Export Packing Credit: Meaning, How It Works, How to Get It
When you get a new export order, you normally agree to get paid after 60 to 120 days. That’s considered standard payment terms in the export industry. But this creates a problem: you need working capital to buy raw materials, manufacture, and ship your products. It is at this point that export packing credit steps in.
Export packing credit bridges this cash gap by providing you with pre-shipment funds at concessional interest rates, far cheaper than standard bank loans.
In this blog, we discuss what export packing credit is, why this loan facility matters for Indian exporters, how to apply for such a loan, and what are its different types.
TL;DR - Summary
- What it EPC: - Export packing credit is a short-term loan that funds pre-shipment costs - raw materials, manufacturing, processing, and final packaging.
- Loan tenure: - Typically 180 days, with extensions up to 450 days in certain cases.
- Currency choice: - Borrow in Indian Rupees or use PCFC for lower interest rates and a natural hedge against exchange rate fluctuations.
- Interest rates: - Relatively low compared to standard business loans, making it cost-effective for exporters.
- Repayment: - Self-liquidating, automatically settles using export proceeds once the buyer's payment is received.
- Skydo advantage: - Liquidate credit faster and generate automated compliance documents such as FIRA.
What is export packing credit?
Export packing credit is a short-term pre-shipment finance facility. It provides you with enough working capital to cover expenses such as procuring raw materials, manufacturing products, labeling, packing, and even warehousing or inland transportation. A SaaS exporter can use this money to meet operational costs like wages, travel expenses, and utility payments.
An export packing credit differs from a working capital loan that banks provide. First, you can only use the money to fund specific export transactions and not general business expenses. Second, banks offer this credit at concessional interest rates, significantly lower than standard working capital loans or overdrafts.
Lastly, because this loan is self-liquidating, it’s repaid directly from your export proceeds once your buyer pays.
For example, an exporter in India gets an order from a US buyer for $100,000 worth of garments. Before shipping the order, the exporter needs money to:
- Import fabric from Surat, ₹15 lakh
- Pay local stitching units and workers
- Cover packing, labeling, and logistics costs
Since the buyer will only pay after the shipment, the exporter uses export packing credit to fund these expenses and repays the loan once the export payment arrives.
Why does export packing credit matter?
The payment cycle in international trade stretches anywhere between 30 to 120 days after shipment. Meanwhile, your costs for raw materials, labor, and packaging start the moment you accept the contract. Using the internal cash flow to fund these expenses compels you to turn down large orders because you’re hardly left with money to support production.
Export packing credit changes this dynamic by offering short-term finance at a lot cheaper rate. If you’re an MSME manufacturer, the upside is even greater. You can take advantage of the Interest Equalisation Scheme to get an additional 3% reduction in your interest rate.
The best way any exporter can pass on the benefit of low interest rates is by pricing their products competitively in international markets. You also have the confidence to take on more orders without missing deadlines because of financial constraints.
Types of export packing credit
You have two choices for structuring export packing credit. The right choice comes down to your currency risk and whether you qualify for government subsidies.
Here are the two types:
Rupee packing credit (in INR)
This is the standard option if your production costs are primarily in Indian rupees.
- How it works: Your bank provides the loan in INR, with interest usually linked to their Marginal Cost of Fund Based Lending Rate (MCLR), the minimum interest rate set by the RBI. Or base rate plus a concessional spread.
- The MSME Advantage: MSME exporters can take advantage of the Interest Equalisation Scheme to receive a 3% reduction in their interest rate
- Flexible Liquidation: You can repay this loan using your export bill proceeds, funds from your EEFC account, or even your own rupee resources.
Pre-Shipment Credit in Foreign Currency (PCFC)
Exporters who invoice their buyers in a foreign currency (like USD, EUR, or GBP) and have confirmed receivables, meaning payments contractually due from the buyer, opt for this method.
- Lower Benchmark Rates: PCFC interest rates track international benchmarks like Secured Overnight Financing Rate (SOFR) or Euro Interbank Offered Rate (EURIBOR), which are typically lower than domestic INR rates.
- Natural Hedge: It acts as a natural hedge because you borrow in USD and repay from the USD your buyer sends. You don’t have to worry about exchange rate swings.
PCFC must usually be repaid within 360 days from the date of disbursement. If the export proceeds don't arrive within this period, the loan is "crystallised", meaning it gets converted into an INR loan at a higher commercial interest rate, increasing your borrowing cost.
Other specialised options
You can also use these specialized facilities to take care of export financing:
• Advances against Letters of Credit (LC): A confirmed LC from your buyer’s bank often leads to faster approvals and more flexible terms.
• Advances against Duty Drawback / Incentives: Banks can advance funds against your expected RoDTEP or duty drawback claims to keep your cash moving.
