37 Role of EXIM Bank in Foreign Trade

Manpreet Arora

1. Learning Outcome:

After completing this module the students will be able to:

To know about the meaning of EXIM Bank
To understand the functioning of EXIM Bank
To gain knowledge about the role of EXIM Bank in India and how it promotes foreign trade

2. Introduction

In order to achieve the objective of globalization, India is relying up to a great extent on exports. In fact every developing nation wants to enhance its exports to earn foreign exchange. The global presence of any country is also dependent on exports to a great extent. That is why vigorous engagement as well focus in global trade has become one of the indispensible factors for the growth of not only the organizations but for the prosperity and growth of nations also. This has proved to be true and a wise strategy for not only the major trading and developed nations, but also for developing countries like India where the factors of productions are limited and the sources of earning foreign exchange are also scarce.

After we have followed the policy of Liberalization, privatization and globalization the foreign trade sector has been an important area of the reforms in the Indian economy. The result is that due to reforms in this area India’s share in global trade is continuously increasing in the past years.

EXIM bank was established as an apex financial institution for financing, facilitating and promoting India’s International trade. Since its inception it has continuously strived and worked to contribute towards achieving the objectives of globalization. The bank works on strong fundamentals and works according to the growing need of international business environmental factors. It provides wide range of financing programmes to promote exports and also provides competitive edge to the companies by giving them advisory and support services at all stages of export business cycle.

Export-Import Bank of India (EXIM Bank), set up in 1982 as an apex financial institution to finance, facilitate and promote India’s international trade, has constantly strived to contribute towards India’s globalization efforts. With strong business fundamentals, and in line with the increasingly competitive global trading environment, the Bank proactively seeks to enhance the competitive edge of Indian companies through a comprehensive range of financing programmes and advisory and support services which encompass all stages of the export business cycle.

3. Meaning and Objectives of EXIM Bank

Export import bank of India is famously known as EXIM bank. It was setup in 1982 by an act of parliament that is export import bank of India act 1981. It is headquartered at Mumbai, India. Presently, its chairman and managing director is Yaduvendra Mathur. EXIM bank is regarded as the India’s top most export financing institution. It has always acted as purveyor of export credit. Over the period of time, it has emerged as a key player in enhancing cross border trade and investment in India. This institution was launched by government of India with a mandate not only to increase exports but also to supplement India foreign trade and investment with overall objective of economic growth. EXIM bank has played a major role in partnering Indian industries at various levels. This institution in particular has supported small and medium enterprises by extending them credit for wide range of products and services. It has assisted them in import of technology, export products development, export production, export marketing, pre shipment, post shipment and overseas investment.

Objectives

As per the preamble of the EXIM BANK the objective of the bank is stated as below: “… for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade…”

4. The Board of EXIM Bank

EXIM Bank is guided by various people of expertise at the Board level. Senior policy makers, expert bankers, major players in industry, professionals in exports are at the senior board of the bank. According to the EXIM Bank Act maximum of 16 directors can be there on the board. Chairman and Managing Director as well as 13 directors of the board are appointed by Government of India. Three directors from scheduled commercial banks and four directors who are industry/trade experts are also the part of the board, the head office of EXIM bank is situated at Mumbai. Nine domestic offices of EXIM bank are operating at Ahmadabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, New Delhi, Pune. The bank is working at overseas level also and presently has overseas offices at seven places i.e Addis Abada, Dubai, Johannesburg, London, Singapore, Washington D.C and Yangon.

5. Role of EXIM Bank

After its establishment since 1982 EXIM bank has played a pivotal role in promotion of India’s International trade and investment. It has acted as India’s principal institution which has coordinated working of all those institutions which are engaged in financing exports and imports. Time and again by starting various types of financing programmes EXIM bank has contributed in the development of the economy. Majorly two types of programmes are started by EXIM bank i.e Export Credits and Export Capability creation. In the early years of inception from 1982-85 it was providing export credits only. Then; from 1986-94 it worked on the area of export capability creation. Today the role of EXIM has widened to a great extent and it offers a comprehensive range of products and services covering all stages of the Export Business Cycle.

5.1 The vision of EXIM bank

“To develop commercially viable relationships with a target set of externally oriented companies by offering them a comprehensive range of products and services, aimed at enhancing their internationalisation efforts”

The functions of EXIM Bank include:

(a) To Plan, promote and develop exports and imports;

(b) To provide technical, administrative and managerial assistance for promotion, management and expansion of export sector.

(c) To undertake surveys like market and investment which are related to the development of exports of goods and services.

