Description
This is a presentation explains exporters & importers financing, pre-shipment, types of letter of credit, invoice, insurance, Forfaiting, global trade
EXPORT IMPORT FINANCE – BILLS, LCs and FORFAITING
Financial Services
1/31/2013
BODIES MONITORING FN EXCH
Exchange Control – R B I ? Trade Control – Min. of Com GOI ? Min of Foreign Trade – Enforcement Directorate, N Delhi ? F E D A I – Mumbai ? 13 Export Promotion Councils – all State Head Quarters in India ? Export Promotion Board, GOI ? FIEO New Delhi
?
2
Financial Services
1/31/2013
1. FACILITIES TO EXPORTERS
?
A. FUND BASED
? Pre-shipment
? Negotiation
Credit (Packing Credit facility) ? Post-Shipment Credit
/ Purchase / Discount of Export bills ? Post-shipment loans / Advances against B Cs ? Advances against claims of duty drawback
?
B. NON-FUND BASED
? Advising
/ Confirmation of export LCs ? Export Guarantees ? Forward Exchange Contracts ? Back to Back Letter of Credit issue
3
Financial Services
1/31/2013
FINANCING EXPORTERS
? a)
Pre-Shipment Finance
? Packing
Credit ? Advance against receivables/ Export incentives from Government of India
? b)
Post-Shipment Finance
? Negotiation
of Export Bills ? Advances against Bills under collection ? Others ...
4
A. PRE-SHIPMENT FINANCE ? A Working Capital facility
Purchase of raw material etc ? Covers all costs prior to shipment
?
Financial Services
1/31/2013
? Two
? an
essential features
Export Order and/or Confirmed Irrevocable Letter of Credit ? To Liquidate the advance out of proceeds of export bills negotiated
5
Financial Services
1/31/2013
B. POST SHIPMENT FINANCE or Discounting of Exp Bills ? Negotiation
?
Scrutinize the Export Documents
? Permissible
Currencies ? ? Permissible method of Payment ? ? All L/C terms have been complied with ? ? Customs certified GR / PP form obtained ? ? Validity of documents per EC Regulations ?
6
Financial Services
1/31/2013
LETTER OF CREDIT
7
LETTER OF CREDIT A letter (firm, absolute and autonomous
undertaking) issued by the importer’s bank in favour of the exporter undertaking that the bills drawn by the exporter up to a particular amount will be duly honored by the opening bank, provided the terms and conditions of the credit are strictly complied with by the exporter.
Financial Services
1/31/2013
IN SIMPLE, L C IS A
Written assurance of an issuing bank … ? Given to the seller / exporter / beneficiary ? On instructions from the importer (applicant) ? To effect payment …. ? Up to a stated sum of money ? Provided the seller presents all specified documents evidencing shipment of goods or performance of services agreed upon ? Within the prescribed period of time.
?
9
Financial Services
1/31/2013
U C P D C - 600
Uniform Customs and Practices for Documentary Credits, 1993 ? Revision – Publication No. 500 ? In force from January 01, 1994 ? UCPDC 600 from 2007 ? 49 Articles covering all aspects ? International Chamber of Commerce (ICC), Paris ? Sets in all terms and conditions ? Scope for arbitration by ICC
?
10
Financial Services
1/31/2013
S W I F T, BRUSSELS
Society for Worldwide Inter-bank Financial Telecommunications ? Created under Belgian law ? In operation since May 1977 ? Comprises computer network system for all member banks ? Speed, Security and Efficiency
?
11
?
?
Buyer / Importer ? Seller / Exporter / / Opener / Beneficiary Applicant ? Advising / Confirming / Notifying Bk Buyer’s Bank/ Issuing Bank/ ? Paying /Negotiating Opening Bank/ Bank Establishing ? Exporter’s Bank Bank
PARTIES TO AN L C
Financial Services 1/31/2013
12
TYPES OF LETTERS OF CREDIT
Financial Services 1/31/2013
1.
2.
3. 4. 5. 6.
7.
8. 9.