• Against Advance Licence: If you hold an Advance Licence for duty-free imports, you use the packing credit to import raw materials for production
Interest rates on export packing credit
The interest rate depends on how your bank calculates it. Below is a breakdown of that calculation for each type of credit:
To help you get the best deal on your financing, here is a simplified look at how these interest rates actually work for your business:
- Banks customize rates for you: Banks determine the interest rate based on your credit profile, your past export track record, and the order size.
- Shop around: Most Authorized Dealer (AD) banks, including SBI, HDFC, and Kotak, offer export packing credit, but their spreads could differ significantly. It makes sense to compare the quotes from different banks and choose the one that works best for you.
- The government caps what banks can charge: The government restricts banks from participating in the Interest Equalisation Scheme if the bank’s average interest rate is higher than the repo rate plus 4%. This stops banks from keeping high interest rates and taking advantage of government incentives simultaneously. In short, you enjoy a low interest rate.
- Look beyond the interest rate: Always ask about the total cost, which also includes processing fees and administrative charges.
Key Takeaways
PCFC is almost always cheaper than rupee credit if you have confirmed foreign currency receivables. But it carries forex risk if your export gets delayed or cancelled.
Interest Equalisation Scheme — extra savings on export credit
The Interest Equalisation Scheme (IES) is a government-led initiative providing a direct subsidy on the interest rates charged for rupee packing credit.
Here are the key points you need to know about how this scheme functions:
- Primary Benefit: The scheme reduces the interest you pay on both pre-shipment and post-shipment loans
- Original Tariff Plans: The scheme offered a 2% subvention for 416 tariff lines (HS codes), which was reduced to 410 subsequently, and a 3% subvention for all MSME manufacturer exporters. These tariff lines primarily focused on sectors such as handicrafts, readymade garments, leather goods, processed food, and toys.
- July 2024 Pivot: As of July 1, 2024, benefits are now restricted solely to MSME manufacturer-exporters. Merchant exporters and non-MSME units are no longer eligible for new claims.
- Financial Cap: The general annual cap is ₹10 crore per Importer Exporter Code (IEC). However, the government introduced a tighter limit of ₹50 lakh per MSME for the extended period of FY 2024–25.
- Exclusions: This subsidy is not available to foreign currency credit like PCFC.
- How to Claim: Check if your MSME status is registered on the Udyam portal and correctly linked to your IEC in the DGFT database. Then generate a Unique Identification Number (UIN) on the DGFT portal and submit it to your bank so they can apply the reduced rate.
UIN is bank-specific. Generate a separate UIN for each bank if multiple banks are involved.
Current status (2025–26)
The Interest Equalisation Scheme is transitioning into a broader and more modern framework:
- The Export Promotion Mission (EPM): The Union Cabinet has approved the EPM for the years 2025-26 through 2030-31 with a budgetary outlay of ₹25,060 crore.
- Unified Framework: The EPM plans to merge fragmented schemes, including interest subvention, into a single, digitally enabled framework managed by the DGFT for faster and more transparent delivery.
- Financial Enablers: Interest subvention will now sit under the Niryat Protsahan sub-scheme, which specifically aims to improve access to affordable trade finance for MSMEs.
Monitor the RBI/DGFT notifications and check with your bank to know about the availability status.
You can't claim the interest benefit retroactively. Always get the UIN first, then take the loan.
Who is eligible for export packing credit?
You must meet a few baseline requirements to qualify for this low-interest financing. Banks follow a strict checklist to ensure you use the funds for legitimate trade.
- A valid IEC (Importer-Exporter Code): This is your primary identity as an exporter, issued by the DGFT.
- Active GST and PAN Registration: You must be registered and tax-compliant within India.
- A confirmed order or Letter of Credit: You need proof of a genuine contract or an irrevocable Letter of Credit (LC) from your foreign buyer.
- A “Clean” Regulatory Status: Your name is not listed under the RBI’s caution list or the ECGC’s Specific Approval List (SAL) for any past export or import defaults.
- Satisfactory credit history: A satisfactory credit track record increases your chances of availing the financing
- Permitted Activity: The current Foreign Trade Policy must allow the goods or services you export.
- FEMA Compliance: Your trade operations and payment methods must adhere to Indian foreign exchange regulations.
Do I need a confirmed order?
Usually, banks require a confirmed export order before approving an export credit. However, if you are an established exporter with a solid track record, you can apply for a “Running Account Facility”. Under this setup, the bank releases credit to you upfront, on the condition that you will share the actual export orders within a specific timeframe, typically 30 days.
What about collateral?
