Pre-Shipment Credit: Meaning, Types, Interest Rates & How to Get It — Guide for Indian Exporters
Your pre-shipment borrowing just got cheaper. The recently launched Niryat Protsahan sub-scheme earmarked 2.75% as the base rate for interest subvention covering 75% of tariff lines.
In plain language, you get the much-needed pre-shipment credit at a more affordable rate. This eases the cost of financing your manufacturing, labour, and packing needs while waiting for your buyer to pay.
If that’s what you’ve been looking for, we suggest you read this blog till the end as we explain the meaning, types, interest rate, and eligibility of pre-shipment finance in this blog.
TL;DR - Summary
- What it is: - Short-term bank loan covering raw materials, manufacturing, and packing costs before goods are shipped.
- Also known as: - Packing credit or export packing credit — all three terms describe the same financing.
- Currency options: - Borrow in INR or foreign currency (PCFC) for lower interest rates and a natural hedge against exchange rate swings.
- Concessional rates: - RBI classifies export credit as a priority sector, so loans come at lower interest rates.
- Self-liquidating: - Loan auto-settles using export proceeds once your international buyer's payment is received.
What is pre-shipment credit?
So, what exactly is pre-shipment credit? Before we get to that, it’s also referred to as packing credit or export packing credit.
It is a short-term loan from your bank to fund your business from the moment you receive an order until the day you ship the goods. This includes everything from procuring raw materials, manufacturing to labor, processing, labeling, and even inland transport to the port.
However, this financing cannot be used for general business expenses. Because the RBI treats export credit as a priority sector, you benefit from concessional interest rates, significantly lower than regular overdraft or cash credit limits.
Key Takeaways
💡 Think of it this way: your buyer pays in 90 days, your supplier wants payment today. Pre-shipment credit fills the gap, at below-market interest rates.
What are the types of pre-shipment credit
When choosing the right pre-shipment finance for your business, you generally have two main paths depending on your cost structure and how you invoice your buyers:
Export Packing Credit in INR (EPC)
This is the standard choice if your production costs, like labour and raw materials, are primarily in Indian Rupees. The interest rate is linked to your bank’s MCLR or base rate plus a concessional spread. If you are an MSME exporter, you also get the 2.75% interest subvention above this.
Pre-Shipment Credit in Foreign Currency (PCFC)
This is a better choice if you invoice your buyers in a foreign currency like USD, EUR, or JPY. The interest rates are linked to international benchmarks like SOFR or EURIBOR, which are usually cheaper than rupee loans. The advantage here is that you borrow and repay in foreign currency. Therefore, you automatically protect yourself from exchange rate fluctuations.
Common Mistake
⚠️ PCFC crystallisation risk: If not repaid within the allowed period (~360 days or 30 days after the due date), the foreign currency loan gets force-converted to INR at prevailing market rate. This can significantly increase your cost.
Besides these two above, you also have access to more flexible options of pre-shipment credit:
Advances against cheques/drafts
Your bank can provide short-term credit against advance payments like cheques or drafts even before they clear. This gives you quick access to funds to start production immediately.
Running Account Facility
With a running account, you can get credit from your bank without presenting a specific export order upfront. You share the confirmed order details within a specific timeframe, like 30 days. This is a brilliant choice for established exporters with a sound track record and managing multiple orders in quick succession.
Key Takeaways
PCFC is almost always cheaper if you have confirmed forex receivables. EPC is simpler and works better for INR-denominated cost structures.
What's the difference between pre-shipment credit and post-shipment credit?
You might know the basic difference: pre-shipment finance gets your goods to the port, post-shipment finance ensures your business stays liquid while you wait to get paid. But there’s more; check out this table to find out.
Interest rates on pre-shipment credit
Use this table as reference. The actual interest rate for pre-shipment credit depends on the bank, your credit profile, export track record, and order size.
Hidden costs beyond interest
While the interest rate must be your focus, don’t overlook these additional costs:
- Banks mostly fund 80–90% of the Free on Board (FOB) value of your order. You must manage the remaining 10–20% yourself.
- Keep an eye out for processing fees, documentation charges, and renewal fees. These vary by bank and can add up quickly.
- Failing to repay a PCFC loan crystallizes it, meaning the bank converts it into a high-interest rupee loan
Pro Tip
Don’t just compare interest rates across banks. Compare total cost: rate + margin + fees + any forex costs.