Irrevocable Letter of Credit Revocable Letter of Credit Confirmed Credit Deferred Payment Credit Acceptance Credit Revolving Letter of Credit Transferable Credit Back to Back Credit and Red Clause Credit
13
Financial Services
1/31/2013
CONTENTS IN A LETTER OF CREDIT
Terms - Date, Price, Ports, Qly, Qty,… ? Draft / Bill of Exchange (in Duplicate/Triplicate) ? Commercial Invoice - FOB, CIF, C & F, etc ? Bill of Lading - Complete set ( No.of Copies) ? Certificate of Origin ? Marine Insurance Policy - 110 % CIF Value ? Consular Invoice ? Fumigation Certificate ? Weight Certificate
?
14
Financial Services
1/31/2013
DOCUMENTS UNDER LC
? 1.
Bill of Exchange or Draft
? Date
: Demand or Usance ? LC Amount ? Value - FOB or CIF ? Drawee arrangements ? in sets of 2 or 3
15
2.INVOICE & PACKING LIST
Financial Services 1/31/2013
Description of Goods ? Quantity, ? Rate ? Amount ? Ports of shipment and destination ? Freight prepaid or payable at destination
?
16
3. INSURANCE
Mode of shipment ? Port of Shipment and Destination ? Transshipment permitted ? ? Cover Note, Certificate allowed ? ? Type of Risks covered ? Amount - FOB or CIF + 10 %
?
17
Financial Services
1/31/2013
4. BILL OF LADING Shippers or their A receipt from
Financial Services 1/31/2013
?
Agents ? A Document of Title to Goods (UCPDC) ? Received for Shipment or On Board ? ? In sets of 2 or 3 ? ? Negotiable and non-Negotiable copies ? Types of B/L - Clean, Chartered
18
SOME DISCREPANCIES IN EXPORT DOCUMENTS
Financial Services 1/31/2013
1.L C already expired 2.Late Shipment of Goods 3.Late presentation of Documents 4.Bill amount in excess of L C amount 5.Shipments made to different Port 6.Partial Shipment/ Transshipment done 7.B L or AWB not signed properly or not stamped properly or not authenticated...
19
Financial Services
1/31/2013
DISCREPANCIES….
8. Insufficient or incomplete set of BL 9. Defective BL - eg Received for Shipment 10. “On Board” - not authenticated in BL 11.Variations in Packages/Weights/specifics 12.Inconsistency among the different docs. 13.Inadequate or defective Insurance cover
20
ADVANCES AGAINST INCENTIVES FROM GOVT..
Financial Services 1/31/2013
Duty Drawback : Export Incentives in the form of refund of Excise / Customs Duty ? Advances for these @ lower rates of interest
?
21
SOME FACTORS TO CONSIDER
Financial Services
1/31/2013
Flexible attitude to margins,security ? Exporters capacity to execute Order ? Quantum of Finance -commensurate ? ? Standing of the LC Opening Bank ? ? Status Report on overseas Buyer ? ? Country Risk in the importer’s country ?
?
22
SOME FACTORS ...
?
Financial Services
1/31/2013
Exporters to comply with Ex Control Registration - IE Code No. from DGFT ? ? Possession of Exp L I C or Quota/EPC ? ? Availability of ECGC Cover/Guarantee ? ? Spread of Risk-large number of buyers? ? Risk - covered by Forward Contract ? ? Any restrictions in importer’s country ?
23
AD s to extend PSC for >180 days up to <270 days without prior clearance ? “Running Account Facility” can be given ? Given at concessional rate of interest, each packing credit to be kept separate ? Amount of advance can be FOB Value or Domestic Market Value lower of the two
?
24
RBI RELAXATIONS TO EXPORTS
Financial Services 1/31/2013
2. FINANCING IMPORTERS
?
? Under
Financial Services
1/31/2013
Term Loan for machinery
LC or DPG
?
Working Capital for day-to-day needs
? Under
LC or Purchase Contract ? Raw Material - imported or indigenous ? Others - spares or components etc
25
RETIREMENT OF IMPORT BILLSunder terms of LC ? Strictly
Financial Services 1/31/2013
? Scrutiny
of all documents viz., BE, BL, Invoice, Packing List, Insurance, Certificate of Origin, Consular Invoice, etc
Release Payment by debit to TL / CC ? Formalities connected to goods release
?
?C
& F Agents ? Customs formalities
?
Charge on Assets as usual
26
Financial Services
1/31/2013
FACTORING
A continuing arrangement between Factor and a “client” (seller of goods/services”) ? It is purchasing the client’s a/cs receivables - with or without recourse, ? Maintenance of Sales Ledger ? Collection of Receivables from Customer ? Follow up and ? Sending of Statements, Adv Services
?
