International Trade Finance

Lecture outcomes

•To analyse the role of trade finance

•To explore different Trade finance instrument

and their impact of economy
https://economictimes.indiatimes.com/news/economy/finance/fdi-inflow-
to-india-declines-to-74-01-billion-in-2021/articleshow/90400950.cms
• https://www.ibef.org/economy/foreign-direc
t-investment

• https://www.business-standard.com/
article/economy-policy/india-received-total-
fdi-of-usd-54-1-bn-during-april-nov-2021-
22-122020901523_1.html
 Trade Finance
Pre And Post Shipment Finance,
Supplier’s Credit,
Buyer's Credit,
Documentary Credit,
Documentary Collection,
LC Mechanism,
Factoring And Forfaiting
• Trade finance signifies financing for trade, and it
concerns both domestic and international trade
transactions.
• A trade transaction requires a seller of goods
and services as well as a buyer.
• Various intermediaries such as banks and
financial institutions can facilitate these
transactions by financing the trade.
https://www.weforum.org/agenda/2020/02/exporters-
mind-trade-finance-gap/
 Export Finance

• Export finance refers to the financial help extended

to the MSMEs to ship their products globally.
• It assists small and medium-sized businesses to
grow universally by managing hard payment terms.
• It also helps businesses release working capital from cross-
border or domestic trade transactions that would otherwise be
tied up in invoices or purchase orders (for up to 180 days).
• Banks and financial institutions provider extent factoring
services to exporters where they buy the accounts receivable of
the supplier or exporter at discount in exchange for immediate
money.
• Trade Finance
• https://www.youtube.com/watch?time_continue=6&v=bVP4xhhzh78&feature=emb_logo
 Types of Export Finance

•Pre- shipment export finance (180-270 days)

•Post shipment export finance (180 days)

•Export finance against the collection of bills

•Export finance against allowances and subsidies

 Export Finance Products

Project finance

Infrastructure finance

Green finance

Bond insurance
 Pre-Shipment Finance
• https://howtoexportimport.com/Pre-Shipment-Finance-and-Post-shipment-finance-
4609.aspx#:~:text=1%20Meaning%3A%20Pre%2DShipment%20finance,for
%20meeting%20working%20capital%20requirement

• https://www.idbibank.in/tradefinance-
preshipment.aspx
https://connect2india.com/finance/export-finance.html
 Letter of Credit
• An LC is a financial document which is provided by a third party i.e. a bank

or a financial institution that guarantees the payment for goods and services

to the exporter once the exporter submits the required documents.

• A letter of credit has three important elements – the beneficiary i.e. seller

who is the recipient of the LC, the applicant i.e. buyer who buys the goods

and services and the issuing bank that issues the LC on the buyer’s request

• https://www.paisabazaar.com/business-loan/letter-of-credit/

• https://connect2india.com/finance/letter-of-credit.html
LOC
https://economictimes.indiatimes.com/markets/stocks/news/banks-turn-
cautious-on-sri-lanka-exposures/articleshow/88745053.cms?from=mdr
• "Some banks are simply not giving any credit,
but are simply operating on a collection basis.
• They are releasing money only after receiving it
from the bank in Sri Lanka," said a mid-sized
exporter
• As Sri Lanka grapples with a severe
foreign exchange crunch, high street
banks in India have turned cautious and
selective about their exposures to the
island nation
• Several institutions have reduced discounting
letters of credit (LC) - the basic instrument for
financing trade - issued by many Lanka lenders
while others are giving credit to exporters
based on the standing of the party, amount, the
tenor of the credit, and standing of the bank
issuing LCs.
 LOC Vs LOU
• The letter of credit has all the details of the

transaction, the letter of undertaking need not

be clear about the details of the transaction

• LOC can be traced, but it is difficult to trace

LOU
https://www.prnewswire.com/in/news-releases/letter-of-credit-confirmation-market-size-is-
projected-to-reach-usd-4-99-billion-by-2027-at-cagr-3-18-valuates-reports-805738500.html
https://www.thehindubusinessline.com/money-and-banking/fraudulent-letters-of-
credit-offor-1854-crore-issued-to-gitanjali-group/article22852554.ece
• Fifteen banks have formed a new company with a
focus on using blockchain technology to process
letters of credit for domestic transactions in India.
• According to a report by the Economic Times on
Tuesday, 10 private-sector banks, four public-sector
banks and a foreign bank have forged the Indian
Banks' Blockchain Infrastructure Company
(IBBIC).
• The company's new system will verify the data for
invoices on goods and services tax and "e-way bills,"
eliminating paperwork and significantly reducing
transaction times.
• E-way bills refer to electronic-way bills, which is a way
to track the movement of goods and services
electronically to make sure commerce complies with
tax laws.
• Executing letters of credit on blockchain has
been tested before, but IBBIC's move marks the first
attempt for domestic trade finance, according to the
report.
• Domestic letters of credit act as sureties for the
seller that goods or services will be paid for when
they eventually arrive.
• RBL Bank, ICICI Bank, HDFC Bank, Kotak Mahindra
Bank, Axis Bank, IndusInd Bank, Yes Bank, South Indian
Bank, Federal Bank and IDFC First Bank are the 10
private banks.
• The four public sector banks include the State Bank of
India, Bank of Baroda, Canara Bank and Indian Bank,
while Standard Chartered is the foreign bank involved in
the new company.