Well-established exporters with strong credit histories may qualify for unsecured limits backed only by their export documentation. For others, banks typically take primary security over your raw materials, work-in-progress, and finished goods. ECGC insurance cover reduces the bank’s risk and often lowers collateral demands. For MSMEs, the Credit Guarantee Scheme for Exporters (CGSE) provides 100% guarantee coverage, giving them collateral-free access for their export needs.
How to apply for export packing credit — step by step
Secure Your Export Order
A confirmed purchase order or irrevocable LC from your buyer is required to start.
Approach Your Bank
Meet your AD bank to discuss production needs and share your export track record.
Submit Documents
Gather IEC, GST, proforma invoice and generate UIN on DGFT for concessional rates.
Bank Assessment
The bank evaluates your creditworthiness and sanctions a limit.
Fund Release
Draw funds in a lump sum or in stages for raw materials and labor.
Ship & Liquidate
Close the loan via post-shipment credit or settle from export proceeds.
Follow these exact steps to get export credit on your next export order:
Step 1: Get your export order
Everything starts with a confirmed export order or an irrevocable Letter of Credit (LC) from your buyer. This anchors your entire application process.
Step 2: Approach your bank
Talk to your bank or any AD bank. Share your company’s profile, your funding needs for this specific order, and your past export performance with them.
Step 3: Submit documents
Banks require a paper trail to prove your business is legitimate and the order is real. You will typically need to provide:
- Identity & Tax Documents: Your IEC (Importer-Exporter Code), PAN, and GST registration.
- Order Details: A copy of the confirmed order, LC, or proforma invoice showing quantities and pricing.
- Compliance: An RCMC (Registration Cum Membership Certificate) if you’re exporting quota items.
- Financials: Recent financial statements and a credit report on your overseas buyer if the order exceeds $25,000.
Step 4: Bank sanctions your credit limit
Banks calculate your credit limit, which can be between 75% and 90% of the order’s FOB (Free On Board) value.
- The FOB Rule: If your contract includes insurance and freight (CIF), the bank will subtract these costs (usually 10% for freight and 1% for insurance) to arrive at the true manufacturing value they will fund.
Step 5: Funds are disbursed and monitored
Once sanctioned, you either get the funds in one go or in stages matching your production cycle. Banks may even pay your suppliers directly or move the money into a dedicated packing credit account to monitor the end-usage.
Step 6: Ship your goods and repay the loan
After you ship your goods and the buyer pays the amount, the loan gets self-liquidated, meaning it gets credited from your export proceeds. You have 180 days (can be extended to 360 days sometimes) to ship goods and submit the bills, and close the loan. You can also use alternative funding like existing proceeds in the Exchange Earners’ Foreign Currency (EEFC) account to repay the loan.
Apply for packing credit as soon as you get the order, not when production is already underway. Early application = smoother processing = no cash crunch.
How is the packing credit limit calculated?
The most critical part of export packing credit limit calculation starts with the FOB (Free On Board) value of your specific export order or Letter of Credit.
Banks commonly fund between 75% and 90% of this value, requiring you to provide the remaining 10% to 25% as your own.
If your contract with the buyer is on CIF (Cost, Insurance, and Freight) terms, the bank will automatically deduct 10% for sea freight and 1% for insurance to find the actual manufacturing value to finance.
Banks also evaluate your past export performance, your industry’s specific risks, and your general credit history to ensure you have the capacity to deliver. If it’s satisfactory, you may qualify for a running account facility where your limit is determined by your total annual turnover. Banks may also provide an aggregate limit if you have multiple export orders.
Securing ECGC insurance cover is a smart move to encourage banks to sanction higher limits with more flexible collateral terms.
A Practical Example
To see how this works in the real world, imagine you receive an order for furniture worth $100,000 on a CIF basis.
- Deduct Freight and Insurance: The bank first deducts roughly 12.5% ($12,500) for shipping costs to arrive at an FOB value of $87,500.
- Apply the Margin: If your bank requires a 20% margin, they will subtract another $17,500.
Final Limit: Your eligible packing credit for this order would be $70,000 (or approximately ₹56,00,000 depending on the exchange rate).
Export packing credit vs Letter of Credit vs post-shipment finance
While these terms are often used in the same breath, they serve very different purposes in your export cycle. Here is how export packing credit, Letter of Credit (LC), and post-shipment finance compare:
How repayment works (and what happens if you’re late)
Here is how you handle the repayment and liquidation process:
- Standard Tenure: You get 180 days to ship your goods and repay the loan.
- Extensions and RBI Relief: If your production cycle is longer, you can extend this to 360 days with bank approval. Under a recent RBI relief measure, this tenure has been increased to 450 days for credit disbursed through March 31, 2026.