5.2 The other functions of EXIM include the following:

1. To guarantee and find out the harmonized approach in solving any type of problems faced by the exporters in India.

2. To assist in enhancing exports of the country

3. To do export projections and find out mechanisms to achieve them

4. To facilitate and encourage joint ventures and increase exports of technical services

5. To expand buyers’ credit and lines of credit;

6. To boost developmental and financial activities in order to facilitate and increase export sector.

Thus the main objective of Export-Import Bank (EXIM Bank) is to provide financial assistance to promote, foster and boost the export production in India. The basic function of the bank is to assist the exporting activities by providing finance at various stages. The financial assistance provided by the EXIM Bank widely includes the following:

Direct financial assistance
Foreign investment finance
Term loaning options for export production and export development
Pre-shipping credit
Buyer’s credit
Lines of credit
Reloaning facility
Export bills rediscounting
Refinance to commercial banks
The Export-Import Bank also provides non-funded facility in the form of guarantees to the Indian exporters.
Development of export makers
Expansion of export production capacity
Production for exports
Financing post-shipment activities
Export of manufactured goods
Export of projects
Export of technology and software’s

5.3 Forms of Financial Assistance Provided by EXIM Bank to Indian and overseas Companies-EXIM bank provides the following type of assistance in promoting exports to the Indian Companies-

The bank provides Term loans to the exporter of goods and services. Thus it plays a pivotal role in offering credit to the clients.
Commercial banks also become part in the system of deferred credit provided to the exporters under risk syndication arrangements
Those Indian companies which are involved in export activities beyond a period of six months are funded by EXIM Bank.
The bank supports and finance various turnkey projects.
EXIM Bank offers term loans to the 100 percent export oriented units, units involved in free trade zones, and exporters of various software’s in India.
EXIM bank assists for equity contribution to those organizations that go for joint ventures with foreign companies abroad.
EXIM bank also supports the exporters in carrying out export market.
The bank in collaboration with International Financial Institutions extends financial assistance to small scale and medium scale industrial units in terms of assisting in export promotion.
EXIM bank extends foreign assistance to overseas companies also for importing goods and services on deferred payments.
EXIM bank also offers financial assistance to the overseas financial institutions and various government agencies for import of goods and services from India.

6. Services provided by EXIM Bank:

The Bank is playing an important role in promoting and boosting foreign trade by offering a wide variety of services which are discussed as below:

1. Project exports

Project exports are one of the important things in the portfolio of India’s exports. The contracts which are financed by EXIM Bank remained quite diverse in the past few years. The bank has a long track history of providing finance to various projects in the area of construction, engineering, technology transfer, procurement, consultancy, technology based projects etc. In its broader categories the finance is provided to the following areas-

a. Turnkey projects – covering engineering, construction, designing, erection of wide range of projects.

b. Construction projects- covering wide range of infrastructure projects

c. Technical and Consultancy Service Contracts- Covering skill based activities, Training, project implementation services, management contracts, super vision of erection of plants, CAD/ CAM solutions in software exports, finance and accounting systems etc.

2. Research Analysis

EXIM bank has constituted one Research and Analysis group RAG. It is basically a team of experienced people from the field of economics, strategists who work on providing insights on various aspects of economics, trade and investment through qualitative and quantitative research techniques. This team continuously works on monitoring and studying the global trends of world and domestic economies and its impact on Indian economy as well as other developing nations. The various works of the group are categorized under regional, sectoral and policy related studies. The research studies are basically carried to find out various avenues for enhancing International engagement. The various studies carried out through the research team helps to provide economic outlook of a country as well as it also provides information regarding economic risk involved in doing business with country.

3. Marketing Advisory Services

EXIM bank plays a great role in promoting exports at international level. It helps to enhance export capabilities and support the Indian firms to enhance their competitiveness at the global level through its advisory services. Exim Bank through its Marketing Advisory Services supports and helps the Indian exporting firms in going global by proactively assisting/ supporting in finding and locating overseas distributors or buyers or investors for their products and services. The bank is also assisting the Indian firms in identifying the opportunities in the foreign if the firms want to set up plants or new projects or want to go for any kind of mergers and acquisition abroad. The bank is equipped with well versed knowledgeable people with market experience, in depth knowledge, understanding of international markets and international business environment to support and assist the Indian companies to beat various marketing initiatives and this advisory service is fee based. The bank has helped in setting up of wide range of projects and products in overseas as well as domestic market which includes Handicrafts, agro equipments, Marine products, spices etc. The bank has successfully catered the markets of US, Singapore, Middle East etc and has contributed to a great extent in promoting India’s products and services worldwide.

4. Export Advisory Services

In the export advisory services, EXIM bank has created an EAS group which provides various advisory and support services. It helps the exporters to evaluate their various kinds of international risks to which they are exposed to in the international markets. The group is continuously working to help the exporters in exploiting export opportunities and improve their competitiveness at the global market. Various type of value added services are provided to the Indian projects exporters on various projects which are funded by multilateral agencies.

The group is providing customized support to the interested companies. It is catering to their needs in the areas of exploring market potential, defining marketing arrangements and services, finding out various distribution channels.