27
Financial Services
1/31/2013
FORFAITING OR FORFEITING ?
?
Yet another form of long-term factoring;
?
Right to future payment of cash forfeited through receiving discounted cash flows;
Expected to be in 21st Century banking…
28
?
Financial Services
1/31/2013
WHAT IS FORFAITING ?
“Forfait” is derived from French word “a forfait” which means forfeiting or surrender of rights ? It is a mechanism of financing exports
?
? by
discounting export receivables ? evidenced by Bills of Exchange or PN ? without recourse to the seller (viz exporter) ? carrying medium to long term maturities ? on a fixed rate basis (discount) ? upto 100 per cent of the contract value
29
Financial Services
1/31/2013
SIX PARTIES IN FORFAITING
1.
2.
3. 4.
5.
6.
Exporter (India) Importer (Abroad) Exporter’s Bank (India) Importer’s/Avalising Bank (Abroad) EXIM Bank (India ) Forfaiter (Abroad)
30
Financial Services
1/31/2013
FORFAITING : 8 STEPS
1.
2.
3.
4.
5.
Coml contract : Exporter & Foreign Buyer Commitment to Forfait B Exch / Pro Notes Delivery of Goods by Exporter to Buyer Delivery of B Ex / PN to Bank to EXIM Bk Endorsement of BE / PN without recourse
31
FACTORING VS FORFAITING
S.NO
1.
Financial Services
1/31/2013
FORFAITING
100% FINANCE
FACTORING
RESTRICTED TO 80%
2.
PURE FINANCING ARRANGEMENT
PACKAGE OF SERVICES
3.
APPLICABLE FOR DEFERRED TRANSACTIONS
SHORT TERM FINANCING ARRANGEMENT
FACTORING – CLOSER FOLLOW UP OF RECEIVABLES
32
FACTORING VS FORFAITING
S.NO
4.
Financial Services
1/31/2013
FORFAITING
FACTORING
ONLY INTERNATIONAL FOR BOTH DOMESTIC AND TRADE INTERNATIONAL TRANSACTIONS BASED ON FINANCIAL STANDING OF THE “AVALLING BANK” BASED ON EXPORTER’S AND IMPORTER’S STANDING
5.
6.
ALWAYS WITHOUT RECOURSE
MAY BE WITH OR WITHOUT RECOURSE
FACTORING – FOLLOWS UP EACH INVOICE
33
Financial Services
1/31/2013
FORFAITING VS. EXPORT FACTORING
Forfaiting discounts 100% value of Bill ? Avalising Bank provides unconditional and irrevocable guarantee for Forfaiting ? Forfaiting is a pure financing arrangement ? Forfaiting covers Notes and Bills for Long Term & Deferred Payments : 3-7 years ? Forfaiter charges for and covers Exchange Rate fluctuations risk
?
34
Financial Services
1/31/2013
FORFAITING MEANS...
?
Forfaiting is the discounting of trade receivables, without recourse to the Exporter
It is a highly flexible technique that allows an Exporter to grant attractive credit terms to foreign Buyers, without tying up cash flow or assuming the risks of possible late payment or default. Simultaneously, the Exporter is fully protected against interest and/or currency rates moving unfavourably during the credit period
Forfaiting is a highly effective sales tool, which simultaneously improves cash-flow and eliminates risk.
35
Financial Services
1/31/2013
LONDON FORFAITING ....
? ?
?
? ? ? ?
Applications and tenors Typical applications and tenors Commodities (oil, coal, rice, grain, etc.) Financed from 90 days to 18 months Services (engineering, design, maintenance, etc.) Financed from 180 days to 3 years. Technology (software, computers, communications, etc.) Financed from 180 days to 5 years. Capital equipment (machine tools, generators, tractors, etc.) Financed from 2 to 7 years Turn Key Plants (power generation, asphalt production, etc.) Financed from 3 years to 7 years Construction/Project (hospitals, airports, factories, etc) Financed from 3 years to 7 years.
36
Financial Services
1/31/2013
WHAT IS DISCOUNTABLE?
Generally, to discount a receivable without recourse, there should be a document evidencing the debt owed by the Buyer to the Exporter. This debt can be evidenced by a wide range of documentation such as: ? · Promissory Notes ? · Bills of Exchange ? · Letters of Credit / Standby Letters of Credit
?