Maximum period for pre-shipment credit
Standard Tenure: Typically you have up to 180 days from disbursement to ship your goods and settle the loan.
Extensions: If your production cycle is complex, you can usually extend this period to 360 days with prior approval from your bank.
Recent RBI Relief: A recent RBI measure allows for a tenure of up to 450 days for eligible disbursements
The Penalty for Delays: If you exceed the allowed timeline without an extension, your bank will withdraw your concessional interest rate and reprice the entire loan at much higher commercial rates retrospective
Pro Tip
Don’t treat the 360-day limit as a target. Liquidate as soon as export proceeds arrive. Holding longer = more interest cost + compliance risk.
How banks assess pre-shipment credit (limit calculation)
These are the most-common steps performed by banks to assess your credit limit:
- Your limit is primarily based on a percentage of the FOB value of your export order, typically ranging from 75% to 90%.
- If your contract is on CIF (Cost, Insurance, and Freight) terms, the bank will automatically strip away the costs of shipping.
- You are expected to contribute a margin of 10% to 20% from your own resources, while the bank covers the rest.
- The bank may sanction an aggregate limit based on your total annual export turnover rather than individual orders
A Practical Example
Imagine you receive an export order for handloom textiles worth $80,000 on a CIF basis.
- Strip Freight and Insurance: The bank deducts roughly 11% ($8,800) for shipping and insurance costs, arriving at an FOB value of $71,200.
- Apply the Margin: If your bank requires a 15% margin, it will subtract another $10,680.
- Final Limit: Your eligible pre-shipment credit for this order would be $60,520 (or approximately ₹50,43,000 depending on the exchange rate).
What banks check during assessment
This is not an exhaustive list, but a useful reference to know what banks check during assessing your loan request:
- Your name must not appear on the RBI’s caution list or the ECGC’s Specific Approval List (SAL) for any past defaults.
- The bank will verify your export order or Letter of Credit (LC) to ensure it is irrevocable and from a legitimate buyer.
- They assess the creditworthiness of your overseas buyer and the political and economic stability of their country.
- Banks evaluate you based on the 5C’s of Credit: Character, Capacity, Capital, Collateral, and Conditions. They confirm your physical capacity to manufacture the goods and the financial strength to survive delays.
How to get pre-shipment credit — step by step
Foundation step
Bank relationship
Documentation heavy
75–90% FOB funded
End-use monitored
180-day window
Follow these steps below after you have made your decision to avail pre-shipment credit from the bank:
Step 1: Secure your export order
A confirmed purchase order or an irrevocable Letter of Credit (LC) from your buyer is required to start the process.
Step 2: Approach your bank
Meet with your Authorized Dealer (AD) bank to discuss your production needs and share your company’s export track record.
Step 3: Submit your documents
Gather your IEC, GST, and proforma invoice, and ensure you’ve generated your UIN on the DGFT portal to lock in your concessional interest rates.
Step 4: Bank assessment and sanction
The bank will evaluate your creditworthiness and sanction a limit
Step 5: Fund release and monitoring
You can draw the funds in a lump sum or in stages to pay for raw materials and labor
Step 6: Ship and liquidate
Once you ship the goods, you must close the loan by either converting it into post-shipment credit or settling it directly from your incoming export proceeds.
Pro Tip
Apply as soon as you get the order. Waiting until production is underway means you’re already in a cash crunch by the time funds arrive.
Who is eligible?
Check out this eligibility list, including a few critical details, before you apply for pre-shipment credit:
Legal Identity: You must have a valid Importer-Exporter Code (IEC) issued by the DGFT, along with active PAN and GST registrations.
Proof of Order: A confirmed export order or an irrevocable Letter of Credit (LC) from your buyer
Clean record: Your name must not appear on the RBI’s caution list for unresolved defaults or the ECGC’s Specific Approval List (SAL).
Product Compliance: Your goods must be under the freely permissible category in the Foreign Trade Policy
Financial Health: Banks check for a satisfactory credit history and a stable banking relationship to ensure you can execute the order
Country Risk Check: If you are exporting to countries on the Restricted Cover Countries (RCC) list, you may need specific ECGC approval before the bank will release funds.
