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No banks would love to provide a loan to startups. 

So it's better to have a good tie up with MFG Units and Supplier & procure goods from them on Credit. 

However, as we grow Pre-Shipment & Post-Shipment facilities from the bank would be useful finance would be useful 

Pre Shipment = Finance procure before loading the goods into the vessel 

Post Shipment Finance = Finance procured after the goods loaded into the vessel 

Pre Shipment finance is very difficult for startups. Post Shipment Finance is comparatively easy. 

Loan against LC Draft / Packing Credit (Pre Shipment Finance) & Bill Discounting (Post Shipment Finance; we get our money as soon as we deposit all original docs in bank required by buyer ) Facilities we can get it from the bank. 

You should visit bank forex manager to open an current account in the bank and ask to them on above and below-given points.

1. EEFC Account merging with current account 

Exchange Earners' foreign currency account (EEFC) is an account maintained in foreign currency with an authorised dealer i.e. a bank dealing in foreign exchange. No interest is payable on EEFC accounts. Up to 100% foreign exchange earnings can be credited to the EEFC account & can be kept in foreign currency and could be converted at the convenient time of exporter into INR.  

2. Documentation Charges (If we send docs via a bank in case of DP/DA/LC Payment Terms) 

Every bank charges the cost for the documentation if needed to be routed via bank & payment transfer & conversion charge in case of DP/DA/LC Payment terms. 

3. Forward Contract (Hedging against currency fluctuation) 

A binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment.

Case Study In Hindi: https://www.youtube.com/watch?v=g44oaUGKtgk [Private Link, Only members can get access]

4. Bank Verification for Export-Import Business. 

One can easily do Export Import Business from home but many time some bank doesn't allow there account holders to operate the Exim business via home, so it's better to clarify before account opening.

Pre Shipment Finance is issued by a financial institution when the seller wants the payment of the goods before shipment. The main objectives behind pre-shipment finance or pre-export finance are to enable exporter to....................

The source from the supplier or to procure raw materials & carry out manufacturing process. Provide a secure warehouse for goods and raw materials.
Process and pack the goods.
Ship the goods to the buyers.
Meet another financial cost of the business.

Types of Pre Shipment Finance
Packing Credit
Advance against Post Dated Conformed Cheques/ LC Draft etc. representing Advance Payments.

Requirements for Getting Packing Credit
A ten digit importer-exporter code number allotted by DGFT. (IEC Code)
Exporter should not be in the caution list of RBI. If the goods to be exported are not under OGL (Open General Licence), the exporter should have the required license /quota permit to export the goods.

Packing credit facility can be provided to an exporter on the production of the following evidence to the bank:

1. Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit.

2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer.

3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted. The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIF), destination port and the last
date of payment.

Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own name. However, as an exception, financial institution can also grant credit to a third party manufacturer or supplier of goods who does not have export orders in their own name. In this case some of the responsibilities of meeting the export requirements have been out sourced to them by the main exporter. In other cases where the export order is divided between two more than two exporters, pre-shipment credit can be shared between them

Before disbursing the bank specifically check for the following particulars in the submitted documents
a. Name of buyer
b. Commodity to be exported
c. Quantity
d. Value (either CIF or FOB)
e. Last date of shipment / negotiation.
f. Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the domestic values of goods, whichever is found to be lower. Normally insurance and freight charged are considered at a later stage, when the goods are ready to be shipped. In this case disbursals are made only in stages and if possible not in cash. The payments are made directly to the supplier by drafts/bankers/cheques. The bank decides the duration of packing credit depending upon the time required by the exporter for processing of goods. The maximum duration of packing credit period is 180 days, however bank may provide a further 90 days extension on its own discretion, without referring to RBI.

Introduction

Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters don’t wait for the importer to deposit the funds.

Basic Features

The features of postshipment finance are:

Purpose of Finance

Postshipment finance is meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed exports, it is extended to finance receivable against supplies made to designated agencies.

Basis of Finance

Postshipment finances is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency.

Types of Finance

Postshipment finance can be secured or unsecured. Since the finance is extended against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In that case it involves advance against undrawn balance, and is usually unsecured in nature.

Further, the finance is mostly a funded advance. In few cases, such as financing of project exports, the issue of guarantee (retention money guarantees) is involved and the financing is not funded in nature.

Quantum of Finance

As a quantum of finance, postshipment finance can be extended up to 100% of the invoice value of goods. In special cases, where the domestic value of the goods increases the value of the exporter order, finance for a price difference can also be extended and the price difference is covered by the government. This type of finance is not extended in case of preshipment stage. Banks can also finance undrawn balance. In such cases banks are free to stipulate margin requirements as per their usual lending norm.

Period of Finance

Postshipment finance can be off short terms or long term, depending on the payment terms offered by the exporter to the overseas importer. In case of cash exports, the maximum period allowed for realization of exports proceeds is six months from the date of shipment. Concessive rate of interest is available for a highest period of 180 days, opening from the date of surrender of documents. Usually, the documents need to be submitted within 21days from the date of shipment.

Financing For Various Types of Export Buyer's Credit

Postshipment finance can be provided for three types of export :

Physical exports: Finance is provided to the actual exporter or to the exporter in whose name the trade documents are transferred.

Deemed export: Finance is provided to the supplier of the goods which are supplied to the designated agencies.

Capital goods and project exports: Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic exporter.

Supplier's Credit

Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale purchasing under a contract. Once the bank approved loans to the buyer, the seller shoulders all or part of the interests incurred.

