MIC can help buyers obtain credit allocation under the Line of Credit (LOC) finance mechanism extended from the Exim Bank of India to overseas government, to agencies nominated by them, or to overseas financial institutions, including regional development banks and commercial banks.

Exim Bank has been using the LOC mechanism to promote Indian exports to new markets in developing countries, which need deferred credit for buying Indian goods. This has a huge benefit for importers as it allows them to import a variety of goods and services, including capital/engineering goods, industrial manufactures and related services from India on deferred payment terms.

Exim Bank has so far extended 55 Lines of Credit amounting to US$ 297.23 Million (Rs. 261.66 crore) in 53 countries across Asia, Africa and Latin America. Currently, Exim Bank has seven Lines of Credit in operation in Kenya, Namibia, Uganda, Tunisia, Tanzania, Thailand, South Korea, Bolivia, Colombia, Ecuador, Peru and Venezuela. Besides these operating LOCs, Exim Bank plans to expand its list in the near future, to provide US $110 Million in credit lines to cover Brazil, Hungary, Iran, Mexico, Romania, Russia, Dominican Republic, and Central American Countries.

Firstly, the process starts with the overseas buyer obtaining allocation under the credit line from the Borrower/Government/Institution. MIC would enter into a contract with the buyer for the items covered under the Line of Credit.

The overseas buyer submits the contract to the Borrower/Government/Institution for approval. The Borrower/Government/Institution, in turn, forwards copies of the contract to Exim Bank for approval. Exim Bank advises approval of the contract to the Borrower/Government/Institution, with a copy to MIC.

The overseas buyer, on advice from the Borrower/Government/Institution, establishes a letter of credit (L/C). A single L/C is opened, covering the full eligible value of the contract. The L/C is advised through a bank (designated by Exim Bank) in India. The L/C contains a reimbursement clause, stating that the eligible value (usually 90% of the contract value) will be reimbursed by Exim Bank to the negotiating bank in India.

Next, MIC ships the goods covered under the contract, and presents documents for negotiation to the designated bank. The bank forwards the negotiated documents to the buyer, and a set of non-negotiable documents to Exim Bank.

On receipt of a clean, non-negotiable set of the shipment (and related) documents from the negotiating bank, Exim Bank reimburses the eligible amount to the negotiating bank for onward payment to the exporter. Exim Bank debits the Borrower/Government/Institution's account, and arranges to collect interest and principal receivable on due dates, as per the terms of the agreement.

Generally, a minimum of 10% of the contract value has to be paid by the overseas buyer to MIC as advance payment or down payment. Exim Bank reimburses 90% of the value of goods and services under the export contract.