Forfaiting Finance from EXIM Bank

Forfaiting Finance from EXIM Bank :

A new financing option for the exporters is available under Forfaiting Finance Scheme introduced by the EXIM Bank. Forfaiting is a form of trade finance involving discounting of medium-term export receivables with or without recourse to the exporter. The arrangement envisages discounting exporters of bill of exchange / promissory notes relating to export transactions which are avalised or guaranteed by the buyer's bankers with overseas forfaiting agencies on without recourse basis.

Briefly, the procedure involved in the scheme of forfaiting finance by Exim Bank is as follows.

Exporter initiates negotiations with the prospective overseas buyer with regard to the basic contract price, period of credit, rate of interest, etc.

After successful negotiations, he furnishes the relevant particulars such as name and country of overseas buyer, contract value, nature of goods, tenure of credit, name and country of guaranteeing bankers to the Exirn Bank and requests for an indicative discounting quote. Exim Bank obtains the indicative quote of forfaiting discount together with commitment fee and other charges, if any, to be paid by exporter, from an overseas forfaiting agency.

On receipt of the indicative quote from the Exim Bank, the exporters finalises the terms of the contract, loading the discount and other charges in the value and approaches Exim Bank for obtaining a firm quote. Exim Bank arranges to get the same from an appropriate overseas forfaiting agency and furnishes the same to the exporter. At this stage, exporter would be required to confirm acceptance of arrangement to Exim Bank within a specific period as stipulated that Bank.

The export contract should clearly indicate that the overseas buyer shall prepare a series of avalised Promissory Notes in favour of exporter and hand them over against the shipping documents to banker. The Promissory Notes will be endorsed with the words without recourse by the exporter and handed over to his banker in onward transmission to the Exim Bank.

Alternatively, the export contract may provide for exporter to draw a series of Bills of Exchange on the overseas buyer which will be sent with the shipping documcnts through latter's banker for acceptance by the overseas buyer. Overseas buyer's banker will handover the documents against acceptance of Bills of Exchange by the buyer and signature of aval or the guaranteeing bank. Avalised and accepted bills of exchange will be returned to the exporter through his banker. Exporter will endorse avalised Bills of Exchange with the words without recourse and return them to his banker for onward transmission to the Exim Bank.

Exim Bank will forward the Bills of Exchange / Promissory Notes after verification to the forfaiting agency for discounting by the latter.

Exim Bank will arrange to collect the discounted proceeds Promissory Notes / Bill of Exchange from the overseas forfeiting agency and effect payment to the nostro account of the exporter bank as per the latter's instruction .

The exporter's bank in turn will pass the proceeds to the exporter.

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