Buyer’s credit is a credit facility at hand to an importer from overseas lenders like banks and other financial institutions for goods they are importing. This credit facility is utilized for making payments against imports. The overseas banks normally lend the importer based on the letter of comfort or Letter of undertaking (a bank guarantee) issued by the importer's bank.
Buyer’s credit is carried out to both non-capital and capital goods. The duration of buyer’s credit can vary from nation to nation as per the regulations. The buyer’s credit in India under foreign trade policy is regulated by Reserve Bank of India. These funds are levied based on LIBOR rates (Libor + Margin rates).
Capital goods are goods that are used in producing other goods, rather than being bought by consumers directly. In other words, capital goods are the primary factor of production. The authorization to borrow capital goods in India is up to USD 20 million per transaction of import goods. The Maturity period of capital goods is up to three years. Incumbency is allowed for a period of 36 months from the date of shipment.
The advantages of using buyer’s credit for capital goods are as follows;
Buyers credit, import funding is provided at very cheap interest rates, because they are levied based on LIBOR rates.
The exporter has secured and guaranteed payment on the due date of the bill.
The importer gets an ample amount of time for making payment for the imports.
The importer can deal with exporter on sight basis, where the importer can negotiate a better discount and use the buyer’s credit path to avail financing.
The funding currency can be as per the convenience and choice of the importer and availability of LIBOR rates in the market.
The Reserve Bank of India on 13th March 2018 had decided to terminate issuance of letter of undertaking (LoU) and letter of comfort (LoC) for trade credit for imports into India. This was the move by RBI after the Nirav Modi scam came into light. This move has really shaken the whole Nation. Causing a lot of people especially the businessman to suffer as their financial flexibility of most importers is completely lost.
The only ray of light that showed up to this problem was Suppliers credit and Standby letter of credit backed Buyer’s Credit. At Myforexeye, we can help your business grow by providing you with various financial structures to enable you to reduce the cost of finance. Our Trade Finance team has contacts with over 100 banks and its branches globally to fulfil Trade needs.
To conclude Buyer’s credit has been the cheapest source of import funding for capital goods in India. In order to get the regulatory to understand the problem faced by the importers, we request you to see the video by our team at Since Buyer’s credit is unavailable now, Myforexeye is pleased to offer Discounting of Import Letter of Credit at Libor denominated rates (Supplier’s credit) and SBLC backed buyer’s credit at Libor denominated rates for capital goods as the underlying comfort.
Read more about buyers credit interest rates
29 Jun 2020 05:35 PM
Dynamic hedging is a foreign exchange risk management strategy that allows businesses and individuals to readapt their hedging positions to evolving market conditions by providing flexible solutions to protect investments from exchange rate risks.
19 Jun 2020 05:01 PM
Management of Currency Exchange Risk is of paramount importance during turbulent times, like this pandemic. The currency fluctuations are very volatile and cannot be predicted as the circumstances are uncertain.
06 Jun 2020 03:59 PM
Outrights, in FX markets refer to the type of transactions where two parties agree to buy or sell a given amount of currency at a predetermined rate, on a specified date in future.
08 May 2020 05:21 PM
Converting one exchange rate into another at a particular price makes transferring rates. Ideally all nations should be treated as equal and there shouldn’t be any exchange rate applicable which would mean to have a universal currency.
24 Apr 2020 03:08 PM
Managing risk in a financial market is required to keep a check on the adverse movements in the instrument of the market. Particularly in the foreign exchange market.
10 Apr 2020 06:12 PM
So was India’s decision on locking down the country for 21 days required? The implication on the economic growth or rather slowdown has only made many doubt the timing and preparedness of the decision.