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Export Finance
Export plays a dominant role in the economy of our country. In the export trade, exporter needs the finance at different stages right from the stage he gets an export order to supply the goods from an overseas buyer. The finance is required for procuring, processing, manufacturing, assembling and packaging the goods for export in the pre shipment stage. After the shipment is made, exporters sometimes will have to give credit to the importer for an agreed period and he has to wait for the value till the expiry of the credit period (maturity of export bill). Even if no credit is allowed to importer, the capital of the exporter is blocked till documents reach the importer, he makes the payment and the amount is collected by the exporter’s bank.

Thus the post shipment credit is required during the intervening period between the shipments of goods till receipt of payment there against. Therefore, these are two stages in export financing:

1. Pre Shipment Finance and
2. Post Shipment Finance.

The advance allowed for arranging goods falls into the category of pre shipment finance and the advance made against the shipping documents i.e. negotiation of foreign bills falls under the category of post shipment finance.
Pre Shipment Finance
Pre Shipment finance is a short term working capital finance specially provided to an exporter against the documentary evidence of having entered into export commitment. Pre Shipment Finance is granted at the stage prior to the shipment of goods and such finance is given to procure raw material, for paying manufacturing and packing charges and payment of insurance premium and freight. As and when the goods are shipped and shipping documents are obtained the pre shipment finance is to be liquidated against the proceeds of export documents tendered.

The banks grant pre shipment finance against documentary evidence either by way of an export letter of credit or a contract. Letter of Credit constitutes the most frequently used instrument for export of goods from Bangladesh. Readymade garments, which comprise a large chunk of Bangladesh’s export, are invariably exported against L/C because the underlying L/C constitutes the basis for opening Back to Back L/C (both local and foreign) for procuring fabric and accessories.

The Pre Shipment finance is categorized broadly as per following:

1. Back to Back L/C (Inland and Foreign)
2. Export Cash Credit (ECC)
3. Packing Credit (PC)
1. Back to Back L/C:
Under this arrangement the Bank finance an exporter by way of opening L/C for procuring raw material with a view to manufacture exportable goods as stated in the L/C received by the exporter from an overseas buyer. When an L/C is opened for procuring raw material with the back of an Export L/C or contract (an L/C/contract received from overseas buyer), the former on is termed as Back to Back letter of credit. In other words, the payment of an Import L/C (for procuring raw materials) is settled by the proceeds of Export L/C is called Back to Back L/C.
2. Export Cash Credit:
This type of facility is allowed to exporter for procuring and processing of goods. For export of traditional item like jute, tea and leather the facility can be extended up to 90% of the value of export L/C as contract. For garments industry this can be allowed between 10% - 15% based on the category of unit because the main raw material is procured through Back to Back L/C.
3. Packing Credit:
Packing Credit is allowed for making necessary preparation for shipment of goods. This finance generally covers cost of packing, transportation from godown to the port for shipment ware housing, insurance etc.

For traditional item like Jute, Tea, Leather etc. packing credit may be allowed up to 90% of invoice value against rail receipt/steamer receipt/Barge receipt. This credit is thus extended against submission of documents of title to goods showing loading of goods from the place of shipment to port for ultimate shipment to abroad.
Post Shipment Credit
This type of credit refers to the credit facilities extended to the exporters by EXIM bank after shipment of the goods against export documents. Necessity for such credit arises as the exporter can not afford to wait for a long time for payment to local manufacturers/suppliers. Before extending such credit, it is necessary to obtain report on creditworthiness the exporters and financial soundness of the buyers as well as other relevant documents connected with the exporter in accordance with the rules and regulations in force. Banks in our country extended post-shipment credit to the exporters through:

1. Negotiation of Documents under L/C.
2. Purchase of DP & DA bills.
3. Advance against Export Bills surrendered for collection.
Negotiation of Documents under L/C
Under this arrangement, after the goods are shipped, the exporter submits the concerned documents to the negotiating bank for negotiation. The documents should be negotiated strictly in accordance with the terms and conditions and within the period mentioned in the letter of credit.
Purchase of DP & DA Bills
In such a case, the banks purchase/discount the DP (Documents against payment) and DA (Documents against Acceptance) bills at rate published by the Exchange Rate Committee of authorized dealers. While doing so, the banks should scrutinize all the export documents separately and minutely and clear instructions are to be obtained from the drawer of the bill in regard to all important issues related to the negotiation of the bills.
Advance against bills for Collection
Banks generally accept export bills for collection of proceeds when they are not drawn under a L/C or when the documents, even through drawn against an L/C contain some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, he may obtain advance from the banks against the security of export bills. Banks may give advance ranging from 50 to 80 percent of the document’s value. In addition to the export bills, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property.

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