- Primary Repayment Route: Your bank will adjust the loan directly from your export bill proceeds once you submit your shipping documents.
- Alternative Liquidation Options: You can also repay using balances from your EEFC account or your own rupee resources
- The FIFO Rule: If you are using a Running Account Facility, the bank will adjust your debt on a First-In-First-Out basis. Meaning your earliest loan gets settled by the first payment you receive.
- What if the shipment fails? If you cannot dispatch the goods as planned, banks may allow you to repay using proceeds from domestic sales or by substituting the order with a different export contract.
Note that for credit taken before August 31, 2025, the RBI has provided extra flexibility to allow liquidation from any legitimate alternate source.
What happens if you exceed the timeline?
If you exceed these timelines without an extension, here is exactly what happens:
Interest rates spike retrospectively: Your bank will withdraw your concessional interest rate ab initio (from day one) and reprice the entire loan at much higher commercial rates.
PCFC crystallisation: Bank will crystallise a PCFC loan. Meaning the debt amount will be converted into Indian Rupees at the prevailing exchange rate.
Your credit profile takes a hit: Your account falls into the risk of becoming a Non-Performing Asset (NPA). This triggers recovery measures and makes it much harder to get export credit in the future.
Don't treat the 360-day limit as a target. Liquidate as soon as export proceeds come in. The longer you hold, the more interest you pay.
Common mistakes with export packing credit
Export finance is tricky, and navigating it alone makes it even trickier. Take note of the following common pitfalls so that you stay on the right track:
- Using funds for non-export expenses: Banks strictly monitor the end-use of these funds. Misusing the credit for personal or other business expenses results in heavy penalty.
- Waiting too late to generate your UIN: If you qualify for the Interest Equalisation Scheme, generate your Unique Identification Number (UIN) on the DGFT portal before the loan is disbursed. The interest subsidy cannot be claimed retroactively, so if you miss the window, you miss the savings.
- Ignoring the risk of PCFC crystallisation: PCFC is cheaper, but it comes with a strict deadline. Debt crystallisation will result in a much higher interest rate, thereby increasing your cost.
- Missing the 21-day window for shipping docs: Missing to send the shipping documents to banks within 21 days of dispatch will prevent the proper closure of your entry in the EDPMS (Export Data Processing and Monitoring System). This can block you from getting credit for future orders.
- Exceeding the tenure without an early extension: Apply for extension before the original date expires. If you cross the deadline without approval, the bank will withdraw your discounted rate from day one
- Skipping ECGC insurance cover: ECGC cover may feel like an extra cost, but it actually reduces the bank’s risk significantly.
Applying after production is already underway: Apply for export credit the moment your order so that your funds are ready when you need to buy raw materials
Key Takeaways
Packing credit is cheap money, but only if you follow the rules. Use it strictly for export, repay on time, and keep your bank informed. Break the rules and it becomes expensive very fast.
Role of ECGC in export packing credit
Insurance Against Exporter Default: ECGC provides insurance to banks to cover the risk that an exporter might fail to repay the packing credit. Banks have a higher confidence in realising funds, especially to first-time borrowers
Higher Limits and Better Terms: Banks are also more willing to sanction higher credit limits and offer you more flexible collateral terms
Buyer-Risk Protection: ECGC also protects you directly from the risk of your overseas buyer defaulting
Entering High-Risk Markets: ECGC maintains a list of “Restricted Cover Countries.” If you’re entering such a market, having ECGC approval can be the only way to get your production funded.
Simplified Vetting: If ECGC has already approved a credit limit for your specific overseas buyer, your bank may even waive the requirement for a separate credit report
How Skydo helps after shipment
Pre-shipment finance gets your production line moving, but the cycle is only complete when the money is in your bank account and the regulatory compliance is met.
Skydo bridges the final gap from shipment to settlement, ensuring you get paid on time while staying compliant.
Here’s how Skydo helps:
- Faster liquidation of credit: Skydo provides virtual accounts in regions like the US, UK, and Europe. Your buyers pay via local methods like ACH or SEPA, and the money arrives in your bank account in 24 - 48 hours.
- Transparent forex with zero Margins: Skydo uses live mid-market rates with zero margin. This way you know exactly what you will receive in INR.
- Automated compliance and Instant FIRA: You get a free Foreign Inward Remittance Advice (FIRA) on every international payment. It is essential for EDPMS closure and serves as proof of overseas payment in India.
- Flat transaction fees: A flat fee structure with no hidden markups ensures you always know the deduction charges beforehand
- Accurate Purpose Codes: Skdyo enters the right RBI purpose codes to your transactions based on your service or product type.
- End-to-End Tracking: From the moment you send an automated invoice to the final settlement, you can track every payment in real-time through a single dashboard.
