## Financing of Export Trade by Banks
Banks provide specialized finance to exporters both before goods are shipped and after. This ensures exporters have working capital throughout the export cycle.
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## Pre-Shipment Finance (Packing Credit)
### Meaning
Also called Packing Credit — a short-term advance given to exporters before goods are shipped to fund:
- Purchase, processing, and manufacturing of goods
- Packing and shipping expenses
### Eligibility
Exporter must hold either:
- A confirmed export order, OR
- An irrevocable Letter of Credit (LC)
### Liquidation
Must be repaid within 180 days from the date of advance — through export bill proceeds or foreign remittances.
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### Types of Pre-Shipment (Packing Credit)
| Type | Key Feature |
|---|---|
| Clean Packing Credit | Given without physical security of goods; based on firm order or LC alone |
| Against Hypothecation | Goods remain with exporter; bank has a charge over goods; requires stock statements |
| Against Pledge | Goods are under bank's physical control (lock and key) |
| ECGC Guarantee | Bank obtains credit risk cover from the Export Credit Guarantee Corporation |
| Forward Exchange Contract | Exporter enters forward deal with bank to hedge forex risk when billing in foreign currency |
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## Post-Shipment Finance
### Meaning
Finance given after goods are shipped and until the export payment is actually received from the foreign buyer.
### Forms of Post-Shipment Finance
| Form | Explanation |
|---|---|
| Discounting Export Bills | Bank discounts bills drawn under confirmed export sale — exporter gets funds immediately |
| ECGC Guarantee | Risk cover on non-payment by foreign buyer for post-shipment bills |
| Advance against Bills Sent for Collection | Finance while export bills are still in transit/collection process |
| Advance against Duty Drawbacks/Subsidies | Finance against government receivables (tax/duty refunds owed to exporter) |
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### Other Bank Facilities for Exporters
- Letters of Credit (LCs) for purchasing raw materials from suppliers
- Bank Guarantees — for advance payments, excise duty waivers
- Deferred Payment Export Credit
- Credit reports on foreign buyers (due diligence support)
- Trade and economic intelligence services
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> Key distinction: Pre-shipment finance → production funding. Post-shipment finance → receivables funding. Both bridge the cash flow gap in the export cycle.