37
Financial Services
1/31/2013
WHAT IS DISCOUNTABLE?.....
?
Open Book Receivables, subject to certain conditions
In most instances, the debt will need to bear the unconditional, irrevocable and freely transferable guarantee or the Aval of an acceptable bank in the Buyer's country. ? In some cases however, London Forfaiting can consider top tier corporate or government debt without additional bank
38
Financial Services
1/31/2013
ROLE OF EX-IM BANK OF INDIA
?
EXIM Bank (estd 1982) is authorised by RBI A facilitator between Indian Exporters and the overseas Forfaiting Agency
?
?
EXIM Bank obtains quotes from Forfaiter
39
Financial Services
1/31/2013
EXIM BANK AND FORFAITING
Arranged the first Transaction in 199394 ? Credit Periods range from 90 days to 7 yrs ? Goods covered - textiles, plant & m/c etc
? ?
Countries - Brazil, Germany, Ghana, Guyana, Indonesia, Iran, Paraguay, Saudi Arabia, South Africa and Turkey
40
Financial Services
1/31/2013
CHARGES IN FORFAITING
?
Commitment Fee (to Forfaiter) Discounting Fee (to Forfaiter) Documentation Fee (EXIM Bank)
?
?
?
Intermediary Service Fee, if any.
41
Financial Services
1/31/2013
BENEFITS TO EXPORTERS
Converts a Deferred Payment export into a cash transaction, improves liquidity ? Frees Exporter from cross-border political or commercial risks associated ? Finances upto 100 percent of export value ? It is a “Without Recourse” finance ? Hedges against Interest and Exchange Risks
?
42
Financial Services
1/31/2013
-BENEFITS TO THE IMPORTER
? ? ?
?
?
The Importer can match repayments to projected revenues, allowing for grace periods. The Importer can obtain 100% financing, and avoid paying out cash in advance. The Importer can pay interest on a fixed rate basis for the life of the credit, which will make budgeting simpler and safer. The Importer can access medium to long term financing which may be prohibitively expensive or completely unavailable locally. The Importer may be able to take advantage of export subsidy schemes which are often available from the Exporter's government.
43
Financial Services
1/31/2013
OTHER IMPORTANT FEATURES
?
Normally receivables of 1-7 years covered Export Contract should be in any major currency US Dollars, Pound Sterling, Japanese Yen, Euro etc Minimum value is of US $ 500,000 Forfaiting Quotes depend on the country risk perceived by the Agency
?
?
?
44
Financial Services
1/31/2013
SOME MAJOR/ACTIVE FORFAITERS
Banque Indosuez Aval ? Amsterdam Rotterdam Bank ? Chase Investment Bank PIc ? Barclays Bank PIc ? Citicorp Investment Bank PIc ? Midland Bank Aval, Hungarian International Bank ? Banque Indosuez Sogem Aval ? Standard Bank, London Forfaiting Asia,
?
45
Financial Services
1/31/2013
LIST OF SOME FORFAITERS
Standard Bank, London ? Hong Kong Bank ? Indo Aval ? ABN AMRO Bank ? Meghraj Financial Services ? Triumph International Finance India Ltd., ? Natwest Bank and ? West LB + EXIM Bk + IFC : GTF, India
?
46
Financial Services
1/31/2013
GLOBAL TRADE FINANCE PVT LTD
Co-founded by West Lb Bank (Germany)40%, International Finance Corp – 25% and EXIM Bank of India – 35% shareholding ? EXIM MD is Chairman of GTF ? To carry out Factoring and Forfaiting in India ? Capital Base of Rs. 45 crore – from 2001 ? In 2002-03, factoring t/o of Rs. 500 crore
?
47
Financial Services
1/31/2013
SUGGESTED WEBSITES
? ?
?
? ? ? ? ? ?
www.forfaiting.com www.forfaiting.co.uk www.meridianfinance.com www.mezraforfaiting.com www.londonforfaiting.com www.eximbankindia.com www.ecgcindia.com www.afia-forfaiting.org www.indianexportregister.com
48
Financial Services
1/31/2013
BOOKS ON FORFAITING
Ref : Mezra / London Forfaiting ? Guide to Forfaiting by Lutschg : 2 Parts ? Forfaiting for Exporters by Andy Ripley : Amazon.com ? Forfaiting (1986) by Ian Guild ? EXIM Bank of India Booklet ? Indian Institute of Bankers, Mumbai Booklet ? NIBM, Vinimaya ? ICFAI – Chartered Financial Analyst
?
