stage. Production and manufacturing for substantial supplies for exports take time, in case finance is not available to exporter for production. They will not be in a position to book large export order if they dont have sufficient financial funds. Even merchandise exporters require finance for obtaining products from their suppliers. This project is an attempt to throw light on the various sources of export finance available to exporters, the schemes implemented by ECGC and EXIM for export promotion and the

recent developments in the form of tie-EXIM tie-ups, credit policy announced by RBI in Oct 2001 and TRIMS. The exporter may require short term, medium term or long term finance depending upon the types of goods to be exported and the terms of statement offered to overseas buyer. The short-term finance is required to meet working capital needs. The working capital is used to meet regular and recurring needs of a business firm. The regular and recurring needs of a business firm refer to purchase of raw material, payment of wages and salaries, expenses like payment of rent, advertising etc. The exporter may also require term finance. The term finance or term loans, which is required for medium and long term financial needs such as purchase of fixed assets and long term working capital. Export finance is short-term working capital finance allowed to an exporter. Finance and credit are available not only to help export production but also to sell to overseas customers on credit.

OBJECTIVES OF EXPORT FINANCE

To cover commercial & Non-commercial or political risks attendant on granting credit to a foreign buyer. To cover natural risks like an earthquake, floods etc.

An exporter may avail financial assistance from any bank, which considers the ensuing factors: a) Availability of the funds at the required time to the exporter. b) Affordability of the cost of funds. Obligations to the RBI under the Exchange Control Regulations are: Appraise to be the banks customer. Appraise should have the Exim code number allotted by the Director General of Foreign Trade. Partys name should not appear under the caution list of the RBI.

Obligations to the Trade Control Authority under the EXIM policy are: Appraise should have IEC number allotted by the DGFT. Goods must be freely exportable i.e. not falling under the negative list. If it falls under the negative list, then a valid license should be there which allows the goods to be exported. Country with whom the Appraise wants to trade should not be under trade barrier. Obligations to ECGC are: Verification that Appraise is not under the Specific Approval list (SAL). Sanction of Packing Credit Advances. GUIDELINES FOR BANKS DEALING IN EXPORT FINANCE: When a commercial bank deals in export finance it is bound by the ensuing guidelines: a) Exchange control regulations. b) Trade control regulations. c) Reserve Banks directives issued through IECD. d) Export Credit Guarantee Corporation guidelines. e) Guidelines of Foreign Exchange Dealers Association of India. TYPES OF EXPORT FINANCE AVAILABLE WITH BANK OF BARODA RUPEE EXPORT CREDIT (PRE-SHIPMENT AND POST-SHIPMENT) : BOB offers both pre and post shipment credit to the Indian exporters through Rupee Denominated Loans as well as foreign currency loans in India. Exporters having firm export orders or confirmed L/C from a recognized Bank can avail the export credit facilities from BOB provided they satisfy the required credit norms. The details of the credit norms can be obtained from the nearest authorised branch of the Bank. Rupee export credit is available for a maximum period of -360- days from the date of first disbursement. The corporates, if required can book forward contracts in respect of future export credit drawals. EXPORT BILL REDISCOUNTING : BOB offers financing of export by way of bill discounting of export bills to provide post shipment finance to the exporters at competitive international rate of interest. The export bills (both Sight and Usance) can be purchased/ discounted provided they comply with the norms of the Bank/ RBI. All exporters are eligible to cover the bills drawn under L/C, non-credit bills under sanctioned limits under the Bill discounting Scheme.
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Pre-Shipment Finance ( 180 to 270 days ) Banks offers Pre- Shipment credit ( Packing Credit ) to the exporters for financing purchase, processing, manufacturing or packing of goods prior to shipment. This is also knows as packing credit. Credit facilities are sanctioned to exporters who satisfy credit exposure norms of Bank ( Bank Of Baroda ). Exporters having firm export orders or confirmed Letter Of Credit from a bank are eligible to avail export credit facilities. Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing and shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders. Generally rupee export credit is available for a period of 180 days from the date of first disbursement. In deserving cases extention may be permitted within the guidelines of RBI. Pre- Shipment Export Credit In Foreign Curreny PCFC Bank Of Baroda offers PCFC in the foreign currency to the exporters enabling them to fund their procurement, manufacturing / processing and packing requirements. These loans are available at competitive international interest rates covering the cost of both domestic as well as import content of the exports. The corporate / exporters with a good track record can avail a running account facility with the bank for PCFC. PCFC in foreign currecncy is normally available for a period of 180 days from the date of first disbursement similar to the case of Rupee facility. In the PCFC drawls permitted in a foreign currency other than the currency of export, exporter bears the risk in currency fluctuations. The foreign currency drawls are restricted to major currencies at present. In case, the export order is in a non designated currency , PCFC is given in US $. For orders in Euro, Pound Sterling And JPY, PCFC can be availed in the respective currencies pr US $ at the choice of the exporter. Multi currency drawls against the same order are usually not permitted. PCFC is to be repaid with the proceeds of the export bill submitted after shipment. In case of cancellation of export order the PCFC can be closed by selling equivalent amount of foreign exchange at the rate prevalent on the date of liquidation. Post-Shipment Finance ( 180 days ) Post Shipment credit is offered to an exporter to finance export sales receivables after the date of shipment of goods till the date of realization of export proceeds. It includes loans / advances granted by the bank. It is extended to the actual exporter who has exported goods or to an exporter in whose name the export documents are transferred. It is extended against evidence of the shipment of export goods. In the case of routine exports, the maximum period allowed for realization of export proceeds is 6 months from the date of shipment. Banks can extend post shipment finance at a lower interest rate up to the normal transit period or the notional due dates PROCEDURE TO AVAIL + Normal Transit Period
Usance Period Subject to a max of 180 days

Beyond that period, banks lend at non- concessive rates or the normal commercial rates.

