Initially let’s know about Buyers Credit. Buyer’s credit is a short term credit available to the importer; it is availed by the Indian importers from foreign financial institutions and banks. They lend based on the letter of Undertaking or letter of comfort given by the importers banks, Importers bank coordinates with importers and foreign banks for the arrangement of buyer credit as the local lending is costly helps importer’s to access to the cheaper foreign funds which is close to LIBOR.
In Buyer’s Credit the exporter get paid right on due date and importer get more time to pay to the bank. Importer also gets the advantage if he seeks foreign bank according to the payment currency to avoid conversion risk of currency. Importer can use the time period and can use his funds as working capital also.
London Interbank Offer Rate (LIBOR) is an interest rate at which one international bank lends other international bank for short term loans. LIBOR rates are global accepted interest rates for lending. The rates are decided by ICE LIBOR of five currencies (CHF, EUR, GBP, JPY and USD) and seven tenors (Overnight/Spot Next, 1 Week, 1 Month, 2 Months, 3 Months, 6 Months and 12 Months) based on the calculations from a reference panel of between 11 and 16 banks which have significant role in the London market for each currency, resulting in the publication of 35 rates every applicable business day.
Cost involved in the buyer’s credit is interest, swift charges and withholding charges. Interest rates are denoted in the form of “period Libor+ assigned Basis Points (bps)”. LIBOR rates changes according to the period it ranges from overnight to maximum 1 year for non-capital goods and 3 years for capital goods, according to the tenor the basis points are also changes. One basis point is equal to 1% or 1/100 or 0.01. There are few more limitations like maximum buyers credit can be availed is USD 20 million.
After the PNB scam in March 2018, the regulatory has put an stop to the buyer’s credit service and thus to give a cheaper mode of trade financing, Myforexeye has tied up with a consortium of banks for supplier’s credit services. We are India’s first forex platform that offers cheap and instant supplier’s credit quotes. Myforexeye specializes in trade finance by pooling transactions and reaching out to overseas bank, which make banks to lower their interest rates.
Read more about Buyers Credit Quote