Pre-shipment Finance:

It is an export finance which is also known as the Packing credit. It is a short term finance. This is basically a need based finance extended on the basis of confirmed or irrevocable Export Order or the Export LC.

Pre-shipment finance is granted by banks and financial institutions to the seller or exporter to facilitate manufacturing of goods. Pre-shipment Finance assists the exporters to procure requisite factors of production such as Labor, Raw material, Packing etc.

Importers are always reluctant to make advance payments as advance payment are risky, in such a scenario packing credit facility comes to the rescue and support the supply chain of the exporting companies. The lending bank generally advances from 50 to 100 per cent of the invoice or the transaction value, depending on the perceived risk.

Pre-shipment financing can be as funding for several activities to fulfill an export order such as:

  1. Manufacturing
  2. Processing
  3. Packing
  4. Marketing
  5. Transportation/Shipping
  • Pre-shipment finance requires simple documentation but needs a proof of an export order like a Purchase order or an export letter of credit.
  • Packing credit is required to be disbursed in stages depending upon the production cycle in the form of the loan. For exporter with good track record, the packing credit can be maintained in running account in the form of cash credit accounts.
  • The amount of advance should not exceed the domestic cost of the export product or its FOB value.

Eligibility Criteria For Packing Credit:

  • Against Export LC & Confirmed Export Order.
  • Advance against the Government Receivables, such as duty drawback up to 90 days for Packing credit.
  • PC against advanced instrument received from the foreign buyer (DD/Cheque) in foreign currency up to 90 days (It takes 25 days to clear the Foreign Cheque)

Note: Advance payment is considered only when the foreign exchange gets credited in the NOSTRO account of the Indian bank who is handling the export documents.

Period of Packing credit:

  • It depends on the working capital cycle or operating cycle. It includes time taken for completing the manufacturing, packing of the goods & keep them ready for shipment.
  • For Merchant exporter, it may be the time taken for procurement of the goods, packing them & forwarding them.
  • The period of packing advance should be sufficient to enable the exporter to ship the goods.
  • The pre‑shipment advances, however, are to be adjusted by submission of export documents within 360 days from the date of advance.

Note: If exporter request for more days to complete the export order than he has to get an approval from the foreign buyer and simultaneously has to convince his banker that due to genuine reason he needs more days to execute the export order. On the basis of the facts and figure, the bank may extend the period of financing provided it should not exceed 360 days.


  • The packing credit is of self-liquidating nature and will be adjusted out of the proceeds of the foreign bills of exchange drawn under the export contract or LC on the importer or importer’s bank.
  • This is done by the banks by purchasing / discounting the bills as per the on-going bills buying rate.
  • The packing credit can also be adjusted out of the export incentives like duty drawback.
  • Subject to mutual agreement between the exporter and the banker it can also be repaid / prepaid out of balances in Exchange Earners Foreign Currency A/c (EEFC A/c)
  • If the proposed export is not going to take place beyond the control of the exporter, then the banker will allow the packing credit to be adjusted out of the local funds, subject to the fact the exporter will have to pay the domestic rate of interest from the date of advance till its closure.

Packing credit to sub-suppliers:

  • Packing credit to suppliers for exports through other export agencies, State Trading Corporation, MMTC etc.
  • Banks are permitted to grant Export Packing Credit to Manufacturer Suppliers for Exports Routed through STC/MMTC/Other Export Houses, Agencies etc.
  • Such advances will be eligible for a refinance subject to some conditions including obtaining a letter from the export house stating the details of the export order, etc.
  • The export house should open inland L/Cs in favor of the supplier giving relevant particulars of the export LCs.
  • In this case, post-shipment finance will not be sanctioned by the banker to sub-suppliers.
  • The packing credit advances will be squared off by the payment received from the Export House to the sub-suppliers.

Pre-shipment credit in foreign currency (PCFC):

  • RBI has permitted granting of pre-shipment credit in any of the convertible currencies. However, for the present PCFC is being granted in US Dollars, GBP & EURO subject to availability of funds.
  • An exporter can avail PCFC in US Dollar against an export order invoiced in Euro. The risk and cost of cross currency transaction will be to the account of the exporter.
  • The foreign currency balances available with the bank in exchange earners foreign currency (EEFC) accounts, resident foreign currency accounts (RFC) and Foreign currency Non-Resident accounts (FCNR) scheme could be utilized for financing the pre-shipment credit in foreign currency.
  • The Interest cost should not exceed 0.75% p.a. over the respective LIBOR, if funding is done from EEFC, RFC or FCNR account.
  • Banks may negotiate lines of credit with overseas banks for the purpose of grant of PCFC to exporters without the prior approval of the RBI, provided the rate of interest on borrowing does not exceed 250 basis points over six months LIBOR/EURIBOR

Adjustment of PCFC:

  • PCFC is self-liquidating in nature. Generally, the PCFC should be liquidated out of proceeds of export documents on submission for discounting.
  • Any surplus amount available, (net of EEFC, if any) after full adjustment of PCFC including interest, should be credited to the customer’s account.
  • Shortfall if any, in the delivery of foreign currency on discount of bills should be recovered

Interest Rate For Packing Credit:

  • Banks are allowed to charge Base Rate or more to an exporter. Generally, a concessional rate is charged to an exporter.
  • Base rate plus up to 4% p.a. can be charged to an exporter.
  • If PC is liquidated after the sanctioned period or after 360 days, banks can decide their own rate of interest generally referred as “Export Credit Not Otherwise Specified” i.e. (ECNOS).

Note: If PC is supposed to be liquidated after 360 days, the exporter has to send an application to RBI for approval of acceptance of payment.

Disbursement of Packing Credit:

  • Ordinarily, each packing credit sanctioned should be maintained as a separate account for the purpose of monitoring period of sanction and end-use of funds.
  • Banks may release the packing credit in one lump sum or in stages as per the requirement for executing the orders / LC
  • Banks may also maintain different accounts at various stages of processing,  manufacturing etc. depending on the types of goods / services to be exported
  • Banks should continue to keep a close watch on the end-use of the funds and ensure that credit at lower rates of interest is used for genuine requirements of exports.
  • Banks should also monitor the progress made by the exporters in timely fulfillment of export orders.



Reference: Master Circular – Rupee / Foreign Currency Export Credit & Customer Service To Exporters