Description
The PPT explaining about forfaiting is the method of export trade financing, especially when dealing in capital goods (which have long payment periods) or with high risk countries.
FORFAITING
BANKING AND FINANCIAL SERVICES
Outline
? ? ? ? ?
?
? ? ? ? ? ?
Understanding The Term Parties Involved Characteristics Process Process Diagram Eligibility Role Of EXIM Bank Cost Involved Benefits To Exporter Benefits To Importer Limitations References
Understanding The Term
?
Method of export trade financing, especially when dealing in capital goods (which have long payment periods) or with high risk countries
…cont
?
Forfaiting is a mechanism of financing exports.
? By
discounting export receivables ? Evidenced by bills of exchange or promissory notes ? Without recourse to the seller (viz. exporter) ? Carrying medium to long term maturities ? On a fixed rate basis (discount) ? Up to 100 % of the contract value
Parties Involved
1.
2.
3. 4. 5. 6.
Exporter (India) Importer (Abroad) Exporter’s Bank (India) Importer’s/Avalising Bank (Abroad) EXIM Bank (India ) Forfaiter (Abroad)
Characteristic
?
?
?
?
?
Credit is extended by the exporter for period ranging between 180 days to 7 years. Minimum bill size should be US$ 250,000/(US$ 500,000/- is preferred) The payment should be receivable in any major convertible currency. An L/C or a guarantee by a bank, usually in importer's country. The contract can be for either goods or services.
Process
?
?
?
A bank advances cash to an exporter against invoices or promissory notes guaranteed by the importer's bank The amount advanced is always 'without recourse' to the exporter, and is less than the invoice or note amount as it is discounted by the bank The discount rates depends on the terms of the invoice/note and the level of the associated risk.
Process..cont ( Diagram )
Process..cont
• Commercial contract : Exporter & Foreign Buyer • Commitment to Forfaite B/E , P/N • Delivery of Goods by Exporter to Buyer • Delivery of BE / PN to Bank to EXIM Bank
Process…cont
• Endorsement of BE / PN without recourse • Cash Payment/ through a Nostro Account • Presentation of BE / PN to Buyer on maturity • Payment of Debt Instrument on maturity
Eligibility
?
All exports of capital goods and other goods made on medium to long term credit are eligible to be financed through Forfaiting
Role Of EXIM Bank
?
?
?
The role of Exim Bank will be that of a facilitator between the Indian exporter and the overseas Forfaiting agency Exim Bank will obtain indicative and firm Forfaiting quotes - discount rate, commitment and other fees - from overseas agencies It will issue appropriate certificates to enable Indian exporters to remit commitment fees and other charges
Cost Involved
?
A Forfaiting transaction has typically three cost elements:
? Commitment ? Discount
fee
fee ? Documentation fee
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 up to 100 % of export value It is a “Without Recourse” finance Hedges against Interest and Exchange Risks
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.
?
?
Benefits To Importer…cont
?
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
?
Limitations
?
?
? ?
Non-availability for short Periods Non-availability for financially weak countries Dominance of western currencies Difficulty in procuring international bank’s guarantee
References
?
? ? ?
www.investorwords.com www.wikipedia.org www.eximbankindia.com www.tradeport.org
doc_397564317.pptx
The PPT explaining about forfaiting is the method of export trade financing, especially when dealing in capital goods (which have long payment periods) or with high risk countries.
FORFAITING
BANKING AND FINANCIAL SERVICES
Outline
? ? ? ? ?
?
? ? ? ? ? ?
Understanding The Term Parties Involved Characteristics Process Process Diagram Eligibility Role Of EXIM Bank Cost Involved Benefits To Exporter Benefits To Importer Limitations References
Understanding The Term
?
Method of export trade financing, especially when dealing in capital goods (which have long payment periods) or with high risk countries
…cont
?
Forfaiting is a mechanism of financing exports.
? By
discounting export receivables ? Evidenced by bills of exchange or promissory notes ? Without recourse to the seller (viz. exporter) ? Carrying medium to long term maturities ? On a fixed rate basis (discount) ? Up to 100 % of the contract value
Parties Involved
1.
2.
3. 4. 5. 6.
Exporter (India) Importer (Abroad) Exporter’s Bank (India) Importer’s/Avalising Bank (Abroad) EXIM Bank (India ) Forfaiter (Abroad)
Characteristic
?
?
?
?
?
Credit is extended by the exporter for period ranging between 180 days to 7 years. Minimum bill size should be US$ 250,000/(US$ 500,000/- is preferred) The payment should be receivable in any major convertible currency. An L/C or a guarantee by a bank, usually in importer's country. The contract can be for either goods or services.
Process
?
?
?
A bank advances cash to an exporter against invoices or promissory notes guaranteed by the importer's bank The amount advanced is always 'without recourse' to the exporter, and is less than the invoice or note amount as it is discounted by the bank The discount rates depends on the terms of the invoice/note and the level of the associated risk.
Process..cont ( Diagram )
Process..cont
• Commercial contract : Exporter & Foreign Buyer • Commitment to Forfaite B/E , P/N • Delivery of Goods by Exporter to Buyer • Delivery of BE / PN to Bank to EXIM Bank
Process…cont
• Endorsement of BE / PN without recourse • Cash Payment/ through a Nostro Account • Presentation of BE / PN to Buyer on maturity • Payment of Debt Instrument on maturity
Eligibility
?
All exports of capital goods and other goods made on medium to long term credit are eligible to be financed through Forfaiting
Role Of EXIM Bank
?
?
?
The role of Exim Bank will be that of a facilitator between the Indian exporter and the overseas Forfaiting agency Exim Bank will obtain indicative and firm Forfaiting quotes - discount rate, commitment and other fees - from overseas agencies It will issue appropriate certificates to enable Indian exporters to remit commitment fees and other charges
Cost Involved
?
A Forfaiting transaction has typically three cost elements:
? Commitment ? Discount
fee
fee ? Documentation fee
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 up to 100 % of export value It is a “Without Recourse” finance Hedges against Interest and Exchange Risks
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.
?
?
Benefits To Importer…cont
?
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
?
Limitations
?
?
? ?
Non-availability for short Periods Non-availability for financially weak countries Dominance of western currencies Difficulty in procuring international bank’s guarantee
References
?
? ? ?
www.investorwords.com www.wikipedia.org www.eximbankindia.com www.tradeport.org
doc_397564317.pptx