Over the last year, while working closely with several Indian exporters across textiles, engineering goods, electronics, chemicals, and auto components, one pattern kept surfacing in almost every conversation.
The order books aren’t the issue.
Most of these manufacturers have steady demand from the US and Europe. Some even have long-standing buyer relationships. Yet their growth is stalled — not because they can’t sell, but because they can’t buy.
The feedback was remarkably consistent:
“Our buyers are ready. But our suppliers want 50–80% advance.
Banks help us once we ship — not when we need to buy.”
Most of these exporters source critical inputs from China or South-East Asia. To secure production slots, pricing, and timely delivery, they must remit large advances weeks before manufacturing even begins.
This is where the cash pressure peaks.
And this is exactly where formal finance disappears.
We Solved the End, Not the Beginning
Last month, we spoke to a garment manufacturer in Tirupur. He had a $200,000 order from a Spanish fashion chain. To fulfill it, he needed $80,000 worth of specialty fabric from China.
His bank agreed to finance the export — but only after he produced the bill of lading.
He didn’t have the cash to buy the fabric to get the bill of lading.
He eventually borrowed from a private lender at 18% interest, wiping out his margin.
Let’s give credit where it’s due. If you have a valid invoice today, liquidity is available. TReDS has democratized access, and factoring is no longer a dirty word. The post-shipment problem is largely solved.
But in our interactions, the stress point was never post-shipment.
Where the Cash Cycle Actually Breaks
Consider the cash cycle of a typical textile manufacturer:
Banks are comfortable to finance at Step 5.
But exporters struggle most at Step 1.
Why “Packing Credit” Fails to Address This Issue
On paper, PCFC (Pre-Shipment Credit) is supposed to solve exactly this. It was built to fund raw materials.
But ask a branch manager why they declined a limit extension last week, and the operational reality surfaces.
1. The “Purchase Order” Problem
Many global buyers no longer issue firm POs 90 days in advance. They work on rolling forecasts and framework agreements.
Exporters understand this demand pattern well.
Banks do not.
While RBI regulations allow banks to offer a Running Account facility without firm POs, in practice this is rarely offered to MSMEs. Banks view the risk as too high, defaulting instead to rigid, PO-backed lending.
2. The FEMA Fear Factor
When a bank finances an advance import, the money leaves India immediately.
If the overseas supplier defaults or delays shipment beyond six months, the bank faces a potential FEMA violation.
For a banker, the risk-reward ratio is broken. A comparatively low income isn’t worth a regulatory issue if a supplier in Guangzhou fails to ship.
3. Inventory in Transit Is Hard to Finance
At this stage, the exporter’s “asset” is inventory in a foreign warehouse or goods moving across oceans.
Indian banks lack real-time visibility. They cannot easily perfect collateral and find monitoring expensive.
So they ask for immovable collateral (in India) — which most MSMEs don’t have.
What Banks Can Do to Support These Exporters
This is more a product-engineering problem than a policy gap. The RBI Master Directions already offer enough flexibility.
Banks need to move from generic overdrafts to structured trade products.
1. Forecast-Based Underwriting for PCFC
If an exporter has a five-year history with Walmart with zero disputes, a rolling forecast is not speculation — it’s commercial certainty.
Banks must update their credit models to recognize relationship longevity as a proxy for a firm PO.
2. ECGC-Wrapped Working Capital
The Export Credit Guarantee Corporation of India already provides packing credit insurance.
In practice, it is under-utilized due to operational complexity.
Banks that centralize this — embedding premiums into pricing and automating declarations — can double their risk appetite overnight without needing more collateral.
3. Cross-Border Supply Chain Finance for Imports
Banks often treat every overseas payment like a fresh risk. That ignores the data.
If an MSME has been buying from the same supplier for three years, the performance risk is already established.
Banks should apply Supply Chain Finance logic here:
the bank pays the overseas supplier directly — but only after seeing digital proof of shipment.
This flips the dynamic.
You’re no longer lending cash for a one-off advance payment.
You’re financing a verified trade payable.
Why This Matters Now
In a China + 1 world, speed matters as much as price.
Vietnamese and Bangladeshi manufacturers often get credit approvals in days, not weeks.
If an Indian exporter takes a month to arrange raw-material funding, they lose the order — regardless of price advantage.
Venzo’s Perspective
We need to stop pretending that digitizing invoices will fix an inventory problem.
India’s export growth will not be unlocked by:
-
more receivables platforms, or
-
more unsecured MSME loans.
The import finance gap is the single most underestimated constraint in India’s export ecosystem.
The tools to solve this — logistics data, API-based inspections, and insurance wrappers — already exist.
The institutions that assemble these blocks into coherent trade products will not just lend more safely.
They will build the financial backbone for India’s manufacturing scale-up.