Pre-shipment Trade Finance- How Enterprise Benefits

Pre-Shipment Credit in Foreign Currency Pre-Shipment Credit in Foreign Currency (PCFC) is provided by a bank to an exporter for financing purchase, processing, manufacturing or packing of goods before shipment. PCFC’s main aim is to provide access of credit to exporters at an internationally competitive rate. PCFC is provided to an exporter based on the Letter of Credit that is issued in the name of exporter, by an overseas importer through his bank. In RBI terms any form of evidence of an order for the shipping from the country stating that an order has been places from the exporter or specific person is accepted as Letter of Credit by a bank. Exporter can avail Pre shipment credit in two different ways, one he can be availed in the form of foreign currency which gives an advantage to access internationally competitive rates, and pay the bills in the foreign currency at the post shipment stage. These rates are taken from LIBOR (London Inter-Bank Offer Rates). Exporter can also avail Pre shipment credit in INR (Indian Rupees) and pay the bills in INR or preferred foreign currency.

Indian importers can avail PCFC in any one of the convertible currencies but at present Pre-shipment credit in Foreign Currency is given in USD, EURO and GBP subjected to availability of funds. PCFC can be extended to convertible currency regardless of which currency the export order is invoiced.

The interest rates for Pre-Shipment Credit in Foreign Currency will be taken in respective to LIBOR, the lending rates to the exporter should not exceed 0.75% over LIBOR excluding withholding taxes. LIBOR rates are available for standard period of 1,2,3,6 and 12 months. Banks can also quote rates for non-standard period but it should ensure that the rates quoted must be below the next upper standard period rate. Packing credit in INR is available for a specific period decided by the sanctioning authorities after consideration of relevant factors with maximum period of 180 days and branches should monitor the end use of the credit. PCFC must be utilised for export purpose only and must not be deviated for domestic purpose. Pre-shipment credit can be granted in foreign currency as well as Indian rupee but the credit limits assessment is done in Indian rupee only. Credit limits are assessed on the bases of working capital cycle at pre-shipment and postshipment according to the existing method. The foreign currency portion is decided on the basis of Foreign Exchange Dealers Association of India (FEDAI). Importer must make sure that there are enough margins available to cover the interest on PCFC advances. The margins on PCFC should be as per the sanctions terms or EEFC component, whichever is higher. Get more information about Foreign Exchange