Hei, Etter å ha bodd i Bangladesh i over 3 år, har jeg kommet bort i mikrofinans og Grameenbank flere ganger. Ideen er veldig god, men i praksis, hørte vi litt forskjellig om ordningen. Det er ikke riktig å se på Bangladesh med "norsk syn" - realia er helt annerledes. Ca 50% av befolkningen er fortsatt analfabeter, det er veldig begrenset med skolegang og tilgang til mat for veldig mange. Så det at de har mulighet å låne penger fra en organisasjon som har regler og lover, er i seg selv veldig positivt. Jeg håper at Norfund og DNB har fått tilgang ikke bare til de offisielle rapportene og snakket med kun de "utvalgte", men også har gjort research på egen hånd. Mine observasjoner er i hvert fall følgende: De alle fatigste får ikke lån - de som er definert av Grameenbank som fattige, er ikke de fattigste. De har hus eller land som banken kan ta pant i. Effektiv rente ligger mellom 30 - 90% (avhengig av hvor flink man er å betale på avdrag i tide), og innkrevingnen av ubetalte avdrag pågår ikke bare ved å sende et brev.... Under vår opphold, kom det to finske studenter som skulle skrive en oppgave om banken. De mente det var ikke lett å få informasjon om hvordan ordningen fungerer. Man kunne stille spørsmål, men det var en klar grense på hvilke type spørsmål det kunne være. Poenget mitt er at mikrofinansiering er et veldig bra ordning, men jeg ville nok ikke ha glorifisert den - det finnes en annen side. Grameenbank er nok ikke en veledighets organisasjon - det er jeg helt sikker på.
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State-owned lender Punjab National Bank (PNB) has informed the Bombay Stock Exchange that it has detected fraudulent transactions worth $ 1,771.7 million (over Rs 11,000 crore) in its mid-corporate branch at Brady House, South Mumbai. PNB has alleged that two employees had “fraudulently issued Letters of Undertaking (LoUs) and transmitted SWIFT instructions to the overseas branches of Indian Banks” to raise buyers credit for companies of billionaire diamond jeweler Nirav Modi without “making entries in the bank system”.
As the result the Reserve Bank of India has stopped any use of LOUs for the moment.
We asked Ingrid Åsheim, senior relationship manager responsible for Indian banks in DNB and Ruby Vazirani, Deputy Representative Officer in DNB Mumbai to describe the situation.
What is an LOU? And what is it used for?
Ruby: Letter of Undertaking (LOU) is a provision of bank guarantee, under which a bank allows its customer to raise a foreign currency loan from another Indian / foreign bank's foreign branch in the form of a short term buyers credit. The LOU serves the purpose of a bank guarantee. This was one of the widely used instrument for extended financing of imports as it was cost effective as compared to a deferred payment LC
What are the consequences for companies operating in India and trading or producing for foreign clients?
Ruby: This instrument is used by 5 to 10% of the importers into India for large value/volume import. As an immediate effect importers relying on this instrument will face a cash crunch / higher cost of borrowings as they will need to find cash to pay up for the imports already contracted. In the medium to long term the cost of funding for companies will rise not significantly (by 0.5 o 1%) as they will need to shift to LC’s and other instruments.
How does the situation impact DNB and other bank’s credit appetite on Punjab National Bank as well as other Indian banks?
Ingrid: The foreign banks including DNB Bank are watching the space very closely to see that there are no additional surprises that pop out of the PNB closet. There has been no change in appetite on the Indian Banks otherwise. Though it will effect the business in the short term the move is largely positive (risk wise) for foreign banks as the business shifts to ICC approved instruments like LC’s and guarantees.
Availing short-term overseas credit could be more difficult. What are the alternatives?
Ruby: As mentioned earlier, going forward the importers will shift to other instruments like LC’s which will no doubt increase their cost of financing. Also, in case of LOU financing the importer would arrange for the financing on due date and make payment to the exporter and therefore the exporter was not involved in this type of financing as there was no interaction / agreement required from the exporter. But going forward they will need to explain to the exporter that though the LC is issued with deferred payment terms the exporter will get paid as per contracted terms and get their approval for the same.
Can you see the situation being reflected in pricing?
Ingrid: The LOU market was lately dominated by Indian Banks foreign branches which have an advantage over foreign banks financing in foreign currency as Indian banks are not exposed to withholding tax requirements which need to be paid by the importer on interest payable on financing availed from foreign banks. The discontinuance has seen a small jump in the pricing. LC’s being a safer instrument; foreign banks pricing is normally better / lower on LC’s as compared to LOU’s.
Do you have any advice for Nordic companies operating or trading with India?
Ruby: Going forward there will be increased cases of importers approaching the NORDIC exporters for deferred payment terms in the LC’s wherein the exporter continues to get paid as per the contracted terms i.e., sight / 30 days / 90 days / etc. as the case may be but the importer can avail of extended payment terms from DNB Bank for such imports into India. So despite the restriction on usage of LOU/LOC, if the exporters use the deferred LC structure as proposed by DNB they can still offer their Indian counterparties long credit terms as they do today. It will still be a win win situation for both the importer and exporter.