49
Financial Services
1/31/2013
THANKS
50
doc_851556007.ppt
This is a presentation explains exporters & importers financing, pre-shipment, types of letter of credit, invoice, insurance, Forfaiting, global trade
EXPORT IMPORT FINANCE – BILLS, LCs and FORFAITING
Financial Services
1/31/2013
BODIES MONITORING FN EXCH
Exchange Control – R B I ? Trade Control – Min. of Com GOI ? Min of Foreign Trade – Enforcement Directorate, N Delhi ? F E D A I – Mumbai ? 13 Export Promotion Councils – all State Head Quarters in India ? Export Promotion Board, GOI ? FIEO New Delhi
?
2
Financial Services
1/31/2013
1. FACILITIES TO EXPORTERS
?
A. FUND BASED
? Pre-shipment
? Negotiation
Credit (Packing Credit facility) ? Post-Shipment Credit
/ Purchase / Discount of Export bills ? Post-shipment loans / Advances against B Cs ? Advances against claims of duty drawback
?
B. NON-FUND BASED
? Advising
/ Confirmation of export LCs ? Export Guarantees ? Forward Exchange Contracts ? Back to Back Letter of Credit issue
3
Financial Services
1/31/2013
FINANCING EXPORTERS
? a)
Pre-Shipment Finance
? Packing
Credit ? Advance against receivables/ Export incentives from Government of India
? b)
Post-Shipment Finance
? Negotiation
of Export Bills ? Advances against Bills under collection ? Others ...
4
A. PRE-SHIPMENT FINANCE ? A Working Capital facility
Purchase of raw material etc ? Covers all costs prior to shipment
?
Financial Services
1/31/2013
? Two
? an
essential features
Export Order and/or Confirmed Irrevocable Letter of Credit ? To Liquidate the advance out of proceeds of export bills negotiated
5
Financial Services
1/31/2013
B. POST SHIPMENT FINANCE or Discounting of Exp Bills ? Negotiation
?
Scrutinize the Export Documents
? Permissible
Currencies ? ? Permissible method of Payment ? ? All L/C terms have been complied with ? ? Customs certified GR / PP form obtained ? ? Validity of documents per EC Regulations ?
6
Financial Services
1/31/2013
LETTER OF CREDIT
7
LETTER OF CREDIT A letter (firm, absolute and autonomous
undertaking) issued by the importer’s bank in favour of the exporter undertaking that the bills drawn by the exporter up to a particular amount will be duly honored by the opening bank, provided the terms and conditions of the credit are strictly complied with by the exporter.
Financial Services
1/31/2013
IN SIMPLE, L C IS A
Written assurance of an issuing bank … ? Given to the seller / exporter / beneficiary ? On instructions from the importer (applicant) ? To effect payment …. ? Up to a stated sum of money ? Provided the seller presents all specified documents evidencing shipment of goods or performance of services agreed upon ? Within the prescribed period of time.
?
9
Financial Services
1/31/2013
U C P D C - 600
Uniform Customs and Practices for Documentary Credits, 1993 ? Revision – Publication No. 500 ? In force from January 01, 1994 ? UCPDC 600 from 2007 ? 49 Articles covering all aspects ? International Chamber of Commerce (ICC), Paris ? Sets in all terms and conditions ? Scope for arbitration by ICC
?
10
Financial Services
1/31/2013
S W I F T, BRUSSELS
Society for Worldwide Inter-bank Financial Telecommunications ? Created under Belgian law ? In operation since May 1977 ? Comprises computer network system for all member banks ? Speed, Security and Efficiency
?
11
?
?
Buyer / Importer ? Seller / Exporter / / Opener / Beneficiary Applicant ? Advising / Confirming / Notifying Bk Buyer’s Bank/ Issuing Bank/ ? Paying /Negotiating Opening Bank/ Bank Establishing ? Exporter’s Bank Bank
PARTIES TO AN L C
Financial Services 1/31/2013
12
TYPES OF LETTERS OF CREDIT
Financial Services 1/31/2013
1.
2.
3. 4. 5. 6.
7.
8. 9.