Types of Post Shipment Finance

The post shipment finance can be classified as:

1. Export Bills purchased/discounted.

2. Export Bills negotiated

3. Advance against export bills sent on collection basis.

4. Advance against export on consignment basis

5. Advance against undrawn balance on exports

6. Advance against claims of Duty Drawback.

1. Export Bills Purchased/ Discounted.(DP & DA Bills)

Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or

purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility.

2. Export Bills Negotiated (Bill under L/C)

The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC.

However, this arises two major risk factors for the banks:

1. The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions.

In this case, the issuing banks do not honor the letter of credit.

2. The bank also faces the documentary risk where the issuing bank refuses to honour its

commitment. So, it is important for the for the negotiating bank, and the lending bank to properly

check all the necessary documents before submission.

3. Advance Against Export Bills Sent on Collection Basis

Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency.

Banks may allow advance against these collection bills to an exporter with a concessional rate of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill.

The transit period is from the date of acceptance of the export documents at the banks branch for collection and not from the date of advance.

4. Advance Against Export on Consignments Basis

Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee.

However, in this case bank instructs the overseas bank to deliver the document only against trust receipt/undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports. In case of export through approved Indian owned warehouses abroad the times limit for realization is 15 months.

5. Advance against Undrawn Balance

It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value. An undertaking is also obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.

6. Advance Against Claims of Duty Drawback

Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the inhouse cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets.

In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days. These are granted only if other types of export finance are also extended to the exporter by the same bank. After the shipment, the exporters lodge their claims, supported by the relevant documents to the relevant government authorities. These claims are processed and eligible amount is disbursed after making sure that the bank is authorized to receive the claim amount directly from the concerned government authorities.

Crystallization of Overdue Export Bills

Exporter foreign exchange is converted into Rupee liability, if the export bill purchase / negotiated /discounted is not realize on due date. This conversion occurs on the 30th day after expiry of the NTP in case of unpaid DP bills and on 30th day after national due date in case of DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the original bill buying rate, whichever is higher.

LC is a very familiar term that you know it very well, that if the buyer fails to pay then Bank will pay, but how true and simple is that !!!!

In actual LC is called the documentary Letter of Credit so we will coin the Documentary Credit or Documentary LC in this article. 

LC is the game of 4 Players 

1. Applicant - An importer who gives application to Open an LC to his bank. 

2. Issuing Bank - Opening Bank of Importer who opens an LC for the importer 

3. Beneficiary  - Exporter who will get the benefit of money once he follows Documentary LC terms. 

4. Advising Bank - Exporters Bank who is also called Negotiating bank whose role is to forward the documents to Issuing Bank. 

Now there is not much problem if this game remains with these 4 players but in this game, there are some more hidden players who could act as a spoiler if precautions not taken.

Conforming Bank - Its the bank who conforms and takes the guarantee and pays the money to an exporter who has done the proper formalities done of Documentary LC.

Q. Are Issuing Bank / Opening Bank [Bank of Importer] Called Conforming Bank?

A. No, Not Necessary, Generally issuing bank may select the Conforming Bank as per their choice who might not be that strong financially. 

So what should be done to safeguard the interest of Exporter?

A. The exporter may select the conforming bank of his choice, that is he must only accept the Documentary LC once he finds the Conforming bank Strong and reputed. 

Let us understand this by an example. 

Suppose A is a very reputed and credible bank in the USA. Buyer Opens LC from A Bank. Exporter Accepts the LC because he finds the A issuing bank as safe but in actual if A opt for conforming bank as B, then B would be liable for the money, in that normal course B has to pay money to the exporter at first and then he has to get the funds from the issuing bank A. Now if Conforming Bank B defaults then it would be very difficult to generate the funds from A Bank as they would be shooting up with the discrepancies in the LC. 

So How to Safeguard the Interest of Exporter, How Exporter could be safe?

A. The exporter may opt for the conforming bank [in his own country] as the same bank in which he has his own current account. Yes, our Indian bank, Exporter's bank [Advising bank] could be the conforming bank. Once it's confirmed by them its called the "Confirmed Documentary Letter of Credit". If conforming bank in India is reputed then we can take the control in the deal as we are the captain of SWIFT as we have an account there and can bind Conforming and Issuing Bank to pay us. In this case, we as an Exporter are better secured. 

Now let us understand the types of LC. 

1. Irrevocable Documentary LC - The Draft / Order can not be cancelled without the permission of Exporter once executed than its called Irrevocable LC. Now you must understand that you must also make it "Irrevocable and Confirmed Documentary Letter of Credit". Confirmed by the reputed bank [Recomanded for Startups]

2.Revocable LC - One of the most unsafe LC as buyer can cancel the deal anytime based on his wish. 

3. Transferable LC - Beneficiary [Exporter] could be transferred, in this case, the 1st Beneficiary has to tell to Applicant [Buyer] about the 2ed Beneficiary, Buyer will amend the draft and he will resend again, in this case, the 2ed Exporter is exposed to the buyer so there are chances that Buyer may prefer to order from 2ed Exporter for the future deals. 

Q. Can Transferable LC be irrevocable and Conformed? - Yes it could be "Irrevocable, Transferable and Conformed Documentary Credit"

4. Revolving LC - For long terms deals, frequent opening of LC from buyers end is not practically possible, so the buyer may prefer revolving documentary credit which could be prolonged to a year or two.

5. StandBy LC - In such documentary LC, the Applicant [Buyer] does not emphasise on shipping docs, the only exporter can submit in his letter pad that he has done the formalities of Documentary Letter of Credit, SBLC are generally never conformed and are not safe for startups. 

