What are financing, refinancing and usance?
What are financing, refinancing and usance?

خانه What are financing, refinancing and usance?

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What are financing, refinancing and usance?

What are financing, refinancing and usance?

Usance is a type of letter of credit in which the seller of the goods gives the buyer a period to pay the credit in the meantime. In cases where the seller refuses to accept the usufruct transaction, a financial institution or third-party commercial banks often enter into the transaction and pay the seller credit to receive the usufruct interest and principal from the buyer.

The “credit” usufruct credits are exactly the same as the overdue promissory notes in terms of conditions, with the main difference that unlike credits with overdue payment in usufruct, it is obligatory for the financing bank or the credit opening bank to withdraw. . Therefore, if the condition of issuance is removed from the transaction due to the cost of the stamp and the acceptance fee, you must use the letter of credit with late payment.

Usance is usually issued as a certified non-refundable letter of credit to guarantee the seller of the goods. The mentioned financial institution or commercial bank will receive the interest on the credit amount from the applicant until its due date. The maximum interest rate that financial companies can receive can be equal to the interest rate announced by the Central Bank on the day of opening the letter of credit.

What makes sellers reluctant to open Usance Credits is the obligation to pay the amount that the Credit-Opening Bank assumes at maturity. In the meantime, the approval of another bank may be added to the approval of the issuing bank. They can be opened for up to a year. It is worth mentioning that the type of goods purchased has an effect on the acceptance of the opening of Usance by the banks and the documentary credit of Usance is not renewable in any way.

Usance and its types

In a usufruct credit, the buyer of the goods or services pays the amount owed on credit to the seller of the goods. When the seller of the goods (beneficiary of documentary credit) transports the goods and submits the documents to the relevant bank without any discrepancy, he will receive the amount of his goods from the relevant bank from the date of submission of the document and after the expiration of the usufruct. In Usanes documentary credit, the seller agrees to receive the original amount of the goods at a specific date after delivery of the goods.

What are financing, refinancing and usance?

Refinancing (short-term documentary credit):

The use of short-term interbank facilities (usually one year) is called refinancing. It is a kind of documentary credit opening in which the buyer / beneficiary receives the documents in cash from the broker bank at the time of the transaction according to the credit conditions and the buyer pays the documents according to the contract concluded with the bank at the time specified in the contract. N. The maximum deadline for the buyer to pay for the documents is one year. To clarify the discussion, take a look at the contract that is concluded between the bank and the applicant for this type of credit here. Perhaps to clarify the concept of refinancing, it is better to compare it with the buyer’s credit.

Buyer’s Credit:

Granting facilities to foreign buyers or employers to purchase Iranian goods and services within the framework of a financing agreement is called buyer credit.
This type of facility is granted with the aim of providing the possibility of long-term sale of goods and services. The foreign buyer / employer tends to pay for the goods or services received on a long-term basis, while the Iranian contractor seller prefers to receive the money in cash. Here the bank can play a role as a financial intermediary. Pays the relevant amount to the Iranian seller / contractor in cash and receives it at the due date (s) from the foreign buyer / employer or his bank.

These facilities to foreign buyers of Iranian goods and services that are at least 60? Is the value of that product made in Iran or 60? The value of those services can be provided by Iranian specialists, it is paid in such a way that after the issuance of the goods or services desired by the bank by a foreign buyer or his bank, a maximum of 85? Pays the value of the commercial inventory to the Iranian exporter and the foreign buyer or his bank repays the relevant amount to the bank in addition to the interest at the due dates. (Term sale)

Refinancing:

According to the Central Bank’s directive, the use of short-term interbank credit lines for a maximum of one year to open documentary credits for the import of goods is called “refinancing”.

All importers of goods and services can open documentary credits using interbank credit lines. The Iranian importer can buy the goods on a long-term basis and pay for the imported goods in installments. While the seller receives his goods in cash at the time of submission of shipping documents.