Irrevocable Letter of Credit Revocable Letter of Credit Confirmed Credit Deferred Payment Credit Acceptance Credit Revolving Letter of Credit Transferable Credit Back to Back Credit and Red Clause Credit
13
Financial Services
1/31/2013
CONTENTS IN A LETTER OF CREDIT
Terms - Date, Price, Ports, Qly, Qty,… ? Draft / Bill of Exchange (in Duplicate/Triplicate) ? Commercial Invoice - FOB, CIF, C & F, etc ? Bill of Lading - Complete set ( No.of Copies) ? Certificate of Origin ? Marine Insurance Policy - 110 % CIF Value ? Consular Invoice ? Fumigation Certificate ? Weight Certificate
?
14
Financial Services
1/31/2013
DOCUMENTS UNDER LC
? 1.
Bill of Exchange or Draft
? Date
: Demand or Usance ? LC Amount ? Value - FOB or CIF ? Drawee arrangements ? in sets of 2 or 3
15
2.INVOICE & PACKING LIST
Financial Services 1/31/2013
Description of Goods ? Quantity, ? Rate ? Amount ? Ports of shipment and destination ? Freight prepaid or payable at destination
?
16
3. INSURANCE
Mode of shipment ? Port of Shipment and Destination ? Transshipment permitted ? ? Cover Note, Certificate allowed ? ? Type of Risks covered ? Amount - FOB or CIF + 10 %
?
17
Financial Services
1/31/2013
4. BILL OF LADING Shippers or their A receipt from
Financial Services 1/31/2013
?
Agents ? A Document of Title to Goods (UCPDC) ? Received for Shipment or On Board ? ? In sets of 2 or 3 ? ? Negotiable and non-Negotiable copies ? Types of B/L - Clean, Chartered
18
SOME DISCREPANCIES IN EXPORT DOCUMENTS
Financial Services 1/31/2013
1.L C already expired 2.Late Shipment of Goods 3.Late presentation of Documents 4.Bill amount in excess of L C amount 5.Shipments made to different Port 6.Partial Shipment/ Transshipment done 7.B L or AWB not signed properly or not stamped properly or not authenticated...
19
Financial Services
1/31/2013
DISCREPANCIES….
8. Insufficient or incomplete set of BL 9. Defective BL - eg Received for Shipment 10. “On Board” - not authenticated in BL 11.Variations in Packages/Weights/specifics 12.Inconsistency among the different docs. 13.Inadequate or defective Insurance cover
20
ADVANCES AGAINST INCENTIVES FROM GOVT..
Financial Services 1/31/2013
Duty Drawback : Export Incentives in the form of refund of Excise / Customs Duty ? Advances for these @ lower rates of interest
?
21
SOME FACTORS TO CONSIDER
Financial Services
1/31/2013
Flexible attitude to margins,security ? Exporters capacity to execute Order ? Quantum of Finance -commensurate ? ? Standing of the LC Opening Bank ? ? Status Report on overseas Buyer ? ? Country Risk in the importer’s country ?
?
22
SOME FACTORS ...
?
Financial Services
1/31/2013
Exporters to comply with Ex Control Registration - IE Code No. from DGFT ? ? Possession of Exp L I C or Quota/EPC ? ? Availability of ECGC Cover/Guarantee ? ? Spread of Risk-large number of buyers? ? Risk - covered by Forward Contract ? ? Any restrictions in importer’s country ?
23
AD s to extend PSC for >180 days up to <270 days without prior clearance ? “Running Account Facility” can be given ? Given at concessional rate of interest, each packing credit to be kept separate ? Amount of advance can be FOB Value or Domestic Market Value lower of the two
?
24
RBI RELAXATIONS TO EXPORTS
Financial Services 1/31/2013
2. FINANCING IMPORTERS
?
? Under
Financial Services
1/31/2013
Term Loan for machinery
LC or DPG
?
Working Capital for day-to-day needs
? Under
LC or Purchase Contract ? Raw Material - imported or indigenous ? Others - spares or components etc
25
RETIREMENT OF IMPORT BILLSunder terms of LC ? Strictly
Financial Services 1/31/2013
? Scrutiny
of all documents viz., BE, BL, Invoice, Packing List, Insurance, Certificate of Origin, Consular Invoice, etc
Release Payment by debit to TL / CC ? Formalities connected to goods release
?
