export finance-countertrade and forfaiting
Post on 03-Apr-2018
222 Views
Preview:
TRANSCRIPT
-
7/28/2019 Export Finance-Countertrade and Forfaiting
1/26
Export Finance
Role of ECGC Primary goal is to supportand strengthen the export promotion drive- provides a range of credit risk insurance
covers to exporters against loss in exportof goods and services as also by offeringguarantee covers to banks and FIs
-
7/28/2019 Export Finance-Countertrade and Forfaiting
2/26
Export Finance
Refinance
Different types of Export DeferredPayment Export, Project Exports, DeemedExports.
Different types of exporters
Trade Controls Exchange Control
-
7/28/2019 Export Finance-Countertrade and Forfaiting
3/26
Export Finance
Pre-shipment Finance packingcredit,advance against duty drawback /incentives, cheque purchase
Features of P/C
Who can avail P/C ? Basic eligibilitycriteria
Export Order country of import, last dateof shipment
-
7/28/2019 Export Finance-Countertrade and Forfaiting
4/26
Export Finance
Maximum period of finance
Maximum amount of finance
Type of account Repayment
PCFC
-
7/28/2019 Export Finance-Countertrade and Forfaiting
5/26
Export Finance
Post-Shipment credit
After shipment and submission ofdocuments to bank
Against evidence of shipment of goods
From date of shipment till date ofrealisation
By way ofpurchase/discounting/negotiation of exportbills - self liquidating in nature
-
7/28/2019 Export Finance-Countertrade and Forfaiting
6/26
Export Finance
Post Shipment quantum
Different types of Post-shipment finance(1) Export Billsnegotiated/purchased/discounted (2)Export Bills sent on collection (3) Exporton consignment basis
-
7/28/2019 Export Finance-Countertrade and Forfaiting
7/26
Export Finance Post Shipment
Buyers Credit a financial arrangementwhereby a financial institution in theexporting country extends a loan to a
foreign buyer to finance purchase of goodsand services from the exporting country
Suppliers Credit a financingarrangement where exporter extendscredit to the buyer in the importing countryto finance the buyers purchase
-
7/28/2019 Export Finance-Countertrade and Forfaiting
8/26
Forfaiting
-
7/28/2019 Export Finance-Countertrade and Forfaiting
9/26
Forfaiting is used for international trade transactions.
Forfaiting is the purchase, on a non-recourse basis, of aseries of notes, usually bills of exchange or other
promissory notes, which are freely negotiable andtransferable, and which arise from the provision of goodsor services.
Forfaiting provides a flexible, creative alternative totraditional international trade financing methods, and isparticularly useful for transactions with buyers indeveloping nations.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
10/26
The forfaiter deducts interest at an agreed ratefor the full credit period covered by notes.
The debt instruments are drawn by the exporter(seller) and accepted by the importer (buyer),and will bear an aval, or unconditionalguarantee.
The guarantee will normally be issued by theimporters bank.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
11/26
-
7/28/2019 Export Finance-Countertrade and Forfaiting
12/26
FORFAITING OPERATING PROCEDURE
APPLICATIONFOR LC
IMPORTER
EXPORT COUNTRYCUSTOMS /
REGULATORYCLEARANCE
2
EXPORTERS
BANK /
NEGOTIATING
BANK
INLAND MOVEMENTOF GOODS
EXPORTER
EXPORT DOCS/ASSIGNMENT OF
PROCEEDS
37
IMPORTERS BANK/
LC ISSUING BANK1
TRANSFEROF FUNDS
IMPORT COUNTRYCUSTOMS/ REGULATORY
CLEARANCE
INLANDMOVEMENTOF GOODS
LC ISSUED
NOTICE OFASSIGNMENT
FORFAITING
BANK
REPAYMENTAT MATURITY
8
CONFIRMATIONOFASSIGNMENT
4NOTICE OFASSIGNMENT
6ASSIGNMENT
OF PROCEEDS
5
-
7/28/2019 Export Finance-Countertrade and Forfaiting
13/26
What documents are required by the
Forfaiter from the exporter?
Usually required are:
a) Copy of supply contract, or of its payment terms
b) Copy of signed commercial invoice
c) Copy of shipping documents including certificates ofreceipt, railway bill, airway will, bill of lading or equivalentdocuments
d) Letter of assignment and notification to the guarantor
e) Letter of guarantee, or aval The aval is the Forfaiters'
preferred form of security of payment of a bill or note.For an aval to be acceptable, the avalizing bank must beinternationally recognized and credit worthy.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
14/26
What are the commonly used debt
instruments?
Letter of credit
Promissory notes, Bills of exchange (or drafts)
-
7/28/2019 Export Finance-Countertrade and Forfaiting
15/26
Forfaiting as a Risk Mitigation andSales Tool
Since there is a direct relationship between sales & financing manycompanies use Forfaiting as a means to grant credit terms to theirforeign buyers.
In a forfaiting transaction , the exporter sells his trade receivable,usually evidenced by a negotiable instrument, such as a Bill ofExchange, or a Promissory Note, to a financier, for cash, andwithout recourse.
Forfaiting technique starts at the beginning of the selling cycle,before a sale is concluded, and at the beginning of the negotiationprocess.