There are many such Documentary LCs like Green Clause LC or Red Clause LC which are outdated and are normally not used in the trade. In the Green Clause LC some claused are written with green ink which narrates the pre-shipment finance to be given to Exporter for shipment with the conformation of Buyer and its Bank in writing which is considered as collateral. Same is with Red Clause LC demanding Post shipment finance with red ink in Documentary LC. There are also many kind of LC such as Back to Back LC which is not the title or type of LC but its open twice which is coined at the end portion of this article. 

There is sub types in LC

1. At Sight - Its the DP with Bank Guarantee 

2. Deferred Payment - Usance LC like DA with Bank Guarantee

Now kindly understand why we are using the word "Documentary LC" again and again in this article?  - It's not only about this article but even in actual in every LC its written Documentary LC as we all know that Banks only Deal with the documents but not with the goods. 

A. As per the UCP and ISBP,  The issuing Bank only has to check the documents and if it's fine they will release the funds. Now understand the difference between the check and verify. UCP and ISBP say that Bank is not the Judge nor can act as a Judge. Banks could only be forced to verify and check the transport documents with the tired party, else for other documents like certificate of Inspection, Certificate of Origin, Insurance bank will check but may not verify with other agencies. In such a case, the importer may lose his money and may not receive any proper goods. 

Then how Importer could be safe in LC?

A. As per UCP and ISBP Guidelines, banks get 5 days to check the documents and verify the BL or Airwaybill, now importer has to understand he can take the copies of other docs like inspections and insurance and can verify it from the issuing agencies, an importer can also conduct survey at port and he has to set the LC expiry date long so that before signing the bills of exchange he may refuse to take the delivery of goods if found defective by the survey company but at the same time this goods must be rejected by the custom or government bodies like DGFT, moreover 5% tolerance has to be accepted by the importer if its in measurable units of KG. Else if tolerance 5% will not be allowed if Invoice and packing list Qty is in Pcs, how tolerance of 5% could be allowed in price per PCS [pieces] deal?

Now there are Key Points in the Documentary LC you must know

1. The bank is not the judge, whatsoever about the contract written in LC especially related to goods banks will only check that such things are written in docs, if they find the docs correct in terms of written description based on the draft they will release the funds i.e one has to understand that UCP and ISBP also instruct the banks to keep LC away from more contract terms in LC as banks deal only with documents but not with the goods, moreover they will take little effort the BL to verify from shipping line, for other docs bank may not be forced verify from respective agencies. 

2. Advising bank could be Conforming Bank, Negotiating Bank, Nominated Bank and Reimbursing Bank, all at the same time. 

3. When any Advising Bank could be used such LC issued by issuing bank is called Fully Negotiable LC it could be very risky if it remails conformed by Non-reputed bank or remains un conformed.

4. LC could not be termed as the sales contract based on UCP and ISBP guidelines. The documentary credit must be seen essentially as a tool to facilitate the process of payment against the performance as evidenced by the documents presented 

5. As per ICC: An issuing bank should, therefore, discourage or reject any attempt by the applicant to include excessive details of the contract in the Letter of Credit.

6. 21 Calander days are there in the exporter's hand to submit the required documents to the buyer after the latest shipment date. 

7. If latest shipment date missed then BL submitted to the bank would be considered as stale BL and payment would not be made. 

8. Even if Insurance not mentioned in List of Docs required from Buyer, then also Exporter has to present the Insurance copy if deal done on CIF Incoterms. 

9. The role of the nominated bank is to receive the documents from the exporter and forward it to the issuing bank, the exporter bank could not be liable for any missing of documents or payment delay or payment failure unless it's also the conforming bank.

10. If Non-Negotiable BL demanded in LC and god forbids if goods get cleared from the port without payment or docs then banks could not be held liable in case of such cases, so always make sure BL must be marked "To  ORDER of Bank"

At End lets discuss......

Back to Back LC.

When Exporter does not have funds and received LC then he may give this order to another exporter and earn comission or brokrage from another exporter. In Transfarable LC the buyer is exposed to seller as buyer only have the right to change the beneficiary in LC. But in case of Back to Back LC buyer remains the secret Hidden for the exporter. 

4 Basic Steps in Back to Back Documentary LC.

1. Exporters receive "irrevocable and conformed documentary credit at sight" from buyer's bank

2. Exporter asks his bank to open the 2ed "irrevocable and conformed documentary credit at sight" in favour of the local supplier. 

3. Banks open another LC based on 1st LC collateral so it's called Back to Back LC [2ed LC Opened], in this the supplier will not know the buyer as local supplier cant sees 1st LC. 

4. The exporter will send the goods to buyer sourced from a local supplier in credit, as he receives funds he would be paying back to the supplier

The Practical Challenges in Documentary LC

-> Inspite of Back to Back, most of the bank is demanding the security of money as par with the bill for startups because it might be possible that startup take the goods from a supplier and sell locally so the bank is not taking any risk.

-> Most LC comes from countries like Bangladesh, Iran, Africa are un-conformed. No bank is able to take any security of money so trade with them remains risky. 

-> Many countries like Ghana have lost the trust in banks in modern times because of more bank defaults people are worried and saying that their money are not safe in banks, so they are using mobile wallets and mobile money more https://qz.com/africa/1662059/ghana-is-africas-fastest-growing-mobile-money-market/

-> Even if banks do not get default due to clash between the issuing and confirming banks the funds of exporter gets struck. At the end, the exporter is being given with discrepancies in LC, which proves to be a very expensive loss for the exporter. 

-> After most powerful AAA rating bank in the USA : Lehman brothers bank bankrupt and collapse, no one is able to trust any company [thomas cook famous company collapse] or bank.

