1. Importers have access to foreign trade credit through 1. trade credits (working capital for their foreign trade transactions) and 2. trade finance guarantees (such as letters of credit to reduce payment and/or performance risk) 2. Trade Credits (TC) refer to the loans and credits extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for maturity ( as prescribed in [this](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510) framework), for **imports** of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India. 1. there are schemes for pre- and post-shipment credit (both Indian Rupee and foreign currency) for [exporters](Exports%20&%20The%20RBI.md#Banks%20and%20Exporters%20-%20Export%20Credit%20Scheme) which are intended to provide short-term working capital finance. 3. They are also called Export Credits 4. Trade finance guarantees - They are in form of letters of credit and bank guarantees, and reduce counterparty risk in international trade by providing payment or performance assurance to either the exporter or the importer, depending on the structure. 1. In a single trade transaction, both importer and exporter can simultaneously issue bank guarantees to each other, one covering payment risk (protection for exporter) and the other covering performance risk (protection for importer). 2. Guarantee related provisions are covered in: 3. [FEM (Guarantees) Regulations, 2026](https://rbi.org.in/scripts/NotificationUser.aspx?Id=13269) ([January 12, 2026](RBI_Notification_20260112_Foreign%20Exchange%20Management%20(Guarantees)%20Regulations,%202026.pdf)) 1. [FEM (Guarantees) Regulations, 2000](https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=162), dated May 3, 2000 *(withdrawn)* 4. [Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510);  5. ==[Direction - Export and Import of Goods and Services](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13278) (Jan 16, 2026) *(effective from October 1, 2026)* | [Press Release](RBI_Press%20Release_20250404_Draft%20-%20Foreign%20Exchange%20Management%20(Export%20and%20Import%20of%20Goods%20and%20Services)%20Regulations,%202025.pdf)== 1. [Master Directions – Export of Goods and Services](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10395) *(Jan 1, 2016, to be withdrawn from Oct 1, 2026)*;  2. [Master Direction – Import of Goods and Services](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10201) *(Jan 1, 2016, to be withdrawn from Oct 1, 2026)*; 6. [Master Direction – Other Remittance Facilities](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10193); and 7. [Master Direction – Reporting under Foreign Exchange Management Act, 1999](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10202)  4. Hence trade finance provides not only working capital to support international trade transactions, but also means to reduce payment risk in the form of trade guarantees. 5. BoP treatment - They form part of short-term loans under private capital flows, and hence are classified under [capital account](Capital%20Flows%20-%20Account%20&%20Management.md#^f47115) 6. Source - Depending on the source of finance, they can be either be 1. Suppliers’ credit - It is credit is extended by the overseas suppliers in the form of deferred payment and 2. Buyers’ credit - it is loan for payment of imports into India, and are arranged (mainly) through the Authorised Dealer (AD) bank from recognised lenders (like banks, financial institutions, foreign equity holder(s) located outside India and financial institutions in IFSCs located in India) subject to guidelines by the RBI. 7. Trade Advances - They are just timing mismatches in trade payments, like good received by importers but payment not made. 1. Importer - Payment done, goods not received is a Lead but not an external debt. Goods received, payment not done is a Lag, and an item added to the External debt. 2. Exporter - Goods sent, payment not received is a Lag, and if Payment is received and goods not sent, it is Lead and it is added to External debt 8. Currency - TC for imports into India can be raised in any freely convertible foreign currency (FCY denominated TC) or Indian Rupee (INR denominated TC since Sept, 2015). 9. External Debt - They form part of external debt. Since bank-backed trade credits are usually short-term and secured by the goods or receivables, they tend to pay themselves off through the sale of the goods. This makes them less risky in terms of repayment, transfer, and currency convertibility compared to other types of cross-border loans. [^] 10. Short-term trade credit is the main component of external trade credit. 1. [September 10, 2015](RBI_Notification_20150910_Trade%20Credit%20Policy%20-%20Rupee%20(INR)%20Denominated%20trade%20credit.pdf) - RBI allowed resident importer to raise trade credit in Rupees (INR) 11. [Box II.36 - Trade Credit](RBI_Annual%20Report_2009.pdf#page=206&selection=72,0,72,12) in RBI's Annual Report 2009 12. [==May 08, 2019](RBI_Research_WP_20190508_RBI%20WPS%20(DEPR)-%20022019-Cross-border%20Trade%20Credit-A%20Post-Crisis%20Empirical%20Analysis%20for%20India.pdf) - A Working Paper titled "Cross-border Trade Credit: A Post- Crisis Empirical Analysis for India." was published.== ## Act/Regulations/Master Directions 1. [Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510)  - PART II – TRADE CREDITS FRAMEWORK 1. [Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10204) *(last updated as on November 22, 2018) (withdrawn)* 2. FAQs - External Commercial Borrowings (ECB) and Trade Credits - [PART II: TRADE CREDITS (TC)](https://rbi.org.in/scripts/FAQView.aspx?Id=120) 3. Related - [ECB](ECB%20(Borrowings%20in%20Rupee%20and%20FCY).md#^66f039) 4. Related - [Foreign Trade](Exports%20&%20The%20RBI.md#Act/Rules/Regulations/Master%20Directions) ## Related Notes 1. [Exports & The RBI](Exports%20&%20The%20RBI.md) 2. [ECB (Borrowings in Rupee and FCY)](ECB%20(Borrowings%20in%20Rupee%20and%20FCY).md) 3. [Capital Flows - Account & Management](Capital%20Flows%20-%20Account%20&%20Management.md) ## References 1. [Box II.36-Trade Credit](RBI_Annual%20Report_2009.pdf#page=206&selection=72,0,72,12) in RBI's Annual Report 2009 2. RBI. May 08, 2019. Cross-border Trade Credit: A Post- Crisis Empirical Analysis for India. RBI WPS (DEPR): 02/2019. Authors-Rajeev Jain, Dhirendra Gajbhiye and Soumasree Tewari. [pdf](RBI_Research_WP_20190508_RBI%20WPS%20(DEPR)-%20022019-Cross-border%20Trade%20Credit-A%20Post-Crisis%20Empirical%20Analysis%20for%20India.pdf) 3. Related - [References on Foreign Trade](Exports%20&%20The%20RBI.md#References) 4. DEA, Ministry of Finance. (September 2024). India's External Debt - A Status Report_2024-25.