EXPORT BILL REDISCOUNTING The exporter has the option of availing of export credit at the post-shipment stage either in rupee or in foreign currency under the rediscounting of export bills abroad (EBRD) scheme at LIBOR linked interest rates. This facility will be an additional window available to exporter along with the exiting rupee financing schemes to an exporter at post shipment stage. This facility will be available in all convertible currencies. This scheme will cover export bills upto 180 days from the date of shipment (inclusive of normal transit period and grace period) . The scheme envisages ADs rediscounting the export bills in overseas markets by making arrangements with an overseas agency/ bank by way of a line of credit or bankers acceptance facility or any other similar facility at rates linked to London Inter Bank Offered Rate (LIBOR) for six months. Prior permission of RBI will not be required for arranging the rediscounting facility abroad so long as the spread for rediscounting facility abroad does not exceed one percent over the six months LIBOR in the case of rediscounting with recourse basis & 1.5% in the case of without recourse facility. Spread, should be exclusive of any withholding tax. In all other cases, the RBIs permission will be needed. Banks may arrange a Bankers Acceptance Facility ( BAF ) for rediscounting the export bills without any margin and duly covered by the collateralized documents EXPORT FINANCE

Purchase Order Received

Processing g

Shipments And Documents Tendered to the Bank

Payement received from the Overseas Buyer

The exporter requires financing at two stages Initially, to process ( Manufacture, Procure, etc.) the order and then to bridge the gap between the time of shipping the goods to the time he actually receives the payment. Export financing has been designed to take care of these needs.

GOLD CARD SCHEME APPROVED BY RBI As per the guidelines of RBI, Bank of Baroda have launched Goldcard for creditworthy exporters. It is Simplified access to export credit on very good terms. Eligible exporters get better terms of credit including rates of interest than those extended to the other exporters . processing of applications for credit is faster. In Principle limits are sanctioned for a period of 3 years with a provision for automatic renewal, subject to fulfillment of the terms and conditions of sanction. They get Preference for grant of PCFC, subject to availability of foreign currency funds. Lower chargers schedule and fee structure than those provided to other exporters is applicable. The scheme has relaxations in the norms in respect of security and collaterals, wherever feasible. FOREIGN CURRENCY IMPORT CREDIT Banks offer credit to foreign suppliers of Indian Importers by purchasing the import bill for its full value through one of the banks overseas offices. The tenor of this form of suppliers credit does not exceed 180 days. The supplier gets 100 % of the invoioce immediately, making is deal practically a cash sale. Importers get credit for a maximum period of 180 days, enabling them to manage their liquidity better. Further , their interest payables could be lower since International Interest Rates are currently lower than Domestic Rates. These Facilities are useful for import by sellers in the domestic market as well as export- related import. These facilities are useful for import by sellers in the domestic market as well as export- related import. SUPPLIERS CREDIT Suppliers Credit essentially represents credit sales effected by the supplier on the basis of accepted bills or promisory notes with or without collateral security. Any credit facility arranged with recourse to the supplier for financing upto 180 days import into India which is not backed up in the form of any letter / document / guarantee / agreement, etc. Issued by the Letter Of Credit opening banks or in any other mannger except normal routine commercial transactions like an LC, can be treated as a suppliers credit. The underlying commercial contract between the exporter and the Indian Importer should provide for drawing of Usance Drafts with upper cap of 180 days on the usance period. The credit is being extended for a period of less than 3 years. BANK GUARANTEES FOR IMPORTS Banks on Behalf of Importer constituents or other customers , issues guarantees in favor of beneficiaries abroad. The guarantees may be both Performance And Financial.

L/C For Project Exports Letter Of Credit facility on behalf of project exporting enterprise enabling it to import Raw Materials required for manufacturing goods for project export is provided by the banks. GUARANTEES FOR PROJECT EXPORTS An ancessory guarantee is issued on behalf of project contractor ( project exporter ) by the bank. Types of such guarantee are as follows Bid Bond Guarantee Advance Payment Guarantee Performance Guarantee Retention Guarantee Overseas Borrowing Guarantee Maintenance Guarantee

CONCLUSION

Export Finance is a very important branch to study & understand the overall gamut of the international finance market.

Availability of favorable Export finance schemes directly impacts the local trade, encourages exporters, enlarges markets abroad, improves quality of domestic goods and overall helps the nation boost its exchange earnings.

The Government of any nation plays a very vital role in boosting export turnover. The credit policy of the Indian Government is also changed depending upon the needs of the exporters, global trade environment etc. The credit policy of Oct 2001 is a pointer in this direction.

ECGC and EXIM Bank take a lot of efforts for Export promotion. The strategies of these 2 agencies in India should be flexible & their finance schemes should be constantly synchronized with the changing scene of world trade. This alone can help Indian exporters to stand competition in world markets effectively and more gainfully. Finally, a very essential question needs to be answered by the International Trade gurus with reference to Relevance of EXIM Policy in the current times. Exim policies had emerged when the state decided to limit imports and encourage exports in order to maintain currency reserves. However, such ideas backfired: consumers were hurt and producers turned lazy.

BIBLIOGRAPHY
Books Referred: Author Name Title

Paras Ram Michael Vaz T. A .S. Balagopal

Export What Where & How Export Marketing Export Management

Newspapers and Magazines Ref erred:

Business India Economic Times

Internet Websites: www.economictimes.com www.rbi.org.in www.eximbankindia.com http://www.bankofbaroda.co.in/int/exportfinance.asp