Difference:

In the buyer’s credit, the foreign buyer is financed and in the refinancing, the Iranian buyer is financed. In the credit of the buyer, the goods or services are issued by the Iranian seller. In refinancing, the goods are imported by an Iranian buyer.

In Usanes documentary credit, the interest belongs to the manufacturer (seller) of the goods. In this way, the seller adds a certain percentage that is approved by the buyer to the sale amount of the goods and demands the principal and interest of the amount at maturity. We can use the heading of non-bank interest expense to record interest in the accounts.
However, in the form of refinancing, the bank undertakes to pay the equivalent of the price of the goods on behalf of the buyer in due time and then to receive the principal and its subsidiary from the buyer. In such cases, the interest belongs to the bank. Here, too, we can use the heading of bank interest expense to record interest in the accounts.
In both cases, the interest should not be taken into account in the cost price of the purchased goods, but should be recorded in the interest expense account (subset of financial costs).

Letter of Credit 1100
Bank interest fee 20
Cash and Bank 120
Refinancing facilities received 1000

Letter of Credit 1100
Non-bank interest fee 20
Cash and Bank 120
Accounts receivable / usance

ü In order to realize the ideals of Iran Insurance Company as the only state insurance company and in the implementation of paragraph 7 of the 10-article presidential decree on supporting producers and investors by providing appropriate insurance coverage and to increase the financial security of investors and Recipients of foreign exchange facilities and the possibility of unpredictable increase in exchange rates and problems for producers, Iran Insurance Company for the first time in the country with the license of Central Insurance of Iran has insured exchange rate fluctuations, which has been significantly welcomed. Has been done.

In another explanation of Usance:

Credit or term credit (Usance): Usance L / C is a credit that the credit is not paid immediately after the submission of documents by the beneficiary, but the payment is made after the specified period. In fact, the seller gives the buyer a deadline. To pay the price of the goods after receiving and selling it. Usance trading is usually done in countries that have a shortage of currency. Incoterms (purpose and territory): The purpose of Incoterms is to provide a set of international rules for the interpretation of the most common terms used in foreign trade. Thus, the multiplicity of interpretations of these terms in different countries is avoided or at least reduced to consideration. Most parties to the contract are unaware of the different business practices of the other country. This can lead to misunderstandings, litigation and a waste of time and money. To address such problems, the International Chamber of Commerce first published a set of international rules for the interpretation of trade terms in 1936 called the Incoterms 1936. Later, in 1953, 1967, 1976, 1980, 1990, and now in 2000, amendments and additions were made to bring it into line with current international trade practices. It is emphasized that the realm of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of the goods sold. Opening a letter of credit using foreign credit facilities (financing). Use of short-term interbank credit lines for a maximum of one year for importers (refinancing). In the form of financing and refinancing credits, the seller receives the transaction amount in full by presenting the shipping documents, and only the buyer uses the mentioned facilities.

Cash or Visual Credit (At Sight L / C)

It is a credit that the payment of the transaction is made immediately after seeing the documents and in case of non-contradiction to the seller (beneficiary of the credit).

 (Defered Payment L/C)

In such credits, the beneficiary of the credit will receive the transaction amount after submitting the documents to the designated bank in case of non-discrepancy in the specified time in the future. For example, if the amount of credit has been agreed with term payment ??? If the fast is paid, the bank will pay the credit amount to the beneficiary of the credit on time.

Note: In this type of credit, you will not be issued a loan for long-term payment, so that the beneficiary of the credit will be able to receive the transaction with a discount if necessary. Therefore, from the point of view of the seller or the beneficiary, this credit is one of the most inappropriate methods of receiving the goods, while for the credit applicant or buyer, it does not have the cost of canceling the stamp and preparing it for you, and is the most appropriate method.