Cordially Yours,

Kishan Barai

Kindly do watch our Video : https://youtu.be/bMX_vc2H7pY

Step 1 : Download WRar Software in your PC : https://drive.google.com/file/d/1FXq6mlyWNJHfn7bG1-k_dYwrF9dFqsN7/view

Step 2 : Download the Attachment : Export Business Project Report Format in MS Word for Startups

Impact of Dollers in Exim for Indian Exporters in COVID-19 : Everything you need to know about the Dollar and it's current Behavior in the Era of Corona.

According to a report by the International Monetary Fund, the dollar is the most popular currency for trading in international business. Besides that, it represents the majority of the reserves of the world banks.

The reason why most international trade and businesses are managed with the dollar involved is due to the relative strength of the United States economy which represents a support for the value of the dollar. 65% of all dollars is used outside the United States.  When it comes to the currency market, most operations with currency pairs involve the US dollar.

The Dollar as the world currency

The USD is a currency that has never been devalued and its notes have never been invalidated. For countries that are affected by bank failures, devaluation and inflation, working with the stability of the US dollar is the best option, for that reason working with this currency in different businesses is easier. Many times the dollar can circulate more than the official currency of a country [For Eg. China Exports Revenue Bills of a particular category in USD can surpass its Local RMB currency sales if they export more] The British Virgin Islands, British Turks and Caicos Islands also use the U.S. dollar as their official currency of exchange even at the domestic level.

Anonymity and acceptability also play in favour, which is why it has become the world currency of choice. Therefore, USD has become the primary world currency.

The 5 Largest Economies In The World [2019/20]

1. United States is the world’s largest economy with a GDP of $21.44 trillion, constitutes one-fourth [25%] of the world economy.

2. China is the second-largest economy in the world with a GDP of $14.14 trillion, it makes up 16% of the global economy.

3. Japan is the third-largest economy in the world with a GDP of $5 trillion contributes almost 6% to the global GDP.

4. Germany is the fourth-largest economy with a GDP of $3.86 trillion contributes 4% of the global economy. [Largest economy in Europe, Germany is the best financially sound country in EU]

5. India is the fifth-largest economy with a GDP of $2.9 trillion contributes 3% of the global economy.

Latest Rank Referance : https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) & https://www.nasdaq.com/articles/the-5-largest-economies-in-the-world-and-their-growth-in-2020-2020-01-22

Will India win the #1 Race ? Can India be Super Rich ? ......... we are placed at #5 Now....... Game is ON...........

USD and INR relationship

USD is usually the base currency in a given pair.

However, in the case that two non-USD currencies are exchanged, for example, EUR and INR, said transaction will contain in each currency two pairs of USD and that is when we see the real importance between the USD and the INR (OR really any other currency); In order to obtain the EUR and the INR, you must first buy EURUSD and on the other hand, you must buy USDINR.

When it comes to the foreign exchange market, it is already quite clear that the USD represents 85% of all foreign exchange transactions and there is no other pair to match it. If we look at the main European currencies (EUR, GBP and CHF) these have a direct correlation with the USD, as well as the commodity currencies have theirs, here we talk about the CAD, AUD or NZD. Therefore, if a case arises in which the EURO rises against the USD, then the GBP and the CHF will also. Despite being very stable, the USD can be affected by the financial statements and reports of the US economy, and they will not only affect the dollar but also the other currencies, so if the USD weakens, gold, currencies, etc, are strengthened.

Important things you should know about INR:

- Our INR is the 15th most traded currency in the world.

 -INR daily participation in the foreign exchange market is 0.9%.

 -The INR has only one indication of value which is the USDINR pair, this means that it cannot be presumed that one goes up while the other goes down. In other words, USDINR can be consolidated if only the USD is strengthened worldwide, this also directly influences the economy of India. It is important to understand that all these changes will always depend on the purchase and sale and the movement of the market.

INR and Currency Swaps

First understand the Basics of Currency Swap : https://www.youtube.com/watch?v=uxF7m08cgJk

My View: Regarding currency swaps in India, despite the fact that Indian entities are becoming more aware of hedging instruments for exposures to changes that may arise, they have not yet managed to develop an active derivatives market, it is important to know that the majority of derivatives transactions in India are made with other currencies, such as the dollar.

The Reserve Bank of India also allowed entities in India to have the opportunity to access markets so that they can hedge long-term exposures in foreign currency through swaps with banks in India, also Rupees were allowed to be exchanged for foreign currencies.

Coronavirus and currency swaps in India: 

The coronavirus has had a major impact in all countries, as we said earlier, as far as India is concerned, the Reserve Bank of India (RBI) decided to address the shortage of dollars in the market by proposing the $ 2 swap billion for six months, in this way it seeks to alleviate the pressure on the rupee, which due to the impact of the coronavirus, advances towards its historical minimum.

This means that the RBI will sell dollars on the market now and then buy them six months later.

Coronavirus and its effect on the foreign exchange market: USD and other currencies

As you should already know, the coronavirus, formally known as Covid-19, emerged in China in December 2019. It has killed thousands of people and even hundreds of thousands are infected and in quarantine, unfortunately, the numbers continue to increase rapidly. The impact of the coronavirus on the economy has injected high levels of volatility into EUR / USD.

In the case of the dollar, in the different stages of the coronavirus outbreak, it was affected in different ways, the most important thing to keep in mind is that its value increased due to the fact that demand also did, thus gaining six per cent from its lowest point that was reached in early March.

Something curious also happens with the dollar, which differs from other currencies, this currency can be printed a large number of times without weakening.

In this way, the financial system of the United States has been maintained, according to a report by the United States Federal Reserve, more specifically, they have been injecting multiple trillions of dollars in liquidity and still, the value of the currency has not declined. The dollar also represents an attraction for companies as they are in dire need of cash by depleting their income.

Euro: As for the euro, which is another strong currency, it tends to fall and devalue in times of economic stress. But as the outbreak of this virus spread from China to Europe, the euro in the first instance advanced.