Ingrid: DNB has an appetite for Indian bank risk and can arrange for such extended financing for your buyers against LC’s issued by Indian Banks. Exporters will be paid as per contracted terms on WITHOUT RECOURSE basis. DNB will get paid by the Indian Bank on due date (after the extended payment tenor) with interest. The risk of non-payment will be with DNB Bank.
If you would like to discuss how to finance your operations in India, mitigate risk or finance trade with India, you are welcome to contact us by sending e-mail to: firstname.lastname@example.org or contact your Account Officer in the DNB.
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Most common methods of payment used when purchasing goods from China.
There is a number of different payment methods when you deal with Chinese suppliers, and the choice depends on: 1. Degree of trust. 2. Need for financing of parts or of the whole value chain. 3. Whether the supplier or the buyer has best/cheapest possibilities for financing.
The most common methods of payment are T/T payment in advance, CAD, D/P and L/C.
T/T payment in advance T/T means telegraphic transfer, or wire transfer. This is the simplest and easiest payment method to use, however the method presents great risk for the buyer if the supplier is not an honest one.
T/T payment usually means that the buyer should transfer 30% of the contract value when placing a Purchase Order, and 70% when the goods are ready for shipment. T/T payment in advance is usually used when the sample and small quantity shipments are transported by air. The importers/ buyers are also often asked to pay by T/T payment in advance when placing the first order with a supplier they have no relation to. It normally takes 3-4 days to receive the wire transfer made from anywhere in the world to China.
Letter of Credit (L/C) An irrevocable Letter of Credit is often referred to as an L/C. This method of payment gives a lot of protection to both of the parties. To explain it in simple way – a letter of credit is a letter written by the importer’s bank to the exporter. It verifies that the payment will be guaranteed by the bank that wrote the letter, when the bank is presented with the documents listed in the letter (bill of lading, invoice etc). Once the letter has been written and issued via SWIFT system, it cannot be called back without exporter acceptance.
L/C usually includes applicant (the importer), beneficiary (the exporter), opening bank, negotiating bank, specification of the goods and quantity, amount of money, loading port and destination port, shipment date, the validity date of the L/C, delivery terms (Incoterms), other terms and conditions agreed by both the importer and seller, and the list of documents required by the importer like documents showing that the goods have been delivered, commercial invoice, packing list, insurance certificate etc.
The L/C procedure is usually following:
The importer applies to open an L/C ,around the same time when placing Purchase Order, through importer’s local bank.
The opening bank will inform supplier’s bank via SWIFT system (a secure communication system that banks use) that L/C has been issued.
The supplier will check all the terms in the L/C and if those are acceptable, the supplier will arrange for shipment of goods within the time specified in the L/C.
After the goods are loaded onto the ship, the captain will issue the clean bill of lading to the supplier.
Supplier will submit the bill of lading together with other documents required in the L/C to their local bank in China in order to gather payment.
The Chinese bank will send the document to buyer’s bank.
The buyer’s bank will inform the buyer that the documents have been received and if the documents match the list of documents the buyer has requested for in the L/C and the goods have been shipped within the time defined in the L/C, the buyer’s bank will pay the Chinese bank. If the documents are not completed or there are discrepancies, the buyer’s bank will not pay automatically, but will ask the buyer to accept or refuse to pay.
L/C is usually used for larger orders (approximately USD 25.000 and higher) often shipped by sea. The typical L/C scenario takes 14-21 days.
What is special for L/C is a possibility of using it as partial security for financing. Obtaining long or any credit terms from Chinese suppliers can be difficult to negotiate and it can be expensive. Many Chinese suppliers when asked for deferring the payment will charge approximately 10-15% margin pro annum for that. Asking your local bank for financing might be a cheaper and more flexible solution. It can also give you possibility to negotiate lower price with your Chinese supplier.
L/C can also give the supplier possibility to request their local Chinese bank for financing in production period on preferable terms.
Cash Against Documents (CAD) or Document against Payment (D/P) The supplier produces the goods and ships them as agreed in the contract with the buyer. The supplier sends the shipping documents to the supplier’s bank for collection. The bank then sends the shipping documents along with a collection letter to the buyer’s bank, which then sends a collection notice to the importer. The buyer makes payment when receiving the notice, and ONLY AFTER PAYMENT does the buyer receive the original shipping documents with which allow the buyer to collect the goods.
The major advantage of using Cash against documents is the low cost, compared to cost of using Letter of Credit. However the supplier must accept that if the buyer will reject the documents for some reason and will not pay for the goods, there is little the supplier can do. The goods are then already on the way to the buyer at that point. Therefore this method of payment will be accepted by your Chinese supplier only if you have a long-standing relationship with them.
Sometimes the supplier request 50% of the payment to be made by T/T transfer and 50% by CAD.
When using CAD the buyer is requested to pay when receiving the notice. If the buyer has been granted a credit from the supplier (D/P), the buyer will not be asked to pay when receiving the notice. Instead the buyer will be asked to sign a Bill of Exchange by which the buyer promises to pay xxx days later. If the supplier does not want to wait xxx days for the payment to arrive, the supplier’s bank can ask the buyer’s bank to avail the Bill of Exchange (which means that the bank will guarantee for the payment) and discount the Bill of Exchange.
Feel free to comment or ask questions
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