Preshipment finance is not provided by the commercial banks. TRUE OR FALSE?

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justaguide eNotes educator| Certified Educator

The statement "Pre-shipment finance is not provided by the commercial banks." is false.

Pre-shipment finance is also called "packing credit" and is provided by commercial banks to exporters. When goods are being manufactured for export, an agreement is created between the exporter and the intended buyer for whom the goods are meant. The buyer receives payment on delivery of the goods.

As the process here is quite simple and there is a definite buyer for the goods that are produced with whom an agreement has already been created, there is not much of a risk for the bank to extend credit to the manufacturer.

The credit allows the manufacturer to complete his side of the work and deliver the goods. As soon as payment is received the amount borrowed is paid back to the bank which lent the money.