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Introduction to Export Finance

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  1. Introduction to Export Finance Prepared By:Avani Agrawal Date : 8th February, 2014

  2. Why Export Finance? • Export finance plays a crucial role in enabling exporters in accepting and efficiently executing their export orders. Export credit is required for short periods of time both before and after the dispatch/shipment of an order. • While the pre-shipment export finance is required as working capital for accomplishing timely production, packing and shipment of the orders, the post-shipment finance facilitates in sustaining exporters’ business operations while still waiting to receive payments due from foreign buyers.

  3. Contd…. • An efficient system for providing export finance to Indian exporters will add to their international competitiveness. • Such finance is required for short periods of time both before and after the shipment of an export order. • Banks provide export finance at a rate lower than theirprime-lending rate.

  4. Contd… • RBI regulates the provision of export credit by the commercial banks in India, both Indian and foreign, by stipulating that a minimum proportion of their total lending be provided as export finance. • From time to time, the RBI has announced various rules and guidelines to ensure smooth and efficient operation of this system

  5. Problems Faced by Indian Exporters • Recession in world market. b) Technological differences. • Several Competitors in Global Market. • Problem of Product Standard. • Fluctuations in exchange rate. • Problem of subsidies by Developed countries. • Competition from China. • High risk and Uncertainties.

  6. Institutional Structure for Export Finance

  7. Policy & Guideline on Export Finance • Priority Status : Bank in India are directed by RBI to sanction export credit on priority basis. • Target : Schedule bank is directed by RBI to provide export credit minimum to the extent of 12% of its Adjusted Net Banking Credit.

  8. Contd…. • Time Limit for Sanction:- • Concessional Rate of Interest : • Comparatively lower rate of interest • All scheduled commercial banks under which they are provided subvention of 2% in case of export credit sanctioned by them to selected sector. • Time Framework : Max 270 days for Pre shipment & Max 180 days for post shipment

  9. Contd…. • Guarantee of ECGC :- • In order to encourage banks to provide more export credit, the Export credit Guarantee Corporation of India Ltd provides credit insurance cover to banks against various types of export credit. • Banks must ensure that export credit sectioned by them are covered under ECGC credit insurance.

  10. Contd… • Refinance : - • To encourage banks for providing more export credit, RBI provides refinance to banks against their short term rupee export credits both at pre shipment and post shipment . • No refinance is available against post shipment finance sanctioned against Govt incentives. • No refinance is available against PCFC

  11. Different Types of Export • Cash Export • Deferred payment Export • Project Export : • Civil construction • Turnkey modules • Consultancy Services • Supplies, primarily of capital goods and industrial manufactures • Deemed Export

  12. Different Types of Exporters • Direct Exporters • Indirect Exporters • Manufacturer Exporters • Merchant Exporter • Registered Exporters

  13. Advantage & Disadvantage of Direct Exports ADVANTAGES • First hand information • Direct control • Export incentive • Reputation & Goodwill • Profitability • Higher price DISADVANTAGES • High degree of risks • Higher investment • Lack of specialization • Requires a vast knowledge • No suitable for small manufacturer • Diseconomies of distribution

  14. Advantage & Disadvantage of Indirect Exports ADVANTAGES • Less Risk • Less Investment • Specialization • Availability of imported inputs • Technical Guidance • Suitable for small firms DISADVANTAGES • Second hand information • Lack of control • Less or no export incentive • Lower price • Excessive dependence • Lower sales volume

  15. Contd… • Status Holder Exporters:

  16. Contd…. • 100% Export oriented Unit • Software Technology Parks • Electronic Hardware Technology Park • Special Economic Zones • Agri Export Zone

  17. Contd…. • Free Trade Warehousing Zones • Biotechnology Parks

  18. Trade Control & Exchange Control For Export Transactions • Trade Control & Foreign Trade Policy • Foreign trade policy is combination of two words – Foreign Trade and Policy : • Foreign trade is exchange of goods and services between nations. Goods can be defined as finished goods, intermediate goods used in producing other goods and as Agriculture products or food stuff etc. • Policy :- a course or principle of action adopted or proposed by an organization or individual. • In case of Foreign trade policy, it is released by Ministry of commerce, India.

  19. Contd….. • Objective of FTP:- • To double India’s share in global merchandise trade in coming five years. • To improve economic growth & employment. • FTP contains negative list of export. • Banned items • Restricted list of goods • Allowed to export all goods which are not included in negative list

  20. Contd….. • Country of Export • Presently export is allowed to all countries except Iraq , to export in Iraq exporter needs to take prior approval is to be obtained.