It is critical that the forfaiter be involved in the preliminary process,before any pricing discussions are held between the exporter andbuyer.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
16/26
What information does a Forfaiter need?
The Forfaiter needs to know : who the buyer is and his nationality;
what goods are being sold;
detail of the value and currency of the contract;
the date and duration of the contract,
the credit period and number and timing of payments(including any interest rate already agreed with thebuyer).
what evidence of debt will be used (either promissorynotes, bills of exchange, letters of credit), and
the identity of the guarantor of payment (or avalor).
-
7/28/2019 Export Finance-Countertrade and Forfaiting
17/26
Forfaiting eliminates:
COUNTRY / POLITICAL RISK
CURRENCY / TRANSFER RISK
FINANCIAL / COMMERCIAL RISK
-
7/28/2019 Export Finance-Countertrade and Forfaiting
18/26
Export-Import Bank of India (Exim Bank) and AD Bankshave been permitted to undertake forfaiting, for financingof export receivables.
Remittance of commitment fee / service charges, etc.,payable by the exporter as approved by the Exim Bank/
AD Banks concerned may be done through an AD Bank.
Such remittances may be made in advance in one lumpsum or at monthly intervals as approved by the authorityconcerned.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
19/26
How does Forfaiting work in practice?
In a typical Forfait transaction, the sequence is as follows:
1) The exporter approaches a Forfaiter who confirms that he is willing to quoteon a prospective deal, covering the export in x months' time bearing the avalof XYZ Bank.
2) If the transaction is worth $1M, the Forfaiter will calculate the amount of thebills/notes, so that after discounting the exporter will receive $1M, and willquote a discount rate of 'n' per cent.
3) The Forfaiter will also charge for 'x' days grace and a fee for committinghimself to the deal, worth 'y per cent per annum computed only on theactual number of days between commitment and discounting.
4) The Forfaiter will stipulate an expiry date for his commitment (that is, whenthe paper should be in his hands). This period will allow the exporter to shiphis goods and get his bills/notes avalized and to present them fordiscounting.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
20/26
5) The exporter gets immediate cash on presentation of relevantdocuments, and the importer is then liable for the cost of thecontract and receives credit for 'z years at 'n' per cent interest.
6) Many exporters prefer to work with Forfait brokers who, because
they deal with a large number of Forfait houses, can assure theexporter of competitive rates on a timely and cost effective basis.
7) Brokers typically charge a nominal 1% fee to arrange thecommitment. This is a onetime fee on the principal amount and
frequently is added to the selling price by the exporter.
8) The broker frequently consults with the exporter to structure thetransaction to fit the Forfait market.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
21/26
Countertrade
-
7/28/2019 Export Finance-Countertrade and Forfaiting
22/26
Countertrade is exchanging goods or services that arepaid for, in whole or part, with other goods or services.
Agreement by one nation to buy a product from anothersubject to the purchase of some or all of the componentsand raw materials from the buyer of the finished product,or the assembly of such product in the buyer nation
-
7/28/2019 Export Finance-Countertrade and Forfaiting
23/26
There are five main variants of countertrade:
Barter: Exchange of goods or services directly for other goods orservices without the use of money as means of purchase orpayment.
Switch trading: Practice in which one company sells to another itsobligation to make a purchase in a given country.
Counter purchase : Sale of goods and services to a country by acompany that promises to make a future purchase of a specificproduct from the country.
Buyback occurs when a firm builds a plant in a country - or suppliestechnology, equipment, training, or other services to the country -and agrees to take a certain percentage of the plant's output as
partial payment for the contract. Offset : Agreement that a company will offset a hard - currency
purchase of an unspecified product from that nation in the future.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
24/26
Counter-Trade Arrangement
Counter trade proposals involving adjustment of value of goodsimported into India against value of goods exported from India interms of an arrangement voluntarily entered into between the Indianparty and the overseas party through an Escrow Account opened inIndia in U.S. dollar is considered by the Reserve Bank.
(i) All imports and exports under the arrangement should be atinternational prices in conformity with the Foreign Trade Policy andForeign Exchange Management Act, 1999 and the Rules andRegulations made there under.
(ii) Application for permission for opening an Escrow Account may bemade by the overseas exporter/organisation through his AD Banksto the concerned Regional Office of the Reserve Bank.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
25/26
(iii) No interest will be payable on balances standing to thecredit of the Escrow Account but the funds temporarilyrendered surplus may be held in a short-term deposit upto a total period of three months in a year (i.e., in a block
of 12 months) and the banks may pay interest at theapplicable rate.
(iv) No fund based/or non-fund based facilities would bepermitted against the balances in the Escrow Account.
-
7/28/2019 Export Finance-Countertrade and Forfaiting
26/26
In 2000, India and Iraq agreed on an "oil for wheat andrice" barter deal, subject to UN approval under Article 50of the UN Gulf War sanctions, that would facilitate300,000 barrels of oil delivered daily to India at a price of
$6.85 a barrel while Iraq oil sales into Asia were valuedat about $22 a barrel.
In 2001, India agreed to swap 1.5 million tonnes of Iraqi
crude under the oil-for-food program.
top related