RBI guidelines on pre-shipment credit
On top of the eligibility requirements, remember these RBI guidelines to avoid compliance hassles at the last moment:
- All pre-shipment credit is governed by the RBI Master Direction on Export of Goods and Services (FED MD No. 16/2015-16), which is periodically updated to reflect the latest trade needs.
- The RBI mandates banks treat your export credit as a priority sector lending obligation, so that funds are always available for your business.
- You are entitled to concessional interest rates, as banks must strictly follow prescribed norms for export credit pricing.
- The standard timeline for pre-shipment credit is 180 days, though you can get extensions up to 360 days or even 450 days
- Your bank is required to perform end-use monitoring to ensure you use the funds strictly for manufacturing, processing, and packing export goods, and not for general business expenses.
- Every transaction you make is tracked through the Export Data Processing and Monitoring System (EDPMS) to perfectly sync your bank records and shipping documents.
- Under the upcoming FEMA 2026 regulations (effective October 2026), reporting timelines will become stricter, requiring banks to enter your Export Declaration Form (EDF) details within 5 working days.
- If you have a sound track record, the RBI allows you to use a "Running Account" facility, letting you draw credit even before you receive a specific export order
- If you cannot ship goods for a specific order, you have the flexibility to substitute the contract with another valid export order to settle your loan
- To successfully claim your interest subvention benefits, you must generate a Unique Identification Number (UIN) on the DGFT portal before the bank disburses the loan. The RBI does not allow retroactive claims.
Risks and common mistakes
Despite all the preparedness, you could still fall prey to common mistakes or come face-to-face with an unprecedented risk. Treat this list as a mini-guide to help you manage the situation if you face one:
- Production delays: Production delays could make you miss your shipment window while interest keeps piling up. The solution is to always build a buffer into your production timeline to keep your costs under control.
- Order cancellation: If your buyer cancels mid-production, you are still legally liable to repay the bank. Explore ECGC buyer risk cover to protect yourself from these unexpected financial shocks.
- PCFC forex risk: If the Rupee strengthens, your repayment cost in INR goes up. Consider hedging your currency exposure if you are managing large orders.
- Using funds for non-export expenses: Diverting funds to general expenses triggers immediate rate reversals and heavy penalties. Maintain strict discipline to keep your credit concessional.
- Not generating IES UIN before taking loan: You cannot claim interest subsidies retroactively once the loan is disbursed. Generate your UIN on the DGFT portal before the bank releases the funds.
- Missing liquidation deadline: Exceeding your allowed tenure will make the bank withdraw your discounted rate and reprice the loan at high commercial rates
- Not submitting shipping documents to the bank within 21 days: Delaying your paperwork prevents EDPMS closure and can block your access to future credit. Automate your document submission to ensure you never miss this window.
How Skydo helps after shipment
Pre-shipment credit takes care of your production costs and ensures you have enough money to ship the goods on time. But an export order is only completed after you get paid by the buyer.
This is where Skydo steps into the export workflow. It helps you get paid on time, with minimum fees, and stay compliant with the RBI regulations.
Here’s what happens when you use Skydo to receive international payments:
- Foreign currency is converted into INR using live forex rates (what you see on Google) with zero hidden margins
- There are no separate currency conversion charges
- The payment gets credited in 1 working day after the transaction.
- Skydo issues a FIRA for free after every international payment. This saves you from multiple trips to banks and follow-ups with their staff.
- It also memorizes the purpose code and adds it automatically in upcoming invoices, which keeps your EDPMS data clean.
- Because you get the payment at a relatively shorter timeframe, you can repay the preshipment credit quickly.
- It’s easy to keep track of payments and maintain a centralized record, much more useful for future audits.
What is pre-shipment credit?
Pre-shipment credit is a short-term loan provided to exporters to finance the procurement, manufacturing, processing, and packing of goods before they are shipped. It bridges the financial gap between receiving an export order and the actual shipment of goods
What is the difference between pre-shipment credit and post-shipment credit?
What are the types of pre-shipment credit?
What is the maximum period for pre-shipment credit?
What is pre-shipment credit in foreign currency (PCFC)?
What is the Running Account Facility in pre-shipment credit?
What are the interest rates on pre-shipment credit?
How is the pre-shipment credit limit assessed?
What happens if pre-shipment credit is not repaid on time?
Is pre-shipment credit the same as packing credit?