The reason is that many banks and operators were closing short positions they already had against the euro before the outbreak. So when those positions closed, the euro rose. However, the worst is expected, as a business activity has plummeted and many parts of Europe remain closed. As far as official reports and government moves are concerned, the European Central Bank is known to have not cut interest rates.

The Chinese economy and its impact on USD

The economy of each country is closely related to each other, if there is a significant event in an economy as large as that of China, then all the economies of the world will be affected. In this specific case, it appears that around $ 400 billion was removed from the Chinese stock market. It is also important to know that the People's Bank of China has already reduced interest rates and this has led them to introduce an additional 1.2 trillion Yuan in the Chinese banking system, however, the lack of tourism and the limited movement of citizens within and outside the country they represent a growing danger to the world economy. The Yuan has been severely affected, weakening compared to other currencies.

So at the end of the day, I would like to conclude by saying that USD is very strong & has good backup strategies but currencies are totally unpredictable in the era of corona due very low domestic consumption/business, so it would be most advisable for exporters to opt for Forward Cover facilities via Banks, in order to hedge funds at a fix price exchange rates as booked in advanced. Else try to Export in INR. 

Also read: https://edition.cnn.com/2020/03/20/investing/strong-dollar-coronavirus/index.html

HAPPY TRADING IN LOCKDOWN. STAY SAFE. DEAL SAFE

Cordially Yours,

Kishan Barai 

How to write off the unrealized invoice if export payment is not received? 

Based on RBI Guidelines explained by Kishan Barai to stay away from Caution List

Write-off of unrealized export bills 

1. After an exporter’s best efforts, if he has not been able to realize export overdue then either he reports self-write-off or approaches the Banks. While approaching Banks, these banks must be previously handled the relevant shipping documents before. Therefore, they should provide such shipping documents with appropriate and concrete documentary evidence in support. The unrealized export bills have certain limits in case of write-offs which are given below:

2. With mentioned limits, all paid proceeds of the export of the last year will be made available accumulatively in a year. Startup Exporter has to realize 95% of the money of Invoice Bill from Overseas anyhow but if he is unable to fetch 95% then he has to face the penalty of RBI which could be 30% to 150% or any % of the Invoice as per RBI because RBI may think that Exporter may have received the money via hawala or some other illegal monetary channel, so what to do to prove yourself genuine if the buyer is not paying you ? You need to take proper action steps against the buyer ....
3. The above-mentioned write-off limits will undergo the following conditions: How to do 100% write-off of Invoice? 10% to 100% Write-off of Invoice.
   1. For more than a calendar year, the relevant amount has been overdue.  
   2. On submission of satisfactory and complete documentary evidence, proved that the exporter has made all efforts in paying the dues. So if you are able to show yourself genuine then there are chances that RBI will forgive you. 
   3. The mentioned case classified as one of the following classifications:
      1. Foreign buyers proved to be unable to pay debts and official indication from a liquidator that recovery of payable or paid proceeds of export is not possible at all
      2. Foreign buyers proved to be untraceable for a long reasonable time
      3. The exported goods have been destroyed or offered by the Customs / Port / Health systems in the country where they have been imported
      4. In regard to settling the case by the mediation by any official organization such as the Foreign Chamber of Commerce and the Indian Embassy, the outstanding indicates the due amount.
      5. It should be made clear that the balance of an export bill has not been drawn (export bill equals or less than 10% of the total invoice value) and has been the unrealizable amount even after all the possible efforts done by the exporter
      6. In case of any legal proceedings, the cost of taking it would be out of proportion to the unpaid amount or it could be that exporter could not follow the Court’s order against the foreign buyer due to reasons beyond his control
      7. The overdue amounts have not been paid because the foreign buyer did not pay the seller despite, the difference between the credit’s letter (a document issued by a financial institution that ensures the payment from the buyer to seller) and net exports, bills were drawn.
4. If the exporter availed any of the relative shipments, then banks should collect documents representing the proportionate export incentives. Before permitting the relevant bills to be written off banks should be doing this on their priority.
5. If the write-off is being reported by the exporter himself then he has to bring a Chartered Accountant’s certificate to the bank. The certificate has to show the export realized in the previous year. Furthermore, it should also show any previously availed write-off amount of the current year and the previous year. This must show along with invoice value, relevant EDF - Export Declaration Form to be written off, exported commodity, Bill No. and name of the respective country, where the export happened. If he availed any of the export benefits and surrendered it, then this should be indicated by the CA certificate.
6. But, the write-off facilitation would not entertain the following points:
   1. There is an externalization problem in the country where exports have made. The central banking authorities of the country have not allowed being repatriating the value of export which has been deposited by the overseas buyer in local currency.
   2. The law enforcement agencies investigated the outstanding bills of civil / criminal suits, which are of the subject matter. These agencies could be Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc.
7. Export Data Processing and Monitoring System (EDPMS) by the Reserve Bank of India (RBI) should be used by banks to report write off.
8. It is advised that there should be a system in place, in banks, under which auditors or internal inspectors even external auditors hired or appointed by banks. This system should be carrying out a random or sudden sample or percentage check of outstanding export bills with write off.
9. Certain cases that are not falling under the mentioned instructions or are beyond the comprehension of the limits mentioned above, should be referred to RBI, to the concerned regional office.

  Export Demanded Rights

1. Banks may cancel export claims on the application if the export proceeds have already been converted and realized to Indian currency from official other source bank account, and the exporter is nowhere in caution list of the Reserve Bank
2. If the exporter had received any export benefits, he is expected to surrender the proportional amount in all cases of remittances.