?C
& F Agents ? Customs formalities
?
Charge on Assets as usual
26
Financial Services
1/31/2013
FACTORING
A continuing arrangement between Factor and a “client” (seller of goods/services”) ? It is purchasing the client’s a/cs receivables - with or without recourse, ? Maintenance of Sales Ledger ? Collection of Receivables from Customer ? Follow up and ? Sending of Statements, Adv Services
?
27
Financial Services
1/31/2013
FORFAITING OR FORFEITING ?
?
Yet another form of long-term factoring;
?
Right to future payment of cash forfeited through receiving discounted cash flows;
Expected to be in 21st Century banking…
28
?
Financial Services
1/31/2013
WHAT IS FORFAITING ?
“Forfait” is derived from French word “a forfait” which means forfeiting or surrender of rights ? It is a mechanism of financing exports
?
? by
discounting export receivables ? evidenced by Bills of Exchange or PN ? without recourse to the seller (viz exporter) ? carrying medium to long term maturities ? on a fixed rate basis (discount) ? upto 100 per cent of the contract value
29
Financial Services
1/31/2013
SIX PARTIES IN FORFAITING
1.
2.
3. 4.
5.
6.
Exporter (India) Importer (Abroad) Exporter’s Bank (India) Importer’s/Avalising Bank (Abroad) EXIM Bank (India ) Forfaiter (Abroad)
30
Financial Services
1/31/2013
FORFAITING : 8 STEPS
1.
2.
3.
4.
5.
Coml contract : Exporter & Foreign Buyer Commitment to Forfait B Exch / Pro Notes Delivery of Goods by Exporter to Buyer Delivery of B Ex / PN to Bank to EXIM Bk Endorsement of BE / PN without recourse
31
FACTORING VS FORFAITING
S.NO
1.
Financial Services
1/31/2013
FORFAITING
100% FINANCE
FACTORING
RESTRICTED TO 80%
2.
PURE FINANCING ARRANGEMENT
PACKAGE OF SERVICES
3.
APPLICABLE FOR DEFERRED TRANSACTIONS
SHORT TERM FINANCING ARRANGEMENT
FACTORING – CLOSER FOLLOW UP OF RECEIVABLES
32
FACTORING VS FORFAITING
S.NO
4.
Financial Services
1/31/2013
FORFAITING
FACTORING
ONLY INTERNATIONAL FOR BOTH DOMESTIC AND TRADE INTERNATIONAL TRANSACTIONS BASED ON FINANCIAL STANDING OF THE “AVALLING BANK” BASED ON EXPORTER’S AND IMPORTER’S STANDING
5.
6.
ALWAYS WITHOUT RECOURSE
MAY BE WITH OR WITHOUT RECOURSE
FACTORING – FOLLOWS UP EACH INVOICE
33
Financial Services
1/31/2013
FORFAITING VS. EXPORT FACTORING
Forfaiting discounts 100% value of Bill ? Avalising Bank provides unconditional and irrevocable guarantee for Forfaiting ? Forfaiting is a pure financing arrangement ? Forfaiting covers Notes and Bills for Long Term & Deferred Payments : 3-7 years ? Forfaiter charges for and covers Exchange Rate fluctuations risk
?
34
Financial Services
1/31/2013
FORFAITING MEANS...
?
Forfaiting is the discounting of trade receivables, without recourse to the Exporter
It is a highly flexible technique that allows an Exporter to grant attractive credit terms to foreign Buyers, without tying up cash flow or assuming the risks of possible late payment or default. Simultaneously, the Exporter is fully protected against interest and/or currency rates moving unfavourably during the credit period
Forfaiting is a highly effective sales tool, which simultaneously improves cash-flow and eliminates risk.
35
Financial Services
1/31/2013
LONDON FORFAITING ....
? ?
?
? ? ? ?
Applications and tenors Typical applications and tenors Commodities (oil, coal, rice, grain, etc.) Financed from 90 days to 18 months Services (engineering, design, maintenance, etc.) Financed from 180 days to 3 years. Technology (software, computers, communications, etc.) Financed from 180 days to 5 years. Capital equipment (machine tools, generators, tractors, etc.) Financed from 2 to 7 years Turn Key Plants (power generation, asphalt production, etc.) Financed from 3 years to 7 years Construction/Project (hospitals, airports, factories, etc) Financed from 3 years to 7 years.