When foreign sellers refuse to sell goods on a usufruct basis or demand high interest rates, the central bank finances the purchase and import of goods through credit lines provided to it by foreign banks. In this case, the seller of the goods or the beneficiary of the credit, after submitting the transaction documents, receives the goods from the dealer bank, and the foreign bank, which has the role of financier, receives its principal and interest at maturity according to the contract concluded with the Central Bank of Iran. Such transactions are called internal usance. And the central bank collects a percentage of the price of the goods from the importers as the interest rate of the domestic user.

 Finance

In cases where the seller of the goods refuses to accept the usufruct credit and the buyer is unable to open the documentary credit either due to lack of liquidity or due to the country’s currency conditions, the buyer usually requests a financial company (mainly financial institutions or commercial banks). Who has been traded and pays the amount of the transaction to the seller in cash and at the maturity of the usufruct receives the principal and interest of the usufruct from the buyer of the goods or buys the credit of the usufruct opened in his favor. It should be noted that the US interest rate is determined by the risk of the buyer country in the global foreign exchange market.

These institutions are called financiers.
Credit or visual credit or usance

At present, in our country’s banking system, documentary credits can be divided into the following two categories in terms of time of foreign currency payment:
Sight LC Visual Cash Credit
Usance LC

In a letter of credit opened visually (cash), when the beneficiary of the letter of credit transports the goods and then submits the documents of the letter of credit to the relevant bank (the bank opening the credit) without discrepancy in accordance with the conditions in the text of the letter of credit, the said bank is obliged. After reviewing the documents, to pay the letter of credit in accordance with what is stated in the text of the letter of credit.

In letter of credit opened in the form of usance, when the beneficiary of the letter of credit transports the goods and submits the documents without contradiction to the relevant bank. From the date of submission of the documents and after the end of the usance period, he will receive the amount of credit from the relevant bank. For example, if the documentary credit has been opened in the form of a one-year usufruct in favor of the sample company and the sample company has submitted the shipping documents to the trading bank on 10/1/84 in accordance with the credit conditions and without any discrepancies. The credit amount will be paid to the sample company on 1/10/85. Due to the type of goods, the credit beneficiary generally refuses to accept the opened credit in the form of usance and requests visual documentary credit. In fact, if the goods in question have a good market (demand), the seller will directly refuse to accept the usufruct credit and ask the credit applicant to find reputable companies (such as commercial banks) to finance the credit. Hiq. In case of acceptance of the financial company, the beneficiary of the credit will receive the credit amount from the said company on the transaction day and this company will receive the credit amount plus usufruct interest at the maturity (end of usufruct period) from the relevant bank.

In cases where countries are in dire need of certain goods and foreign sellers who control the market and refuse to sell as usans, the Central Bank of the Islamic Republic of Iran with some foreign banks such as Standard Charter Bank or Export Bank of Iran in Dubai or I ANG Bank, etc. will enter into a contract so that the mentioned bank will pay the amount of the documents to the beneficiary of the documentary credits opened by the Iranian banks on the day of the transaction.

The above-mentioned banks will receive the amount of credit payment plus interest from the Central Bank of the Islamic Republic of Iran based on the contract at maturity (end of usufruct period). This type of usance is called refinance.

The difference between the internal usance and the usance is that in the internal usance the central bank has chosen the financier and concluded a contract with it, or in other words, the credit lines provided by the foreign banks to the central bank are used to finance the purchase and import of goods.

How to finance infrastructure projects

How to finance and prepare the necessary executive budget to carry out infrastructure projects and exploit the products and services obtained from them is currently one of the most important challenges facing developing countries.

 

Due to the special situation of developing countries and financial crises in these countries, it is not possible to provide the capital needed to implement large projects easily, so using another way, namely attracting foreign capital in these countries is considered. To take
Quoted from the site: .sanaye-en.blogfa
Use of internal and external resources in financing projects

In case of using internal resources
1- Allocating a part of the income of the whole country
2- Allocating a part of export revenue

In case of using foreign capital
1- Borrowing methods (borrowing)
2- Non-loan methods (investment)

Borrowing methods (borrowing)
In such methods, the investing country receives a loan from the lender country or institution and is obliged to repay the installments to the lender at the due dates. In this type of method, the lender country or bank does not accept any risk and all risks are borne by the borrower country.