Write off in cases when Insurance Regulatory and Development Authority (IRDA) and Export Credit Guarantee Corporation (ECGC) regulated private insurance companies are claiming payment of claims

1. Banks can be requested by the exporter to set aside the relative export bill report in EDPMS. For this, the exporter must bring supported documented proof from the ECGC or by the private insurance companies. The evidence should be proving that the claim regarding outstanding bills has been settled by the aforementioned authorities.
2. 10% is therefore not applicable to such write-off. Write-off would be in accordance with ECGC or insurance policy, for example ECGC is able to pay 80% of the bill value than 20% would be the write-off. 
3. It should be noted that export realization in foreign exchange is not interpreted as IRDA regulated private insurance companies and ECGC settling claims in rupees.
4. Claim settled by ECGC can be considered for incentives under FTP

  Caution List of Exporters

1. EDPMS automates the listing of cautioning/de-cautioning of exporters. Every day, the caution of exporters is being updated and can be accessed through EDPMS. In EDPMS, cautioning/de-cautioning criteria are given below:
   1. If any shipping bill against the exporter kept open in EDPMS for about two years or more while there is no extension that has been given by RBI / AD bank, he would be caution listed. The shipment date [Shipping Bill Date, not BL date] will be used to calculate the realization period.
   2. When the exporter will pay all the related bills or will receive an extension for realization then he will automatically de-caution listed.
   3. As recommended by the banks, if the expiration of two years hasn’t been reached, the exporters can be caution listed even. The basis of such recommendation will be if the exporter is:
      1. Exporter Not traceable
      2. In an attempt to not making any serious efforts bring export proceedings from Buyer
      3. Being investigated by law enforcement agency
      4. In such cases, bank may recommend caution list the exporter to the concerned regional office of RBI.

My Payment is not arrived from foreign in full, how can I make an application to the bank to avoid the RBI penalty or to save my company reputation from caution list or blacklist by RBI for Export-Import?

First of all, don't panic.... you have your ECGC who will pay your money... no worries... even if you don't have ... then never worry about RBI issues if you are correct...  you can submit your application to your bank and bank will forward it to RBI. There are no fixed rules to punish you If you are genuine then no need to worry with proper steps and justification you can satisfy RBI 

Request for Write Off of Export Bills

I/We hereby request you to permit us to write off the export dues as mentioned below, as we could not realise the same despite our best efforts.

1. Name and address of the exporter : 

2. IEC Number allotted by DGFT :

3. Shipping Bill Number :

4. Customs Serial No :

5. Date of shipment :

6. Name/address of the Overseas Buyer :

7. Invoice value :

8. Terms of payment (DP/DA/LC/Open Account)

9. If usance bill, was it accepted by Drawee : Bills of Exchange Details

10. Amount realized : 

11. Amount of write off sought :

12. Export proceeds realised during the previous: in USD

13. a) Aggregate write off permitted earlier during

the calendar year - Not demanded to write off previously

b) Percentage of write off already approved (to

exportrealisation during previous calendar

year through us.) - Not demanded to write off previously

14. Reasons for non-realisation - Enter your true emotional story in details which could enter into the hearts of RBI 

15. Steps were taken for realisation - 

• Approached Debt Collection Agencies like MNS Credit & MAH International [Such reputed Agencies don't charge any advance money from the exporter, they only charge once they succeed to bring money from your overseas buyer]
• FIR filed 
• Legal Case open against Buyer 
• Approached International Chamber of Commerce 
• Lodge the claim in ECGC for default of the buyer or Marine Insurance Companies as buyer not accepted the BL or Docs via bank, they are returned and we are processing for marine insurance due to transit damage of goods, etc. 
• Approached abroad Embassy and Chamber of Commerce for recovery 

16. Export Bill Reference No. of the Bank. [Kindly ask this to bank]

17. If present write off Request is granted, percentage of

total write off during the calendar year to previous

calendar years actual export realisation through us. - Not demanded to write off previously

We furnish herewith the following documentary evidence to substantiate our request.

(i) Certificate of insolvency of the Buyer issued by official liquidator.

(ii) Certificate issued by Indian High Commission etc. that the Buyer is not traceable.

(iii) Certificate issued by Port/Customs/Health authority that perishable goods have been

Destroyed/auctioned and ECGC claim is lodge for non-payment of the buyer. 

(iv) Estimate of cost of legal action issued by overseas solicitors :

We further undertake to surrender relative export incentives received in connection with this shipment to the authorities/agencies concerned. We also declare that the above export bills are not subject matter of civil/criminal suit and that there are no cases against us by CBI, Enforcement Directorate and such other agencies.

Thanking you,

Place : Yours faithfully,

Date :

(Signature with seal)

Space for branch use

M/s. _________________________________________ enjoy following limits with us.

Nature Limit Outstandings Overdue if any

Packing Credit (Only if availed)

We certify that

i) The details as mentioned above by the exporter are correct.

ii) All the conditions as per relevant Exchange Control Regulation have been

complied with.

iii) Preshipment/post-shipment finance against the relative shipment is recovered along with interest and necessary charges.

iv) Their dealings with us are satisfactory.

We recommend for approval of write off the unrealised export dues by exporter.

For Bank

Branch :

Date :

Dy. Manager/Manager(Forex)/Chief Manager

Space for Approving Authority

Write off of Shipping Bill as detailed above approved.

For Bank

Asst. General/Deputy General Manager

Download Now ->https://drive.google.com/file/d/185gXQHzQ-5Zy7Id5dLeG1F42HbKDUGef/view?usp=sharing

GUARANTOR Could be Importer’s Bank / Buyer’s Bank or Buyer / Third Party on above draft.

