The Full Form of PCFC is‍ PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY.

Pre-Shipment finance is financial assistance extended to the exporters, prior to shipment of exports. Pre-Shipment finance can be classified as packing credit, advances against cheques or demand drafts that are received as advance payment, and pre-shipment credit in foreign currency (PCFC).

Exporter need financial assistance for the execution of an export order from the date of receipt of an export order till the date of realization of export proceeds at any stage. Export finance is a short term capital finance allowed to an exporter. Export finance can be classified into two categories; depending upon at what stage of export activity the finance is expected. One is pre shipment finance and the other is post shipment finance.

Pre-shipment credit is any loan or advance granted or any other credit provided by the bank to an exporter. This is for the purpose of financing the purchase, processing, manufacturing or packing of goods prior to shipment. Dealers are permitted to avail Pre-shipment Credit in Foreign Currency (PCFC) with an intention of making the credit accessible to the exporters at an internationally cutthroat price. This is contemplated as an additional advantage beneath which credit is issued in foreign currency in order to assist the purchase of raw material after attaining the primary export orders. This is done on the basis of the letter of credit opened in his favor or in favor of some other person by an overseas buyer or a confirmed and irrevocable order for export of goods.

Banks extend Pre-Shipment in Foreign Currency (PCFC) to exporters for domestic and imported inputs of exported goods at LIBOR/EURO LIBOR/EURIBOR related Rates of Interest. Banks cover all pre-shipment advances granted by them under whole turnover packing credit guarantee policy from export credit guarantee corporation ltd. Banks determine the percentage of margin depending on factors such as; Nature of order, nature of the commodity, the capability of export to bring in the requisite contribution, nature of importer and importers country profile.

RBI has instructed the banks that PCFC, in the case of Rupee pre-shipment credit at the start is available for a particular period determined by the authority after taking into consideration on relevant factors with a maximum period of 180 days and branches should keep track of the end use of credit. Nominal guarantee fee of Export credit insurance whole turnover packing credit (ECIB-WTPC) must be borne by the exporters. This protects banks against losses due to exporter’s default.

The exporter has the independence to utilize PCFC in convertible currencies like USD, Pound, Sterling, Euro, Yen etc. Nevertheless, the risk is correlated with the cross currency transaction is that of the exporter. The sources of funds for the banks for providing PCFC facility include the Foreign Currency balances available with the Bank in Exchange, Resident Foreign Currency Accounts RFC(D), Earner Foreign Currency Account (EEFC)and Foreign Currency(Non-resident) Accounts.

Furthermore, Banks can set out for borrowings from abroad. Banks can negotiate terms of credit with overseas bank in order to grant PCFC to exporters, without the foregoing approval from RBI, on condition that the rate of interest on borrowing does not exceed 0.75% covering 6 month LIBOR.