Post by Ismail AbdulAzeez on Jan 8, 2021 13:58:13 GMT 1
In this article we are going to start exploring Import financing in Nigeria. This is a topic that is never taken seriously in Nigeria as almost everybody is interested in export business because it is believed that it will bring the country out of the numerous problems facing the economy. At the time of writing this article, there was a news flash that the nation’s local currency, the naira is expected to further fall in value in the year 2021 due to the current economic challenges. Naturally the government will be encouraging exports to bring in foreign exchange to shore up the value of the local currency the naira.
But there is no country in this world that does not import from other countries. Take China for example, it is the largest export nation in the world today, but it also imports a lot from other nations too. China imported $207bn of Integrated Circuits, $144bn of crude oil from a recent report by Observatory of Economic Complexity, a Massachusetts’ Institute of Technology-linked tracker. So you can see that no country is immune from importation.
Therefore we are going to start looking into import financing in Nigeria and not export financing only. We will need to find out how the Nigerian Import and Export Bank (NEXIM) has been fulfilling its roles as an import bank too. The bank is supposed to be for both import and export. Many people only see the bank as an export financing bank, no it is for import too.
What is Import Finance?
Import trade on a large scale requires huge working capital as it is capital intensive. Manufacturing companies that import some of their raw materials need to maintain a good level of working capital to be able to keep their operations running smoothly. Without other funding options, businesses will be faced with tight cash flow problems. This is where import finance will come in handy to allow them manage their cash flow and purchases smoothly.
Import finance helps international import traders and manufacturers bring in goods into the country and fund other business expenses. This is always considered to be a financing option by a third party that comes in handy to meet immediate trading or capital requirements. The need for a company or business entity to seek import finance arises due to challenges faced in international trade. Trading or doing business internationally is full of challenges both known and unforeseen. Therefore this financing option is seen by international traders and manufacturers as a financial cushion. Many products qualify for import finance like, cars, raw materials, etc.
Import Finance is of different types, so let us take them one after the other. A standard letter of credit is a letter from a bank from the importer’s country guaranteeing that the seller will receive payment on time for the correct amount from the buyer. And in the event that the buyer fails or is unable to pay the seller, the bank will be required to pay the full amount or the remainder if part has been paid to the seller. Letters of credit are very important and indispensable in international business as you can see, the seller is sure that he must receive his payment. The bank takes over the risk from the seller.
Do not forget that the bank must have verified that the seller has met all the conditions stated in the letter of credit. It is therefore important that the supplier properly reads and understands the letter of credit, as any discrepancies in the execution of the contents of the letter will cause delays in payment to the seller.
Usance and Standby Letter Of Credit: When an importer wants to defer payment against a purchase, that importer makes use of a Usance letter of credit or Deferred Payment Letter of Credit. With this method or system, the importer obtains more time for his business to manage funds or has more time to clear and sell the goods imported before paying. On the other hand, when the importer uses a Standby Letter of Credit for the transaction, sellers are guaranteed payment by the buyers.
When letters of credit are involved, some banks do fund the importation with proper arrangement with the importer. The importer just goes ahead to import his goods and his bank provides the funds and pays the supplier abroad.
But there is no country in this world that does not import from other countries. Take China for example, it is the largest export nation in the world today, but it also imports a lot from other nations too. China imported $207bn of Integrated Circuits, $144bn of crude oil from a recent report by Observatory of Economic Complexity, a Massachusetts’ Institute of Technology-linked tracker. So you can see that no country is immune from importation.
Therefore we are going to start looking into import financing in Nigeria and not export financing only. We will need to find out how the Nigerian Import and Export Bank (NEXIM) has been fulfilling its roles as an import bank too. The bank is supposed to be for both import and export. Many people only see the bank as an export financing bank, no it is for import too.
What is Import Finance?
Import trade on a large scale requires huge working capital as it is capital intensive. Manufacturing companies that import some of their raw materials need to maintain a good level of working capital to be able to keep their operations running smoothly. Without other funding options, businesses will be faced with tight cash flow problems. This is where import finance will come in handy to allow them manage their cash flow and purchases smoothly.
Import finance helps international import traders and manufacturers bring in goods into the country and fund other business expenses. This is always considered to be a financing option by a third party that comes in handy to meet immediate trading or capital requirements. The need for a company or business entity to seek import finance arises due to challenges faced in international trade. Trading or doing business internationally is full of challenges both known and unforeseen. Therefore this financing option is seen by international traders and manufacturers as a financial cushion. Many products qualify for import finance like, cars, raw materials, etc.
Import Finance is of different types, so let us take them one after the other. A standard letter of credit is a letter from a bank from the importer’s country guaranteeing that the seller will receive payment on time for the correct amount from the buyer. And in the event that the buyer fails or is unable to pay the seller, the bank will be required to pay the full amount or the remainder if part has been paid to the seller. Letters of credit are very important and indispensable in international business as you can see, the seller is sure that he must receive his payment. The bank takes over the risk from the seller.
Do not forget that the bank must have verified that the seller has met all the conditions stated in the letter of credit. It is therefore important that the supplier properly reads and understands the letter of credit, as any discrepancies in the execution of the contents of the letter will cause delays in payment to the seller.
Usance and Standby Letter Of Credit: When an importer wants to defer payment against a purchase, that importer makes use of a Usance letter of credit or Deferred Payment Letter of Credit. With this method or system, the importer obtains more time for his business to manage funds or has more time to clear and sell the goods imported before paying. On the other hand, when the importer uses a Standby Letter of Credit for the transaction, sellers are guaranteed payment by the buyers.
When letters of credit are involved, some banks do fund the importation with proper arrangement with the importer. The importer just goes ahead to import his goods and his bank provides the funds and pays the supplier abroad.