“The Bank provides a wide range of information, advisory and support services, which complement its financing programmes.” All such services are fee based to Indian organizations and overseas entities.

The advisory services cover the following areas-

-Feasibility studies

-Investment facilitation

-Assisting in going for joint ventures

5. Overseas Investment Finance

EXIM bank through its overseas finance program encourages Indian firms to go for acquisitions of the foreign companies. Acquisitions have become an important growth strategy fo companies all over the world. It is the fastest means to grow and diversify. It can be regarded as one of the important ways of getting access to foreign companies, foreign markets, modern and advanced technology. Moreover the bank also encourages through its finance programmes setting up of manufacturing units abroad. EXIM Bank finances joint ventures with foreign companies by providing term loan upto 80% of the equity investments of the companies. It also provides term loans for the joint ventures and acquisitions by the Indian companies towards upto 80% of loan extended by them to the overseas joint ventures. This financing service of EXIM bank has encouraged FDI in India as well as by Indian firms outside the country and contributed immensely towards the economic development of country.

The Bank is also providing term loans to overseas Joint ventures or new projects towards part financing for the following:

(i) Assisting in doing capital expenditure for acquisition of assets,

(ii) Finance for day today financing i.e working capital,

(iii) Financial assistance for equity investment in any other company,

(iv) Financial Assistance for acquisition of brands or patents or rights or any other type of Intellectual Property Rights

(v) Financial assistance for acquisition of another company,

6. Line of credit

A Line of Credit (LOC) is a unique financing mechanism of EXIM Bank. By this scheme EXIM Bank extends support to their clients for wide variety of export of projects, buying equipments, availing goods and services from India. EXIM Bank extends LOCs on its own and also at the behest and with the support of Government of India. EXIM Bank provides Lines of Credit to:

Foreign Governments
Nominated agencies of foreign governments like central banks, state owned commercial banks
National or regional development banks;
Overseas financial institutions;
Commercial banks abroad;
Other suitable overseas entities.

7. Buyer’s credit

Buyer’s Credit is a financial assistance facility that is given to the foreign project company which intends to award any kind of project execution to any Indian project exporter. The financing is given to all kinds of projects and service exports from India.

EXIM bank extends this Facility for development, upgrading or expansion of infrastructure facilities. It is also given for financing of public or private projects such as plants and buildings; professional services such as surveyors, architecture, consultations, etc. This facility has helped exporters and contractors of India to expand and diversify their areas abroad and tap various non traditional markets. It has promoted competitive environment for exporters and contractors who want to bid or negotiate for any kind of overseas job. Buyer’s credit is given through deferred credit. The biggest benefit is to foreign customers who can obtain medium and long term finance from EXIM Bank.

8. Summary

EXIM bank is offering a wide variety of financing programmes for exporters, constructors, engineers etc. of India and abroad. The export oriented units are benefitted as they various types of credit facilities. Whether they want to establish a new project or want to go for joint venture / acquisition overseas, expand, modernise, they are supported by EXIM bank. In turn it helps to boost exports and create a healthy and competitive environment in the country to contribute towards economic development. This bank is truly facilitating inclusive globalisation. Not only big industrial houses or government gets credit facility from EXIM Bank but it facilitates small and medium scale enterprises also. In its recent developments it is also catering to the needs of rural India. Various artisans, artists get boost to start their enterprises and get market abroad by the support of EXIM Bank. The bank has supported almost 150 companies to establish and promote their ventures in around 54 countries around the world. With the growing share of service sector in exports the bank has played a pivotal role in catalysing India’s software exports since the era of eighties. Since then Bank has covered almost every area where it has provided finance to Indian as well as overseas exporters. It is undoubtedly playing crucial, important and supporting role in the economic development of the country.

Suggested Readings

http://www.indiantradeportal.in/
http://www.indiantradeportal.in/
Cherunilam Francis (2010). International Business. Prentice Hall of India Private Limited. New Delhi.
Cherunilam Francis (2013). Global Economy and Business Environment. Himalaya Publishing House, New Delhi.
Levi MauriceD. (2009). International Finance. Routledge.
Conklin David w. (2011). The Global Environment of Business. Sage Publications.
Mithani D M. (2009). Economics of Global Trade and Finance. Himalaya Publishing House New Delhi.
Cherunilam Francis (2011). International Business Environment. Himalaya Publishing House, New Delhi.
Saleem Shaikh (2010). Business Environment. Pearson Education, New Delhi.
Sundharam K.P.M. and Datt Ruddar (2010). Indian Economy, S. Chand & Sons, New Delhi.
Sharan Vyptakesh (2003). International Business: Concept, Environment and Strategy. Pearson Education, New Delhi
Cullen. (2010). International Business. Routledge.
Bennett Roger (2011). International Business. Pearson Education, New Delhi
Paul Justin (2010). Business Environment-Text and Cases. Tata McGraw Hill, New Delhi.