This method of financing projects has two forms:
1- The lending country or institution does not set any conditions for the way the loan is used and in fact the financing phase is completely separate from the executive phase.
2- The country or institution of the loan, in addition to granting the loan, also has full control over how it is spent and conditions the type of consumption with the borrower from the beginning.
Borrowing methods (borrowing)
Finance: Finance literally means “finance” or financing, and in the discussion of investment refers to financing through the use of internal resources or receiving and using foreign currency loans.
Usance: Usance in the word means “deadline”, “deadline” and “payment promise” and in investment terms means agreeing to pay the price of technology and equipment received in exchange for a long-term offer. Usance trading is usually done in countries where there is a shortage
They have currency.
Credit lines: In this case, the recipient of the credit line is allowed to use a certain amount of the products or services of the credit line issuer without paying any money and to repay it according to the previous agreements.
International loans: This method refers to the establishment of a conditional and specific use of the loan and the control of the lending institution over how the loan is spent at the time of project implementation. In such cases, the feasibility studies required by the lender should be performed and the technical and economic justification of the project should be accepted by him.
The difference between the financing method and the Usance method:
In the finance method, only the discussion of financing and receiving money in the form of loans is discussed, while in the Usance method, the discussion of goods, services or technical knowledge is also included, and in fact these technologies are purchased from a foreign country or institution. This method is very expensive due to the interest rate and adjustment of the product rate by the lender.

Differences between financing method and international loan method:

The loans received in this method have a major difference with the financing method, and that is due to the conditional and specific establishment of the loan and the control of the lending institution over how the loan is spent at the time of project implementation.
Non-loan methods (investment)
In the investment method, the financier (investor), by accepting the risk of using financial resources in the activity or project, expects a return on the principal and profit of the invested resources from the economic performance of the project.

Investment methods are used in the following two ways:
1- Foreign direct investment
2. Foreign indirect investment
3. Compensatory transactions

Foreign direct investment:

Foreign direct investment means the participation of one or more foreign investors in the registered shares of a domestic institution, which creates rights for the investor.
This type of investment has several advantages and disadvantages. Among the advantages of this method for the recipient of capital are: transfer of technical knowledge, increase of human resources capability, profit and loss sharing, job creation, no need to make a financial commitment, gaining managerial experience, etc. At the same time Given that investing countries usually try in various ways to increase their profits and spend the least cost and transfer the least possible knowledge, the investing country must act very carefully at all stages.

Types of foreign direct investment methods:

* Own or buy
* Creating a subsidiary of the company
* Joint venture
* Participation in production
* Profit sharing
* Time participation
* Profit sharing

Foreign indirect investment:

In this type of investment, the country or foreign institution participates in financing the project through securities such as stocks, long-term bonds, international participation bonds, etc.
The difference between this method and direct investment is that here the investor is not involved in the project implementation process and has no supervision and does not make financially sharp commitments; Receives profit only in case of profit or loss of the project, based on the given share of the company

Compensatory transactions:

In this type of investment, which is also called mutual transactions, the country or institution of the investor in return for providing cash resources (capital needed to purchase equipment and production forces) and non-cash resources (equipment, technology, technical knowledge, etc.). ) Required for the implementation of the project, the original capital (financial and non-financial) with the expected profit from the products or services produced by the same project or other domestic projects or in some cases in foreign currency equivalent
• The most important methods of compensatory transactions:

* Theatrical transactions
* Mutual purchase
* Offset
* Buyback
* Financing methods, design and construction
* Financing of projects
* Buyback :

Mutual sale transaction is one of the methods of mutual trade that has a more complex form than other methods as well as the normal purchase of facilities.
In general, in this contract, first the production facilities and equipment are sold by the original seller to the original buyer, and after the production of the products, the initial buyer will sell the products produced by the initial seller equipment to him.

Author: persian / Date: 2017-10-26
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