Export Financing & Trade Finance in India: Pre-shipment, Post-shipment and Schemes

Export financing bridges the gap between when an exporter pays for production and when the buyer pays for the shipment. Without it, even a profitable export order can choke a small exporter's cash flow. India has a mature trade-finance ecosystem backed by RBI, EXIM Bank and ECGC. This guide explains the main instruments and schemes.

Why export financing matters

A typical export cycle:

• Day 0: Buyer confirms order, advance received.
• Day 30: Production starts, raw material purchased.
• Day 60: Production complete, inspection done.
• Day 75: Shipment, BL issued.
• Day 90–150: Buyer pays balance (under LC / usance / open account).

For 60–150 days, the exporter's cash is locked in raw material, work-in-progress and finished goods. Export financing releases this cash.

Types of export finance

### Pre-shipment finance - **Purpose**: Finance raw material, production and packing before shipment. - **Type**: Working capital loan from the exporter's bank. - **Security**: Export order or LC. - **Tenor**: Typically 90–180 days. - **Rate**: Concessional rate under the RBI Pre-shipment Credit scheme. - **Sub-types**: Against confirmed export order, against LC, against deemed exports.

### Post-shipment finance - **Purpose**: Finance the period between shipment and realisation of proceeds. - **Type**: Advance against shipping documents, bills purchased/discounted. - **Tenor**: Up to the credit period extended to the buyer (e.g., 60–180 days). - **Rate**: Concessional rate under the RBI Post-shipment Credit scheme.

### Packing Credit (PCFC) in foreign currency - **Purpose**: Pre-shipment finance denominated in foreign currency (USD, EUR). - **Why**: Cheaper than rupee packing credit (linked to LIBOR / SOFR). - **Eligibility**: Exporters with firm orders or LCs. - **Tenor**: Typically 90–180 days, aligned with shipment cycle. - **Risk**: Currency mismatch if exports are not realised in the same currency.

### Bills discounting / Bill purchase - **Purpose**: Immediate payment against shipping documents under LC or otherwise. - **Type**: Bank purchases/discounts the export bill at a discount. - **Recourse**: Typically with recourse — if the buyer doesn't pay, the exporter refunds. - **Use case**: Bridge the gap between shipment and buyer payment.

### Factoring - **Purpose**: Sell export receivables to a factor (bank / factoring company) for immediate cash. - **Type**: With recourse or without recourse. - **Use case**: Open-account exports where the exporter wants immediate cash. - **Cost**: Discount charge + factor fee (typically 0.5–2%).

### Forfaiting - **Purpose**: Discount medium/long-term export receivables (180 days to 5 years) without recourse. - **Use case**: Capital goods exports, large project shipments with deferred payment terms. - **Players**: EXIM Bank of India offers forfaiting services.

ECGC (Export Credit Guarantee Corporation of India)

ECGC, a government-owned entity, provides credit insurance to exporters:

• **ECGC Whole Turnover Policy**: Covers all exports on a whole-turnover basis.
• **ECGC Specific Shipment Policy**: Covers a specific shipment / buyer.
• **ECGC Buyer Cover**: Covers default by a specific buyer.
• **Lines of Credit / ECIB (Export Credit Insurance for Banks)**: Covers banks that extend pre/post-shipment finance.

ECGC cover reduces exporter risk on buyer default and political events, and improves bank finance terms.

EXIM Bank of India

EXIM Bank supports Indian exporters through:

• Pre-shipment credit.
• Post-shipment credit.
• Buyer's credit (loans to overseas buyers of Indian goods).
• Lines of credit to overseas governments / banks.
• Forfaiting and refinancing.

Government-backed schemes

### Interest Equalisation Scheme (IES) - Subsidises interest on pre/post-shipment export credit. - Currently 2% / 3% equalisation (varies by category and policy). - Available to MSME and certain non-MSME exporters.

### Gold Card Scheme - For exporters with good track record. - Faster sanction, better terms, higher limits.

### Market Access Initiative (MAI) - Government funding for export promotion activities. - Trade fairs, Buyer-Seller Meets, market research.

How export finance flows in practice

### Example 1: Pre-shipment + post-shipment finance 1. Exporter receives confirmed LC for USD 100,000. 2. Bank sanctions pre-shipment packing credit of INR 35 lakhs (against the LC). 3. Exporter produces goods, ships. 4. Bank discounts the post-shipment bill for USD 100,000 less discount. 5. Buyer's bank pays under the LC; exporter's bank adjusts the packing credit.

### Example 2: PCFC + ECGC cover 1. Exporter gets a USD 100,000 order at 30% advance + 70% before BL. 2. Bank sanctions USD 50,000 PCFC (linked to SOFR + spread). 3. ECGC specific shipment policy covers the 70% balance. 4. Exporter produces, ships, realises balance, repays PCFC.

How to access export finance in India

1. **Have an IEC, GST and current account with an AD Category-I bank.** 2. **Maintain a clean track record** of export realisation. 3. **Approach your bank's export credit cell** with: - Export order or LC. - Supplier / production plan. - ECGC policy reference. - Past export performance. 4. **Negotiate limits**: packing credit, post-shipment, PCFC. 5. **Use the Interest Equalisation Scheme** to subsidise interest.

Common mistakes

• Not applying for packing credit and using working capital at full commercial rates.
• Not buying ECGC cover on new / risky buyers.
• Mismatched currency between PCFC and export realisation (currency loss).
• Discounting bills with recourse without understanding the recourse risk.
• Not realising export proceeds within RBI timelines (typically 9 months for goods), losing incentive eligibility.
• Not filing the LUT and trying to pay IGST on exports.

FAQ

**Q: What is the difference between pre-shipment and post-shipment finance?** A: Pre-shipment finance is for production (before shipment). Post-shipment finance is for the period between shipment and realisation of proceeds.

**Q: Is PCFC cheaper than rupee packing credit?** A: Usually yes — PCFC is linked to global rates (LIBOR / SOFR + spread). But currency mismatch risk applies.

**Q: Does ECGC cover political risk?** A: Yes. ECGC covers commercial risk (buyer default, insolvency) and political risk (war, exchange transfer restrictions).

**Q: What is the Interest Equalisation Scheme?** A: A government scheme that subsidises interest on export credit. The subsidy is credited to the exporter's account; the effective rate is reduced by 2% / 3% (varies by policy and category).

Key Takeaways

• Pre-shipment finance funds production; post-shipment finance funds the gap to realisation.
• PCFC is cheaper (foreign currency) but carries currency mismatch risk.
• ECGC cover reduces buyer / political risk and improves finance terms.
• EXIM Bank supports medium/long-term and large-ticket exports.
• Use the Interest Equalisation Scheme to subsidise interest on export credit.

Blueroute Exim (Surat, Gujarat) coordinates with AD Category-I banks and ECGC-covered shipments. For finance-related queries, contact us through the Request-a-Quote page.