Distinguish between pre and post shipment credit in export financing. Explain with examples.

Finance facilities available to exporters in Indian currency are in two forms- pre shipment credit and post shipment credit. Pre-shipment credit: A short-term advance/loan given to an exporter for procuring, processing, manufacturing/packing goods prior to shipping such goods. Such export credit can be given for working capital purposes also. Banks are at liberty to decide the tenor of such loans (which are usually up to three/six months or in exceptional cases nine months) depending upon individual cases. These loans are given at concessional interest rates. If these loans are not adjusted by submission of export documents within 360 days, banks will charge normal rate of interest on such loans/advances instead of concessional rates. Pre-shipment advances are to be repaid out of finance made available at post-shipment stage or from eligible resources of the exporting customer as per RBI directions. Post-shipment credit: This is again a short-term advance/loan given to an exporter after shipment of goods to the date of realization of proceeds of exported goods. Such credit facility granted to an exporter has to be repaid out of the proceeds of goods exported or from eligible resources of the exporter as permitted by RBI directions. The period of such advance/loan will be as specified by Foreign Exchange Dealers Association of India (FEDAI). Example ABC Ltd is an exporter of hosiery goods who secured an export order from USA For executing this order he needs to buy raw cloth, get them stitched, coloured, remove defective pieces, labelled, packed etc. The finance needed for these processes is pre shipment or packing credit. After the manufacturing/ processing when the goods are ready for export and subsequent realisation, the manufacturer needs funds to run his activity to tide over the temporary working capital need. The banker comes to his help with post shipment credit in the form of fund based limits or bill discounting facility which are repayable after realisation of export proceeds.