36
Financial Services
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WHAT IS DISCOUNTABLE?
Generally, to discount a receivable without recourse, there should be a document evidencing the debt owed by the Buyer to the Exporter. This debt can be evidenced by a wide range of documentation such as: ? · Promissory Notes ? · Bills of Exchange ? · Letters of Credit / Standby Letters of Credit
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WHAT IS DISCOUNTABLE?.....
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Open Book Receivables, subject to certain conditions
In most instances, the debt will need to bear the unconditional, irrevocable and freely transferable guarantee or the Aval of an acceptable bank in the Buyer's country. ? In some cases however, London Forfaiting can consider top tier corporate or government debt without additional bank
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ROLE OF EX-IM BANK OF INDIA
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EXIM Bank (estd 1982) is authorised by RBI A facilitator between Indian Exporters and the overseas Forfaiting Agency
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EXIM Bank obtains quotes from Forfaiter
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EXIM BANK AND FORFAITING
Arranged the first Transaction in 199394 ? Credit Periods range from 90 days to 7 yrs ? Goods covered - textiles, plant & m/c etc
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Countries - Brazil, Germany, Ghana, Guyana, Indonesia, Iran, Paraguay, Saudi Arabia, South Africa and Turkey
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CHARGES IN FORFAITING
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Commitment Fee (to Forfaiter) Discounting Fee (to Forfaiter) Documentation Fee (EXIM Bank)
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Intermediary Service Fee, if any.
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BENEFITS TO EXPORTERS
Converts a Deferred Payment export into a cash transaction, improves liquidity ? Frees Exporter from cross-border political or commercial risks associated ? Finances upto 100 percent of export value ? It is a “Without Recourse” finance ? Hedges against Interest and Exchange Risks
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-BENEFITS TO THE IMPORTER
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The Importer can match repayments to projected revenues, allowing for grace periods. The Importer can obtain 100% financing, and avoid paying out cash in advance. The Importer can pay interest on a fixed rate basis for the life of the credit, which will make budgeting simpler and safer. The Importer can access medium to long term financing which may be prohibitively expensive or completely unavailable locally. The Importer may be able to take advantage of export subsidy schemes which are often available from the Exporter's government.
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OTHER IMPORTANT FEATURES
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Normally receivables of 1-7 years covered Export Contract should be in any major currency US Dollars, Pound Sterling, Japanese Yen, Euro etc Minimum value is of US $ 500,000 Forfaiting Quotes depend on the country risk perceived by the Agency
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SOME MAJOR/ACTIVE FORFAITERS
Banque Indosuez Aval ? Amsterdam Rotterdam Bank ? Chase Investment Bank PIc ? Barclays Bank PIc ? Citicorp Investment Bank PIc ? Midland Bank Aval, Hungarian International Bank ? Banque Indosuez Sogem Aval ? Standard Bank, London Forfaiting Asia,
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LIST OF SOME FORFAITERS
Standard Bank, London ? Hong Kong Bank ? Indo Aval ? ABN AMRO Bank ? Meghraj Financial Services ? Triumph International Finance India Ltd., ? Natwest Bank and ? West LB + EXIM Bk + IFC : GTF, India
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GLOBAL TRADE FINANCE PVT LTD
Co-founded by West Lb Bank (Germany)40%, International Finance Corp – 25% and EXIM Bank of India – 35% shareholding ? EXIM MD is Chairman of GTF ? To carry out Factoring and Forfaiting in India ? Capital Base of Rs. 45 crore – from 2001 ? In 2002-03, factoring t/o of Rs. 500 crore
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SUGGESTED WEBSITES
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www.forfaiting.com www.forfaiting.co.uk www.meridianfinance.com www.mezraforfaiting.com www.londonforfaiting.com www.eximbankindia.com www.ecgcindia.com www.afia-forfaiting.org www.indianexportregister.com
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BOOKS ON FORFAITING
Ref : Mezra / London Forfaiting ? Guide to Forfaiting by Lutschg : 2 Parts ? Forfaiting for Exporters by Andy Ripley : Amazon.com ? Forfaiting (1986) by Ian Guild ? EXIM Bank of India Booklet ? Indian Institute of Bankers, Mumbai Booklet ? NIBM, Vinimaya ? ICFAI – Chartered Financial Analyst
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THANKS
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doc_851556007.ppt