D&B Report Article:- https://drive.google.com/file/d/1s28KcOPynhqMYLaOdApX0TPHIXWhVzDg/view?usp=sharing

D&B Report - https://drive.google.com/file/d/1FNWxWDzUSIaAYNe-O9Uq5Gh8pF7kB-QA/view?usp=sharing

2020 was a tough year for us all and tested everybody to limits. Covid-19 brought the whole world to a standstill. With economies crashing, markets collapsing, airlines filing for bankruptcy and woes continuing for the lower middle class all around the globe, COVID-19 proved the scariest of all the scares for us all. While economies were crashing and national currencies lost their values, the rich simply got richer by piling on large sums of money.

Renowned Businessmen like Jeff Bezos, Elon Musk and Bill gates had on average a 57% increase in their wealth during these COVID-times. However, Newbies in the field, particularly the start-ups suffered a great deal. On average 72% of the start-ups saw a decline in their revenues with the average decline being 32%. 

As each dark night is followed by a bright sunny day, the horrors of 2020 yielded to the optimism associated with 2021.

The whole Indian nation witnessed a ray of hope and a breeze of a fresh air on Monday, 1^st of February as Indian Finance Ministry revealed an allocation of a mammoth 830 Crore INR for start-ups. What indeed is expected to be a fresh start for this sector of Economy promises to contribute significantly to the growth of the nation.

Here we shall try to cover all the details of this momentous announcement in 20 points, starting with its background and in the lead up, revealing the reasons behind this bold move while concluding with its implications on various sub-domains.

1. Background

Initially, the estimated amount for this sector in Indian Budget for the year 2020-21 was between 400-430 Crore mark but the realization of the impact of this move was enough to convince the authorities to raise the bar by another 400 Crore Indian Rupees, thus giving Indian Start-up industry a huge boost and sense of acknowledgement.

Multiple Reasons have led to this brave call, which marks the evolution of a new and Improved India.

2. Employment Opportunities

Focus on the start-up sector is significantly crucial. It will play a pivotal role in the reinvention and growth of the Indian economy while creating considerable employment opportunities.

3. Exponentially Increasing Population

India is home to the world’s second-largest population which is also the fastest-growing one and will surpass China as the world’s largest Population by the year 2027, according to the UN’s population division report. Hence, the Indian Government and planning agencies must ensure that a sustainable and innovative environment is promoted 

4. Youth and Innovation

Currently, Indian youth (below 25 years of age) constitutes 34.6% of Indian Population. The number is bound to increase as time goes on. To give young entrepreneurs an opportunity is a wise call. It will not only encourage and promote the creative minds to think out of the box. This will also enable the country to establish itself as an Innovation Hub. Hence, guaranteeing ultimate success, prosperity and exponential growth.

5. Economic Growth

India’s economy will see an 8% contraction in the Fiscal Year 21 due to unprecedented pandemic situation, ending March 31, 2021. However, the positive part of it is that the economy is expected to bounce back with an expected 11.5% growth in the Fiscal Year 2022. India is the only country projected to register double-digit growth in the year ahead as per its latest World Economic Outlook Update. The decline was obvious in the previous year. However, if India is to make some real progress and grow as an economy, it has to value its local talent and that can only happen if full support is extended to its general public, particularly the youth. Only then, that 11.5% growth prediction is going to be true.

Now, if we explore some of the statistical figures from analytical approach, some of the figures are not just astounding for the general public but encouraging and exciting as well especially for those planning to get started any time soon

6. Start-Up India Program

The allocation for Start-Up India programme has been increased only a fair bit to Rs 20.83 crore for the fiscal cycle 2021-22 from the previously revised estimated value of 200 million INR in the year 2020-21.

Start-Up India program targets fostering entrepreneurship and promoting creativity by creating a systematic atmosphere which is supportive to the growth of new aspiring entrepreneurs. It is expected to contribute significantly to the shifting trends in the country.

7. Guarantee Fund

Similarly, the government took a special liking to the Guarantee fund which provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to SMEs in case of default, typically in return for a fee and raised its allocation to 3 Billion INR.

8. Text Holidays Extended

Tne year Extension in Tax Holidays for Start-Ups certainly makes the direction of government clear to the layman. In her budget announcement speech, Indian Finance Minister Sitharaman announced an extension of the tax holiday to Start-Ups by another year to March 31, 2022, during her Union Budget 2021 address. Hence, the newly established businesses will enjoy this exemption for another year till the end of the next fiscal cycle on 31^st March 2022.

Previously, in the year 2017, a similar announcement had paved the way of this aspiring start-up ecosystem which is the third-largest right now.

Back then the announcement stated that start-ups could avail a tax holiday for three out of seven years, from the date of incorporation. Start-Ups can avail this exemption provided that annual turnover does not exceed INR 250 million in any financial year

9. Special Exemptions for Investors

Another warmly welcomed move from the finance ministry is the extension in the exemption allowed to investors, particularly those investing in newly established start-ups. she also announced that to incentivise investment in Start-Ups, the government is proposing extending the eligibility period of claiming capital gains exemption for the investment made in the Start-Ups by one more year to March 31, 2022, Since this initiative comes at an uncertain time for the entrepreneurs, it serves as a huge boost as well as relief for those who are trying to establish themselves in the market as it would encourage the investors to trust the aspiring youngsters and provide them with the necessary financial help.

10. Indian Insurance Act, 1938 Amended

The proposal to amend the Insurance Act, 1938 was a great step too. The decision to increase permissible foreign direct investment limit from 49% to 74% in insurance companies at the Union Budget 2021 will attract more foreign investment and eventually give the youth another opportunity to transform their creative geniuses into practical applications. While this would allow foreign ownership and control of insurance companies in the country with certain fallbacks. The restraints include the condition that the majority of directors on the boards of such companies and key management persons will have to be Indians, with 50% directors being independent directors and a specified percentage of profits being retained as general income of the corporation.

11. Digital Payments

Financial tech was also on the radar of the finance ministry. The fact that the Indian government proposed allocating INR 1.5 Billion to boost the influx of digital payments, as well as other measures to boost financial inclusion, indicates how covid-19 has shifted the trends. Indian Finance Minister Nirmala Sitharaman has proposed to set up a World-Class Financial Technology Hub near Gujarat capital Gandhinagar at GIFT City. The announcement is viewed as a real positive and some people are referring to it as the face of a transformed India

12. Lower Compliance Burden

A real sigh of relief for the Start-Ups has been the announcement of lowering of compliance burden on Start-Ups. Finance Minister proposed to revise the definition under Companies Act, 2013 for small companies. This included increasing their threshold for capitalisation from not exceeding INR 50 Lakh to not exceeding INR 2 Cr and turnover from not exceeding INR 2 Crore to not exceeding the new limit of INR 20 Crore. According to her, this will eventually help over two hundred thousand small companies.

13. Digitization in MCA affairs

We all know how things have changed over the past decade and how much impetus has been on digitization. Keeping that in view the finance minister Sitharaman proposed to use data analytics, artificial intelligence, machine learning to make regulatory filings more frictionless for businesses and Start-Ups in a revamp of the ministry of corporate affairs (MCA) portal. The government had said that the ministry would look to introduce AI-based features in MCA-21 when version 3.0 of the portal is rolled out. The Ministry of Co-operate affairs updated portal is expected to have fundamental features such as a single source of truth, ease of doing business, e-adjudication, online compliance monitoring, among others. This is targeted with the idea of ensuring more authenticity and improving the overall understanding of the market by making all the more comprehensive. For the Start-Up ecosystem, this is crucial as MCA-21 shares crucial information to various stakeholders such as the regulators, investors and companies. All filings under the various laws for companies and businesses in India are submitted through this portal.

14. Railways Electrification and opportunities  

The Finance Minister also proposed 100% electrification of railways by 2030 along with plans to boost the share of public transport in urban areas during the Union Budget 2021 address. The government has announced an outlay of INR 18,000 Cr for the same for the 2020-21 period. The Minister also talked about bringing in metro-lite and metronome technologies, which are rail-guided urban transport systems with rubber-tyred electric coaches powered by an overhead traction system running on elevated or at-grade sections, in tier 2 and tier 3 cities. So, with an evolving economy, the opportunities are bound to increase. It’s up to the youth of the country to now absorb it and use it to good effect

15. Decriminalisation of LLPs

Budget 2021 also focussed on decriminalisation of limited liability partnerships, with the flexibility to convert a company to any form or LLP to benefit more than two lakh companies in easing the compliance requirement.

16. Social Security to Employs

Another key proposal is extending social security protection to gig and platform workers, which Sitharaman claimed is a global first. The government plans to launch a website that will collect information on gig and construction workers among others, and help formulate health, housing, skill, insurance, credit, and food schemes for them. So, for those who are looking for a break in this field by hiring a certain number of workers, the government offers to take care of them

17. Green Signal for One Person Companies

Finance Minister Sitharaman said the government plans to incentivise the incorporation of One Person Companies (OPCs) by allowing them to grow without any restrictions on paid-up capital and turnover and convert into any other type of company at any time. The government is also highly likely to reduce the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and allowing Non-Resident Indians (NRIs) to incorporate OPCs in India. Hence, individuals planning to launch single person companies can have their shot now.

18. Digital Census and its Implications

Another rather surprising announcement stated that the next general census in the country will be the first digital. This will mean a boost in business for both hardware companies, which will likely see a surge in sales of laptops, tablets, smartphones and printers, as well as software companies that will run and build the technology-enabled back end. So those having their knowledge and interests in these fields are said to multiply their gains as this phase of the market is set to boom.

19. Glory Days for Textile Sector

The textile sector is also set to have their fortunes changed overnight. Finance Minister announced while presenting the Budget 2021-22 in Parliament. The exact words of her announcement were "A scheme of mega-investment textile parks will be launched in addition to the PLI scheme," She informed that 7 mega textile parks will be launched in three years as part of the scheme. The mega textile parks will have integrated facilities and quick turnaround time for minimizing transportation losses, eyeing big-ticket investments in the sector. The plan is to lead the global textile market and establish India as the hub of textile exports not just in this region but worldwide                                                         

20. Exporters have their share of the pie.

For the export section of the economy, the budget certainly had multiple things in it.

By encouraging these start-ups, the government certainly has arranged for goods production. What’s necessary now is to encourage their promotion and create opportunities for the general public to export their locally produced quality product. The total allocations for export promotion schemes were also increased. The particular examples are the Market Access Initiative and Interest Equalisation Scheme. The increased figure is Rs 2,365 crore for 2021-22 against the revised estimate of Rs 2,175 crore in 2020-21. As a consequence, Indian exports are expected to grow significantly with the estimates lying between 2.5-4.5% increase.

Conclusion:

 The budget has largely been appreciated from all segments of the society. This is a commendable budget as it will speed up the pace of growth in India. The provisions made in this regard for infrastructure development are revolutionary. This budget will also reduce the dependency on China. Arrangements have been made in this budget to make the agriculture sector also dynamic. The steps taken to promote quality of life will benefit in the long run and AATMA NIRBHAR concept will gain stronger roots. Now it’s the responsibility of the nation, particularly the young entrepreneurs, to utilize these chances for their own benefits and help country rise to the glories of economic stability and growth.