Forfaiting

Trade Finance

Purchase of an exporter's medium-term receivables at a fixed discount rate, without recourse to the exporter.

Sources

1. Reserve Bank of India — Master Direction – Export of Goods and Services, FED Master Direction No. 16/2015-16 (updated as on 17 July 2026) rbi.org.in accessed 23 September 2026

RBI’s Master Direction places forfaiting in Indian practice in a single sentence: “EXIM Bank and AD Category – I banks have been permitted to undertake forfaiting, for financing of export receivables.” The Direction adds that the commitment fee and service charges payable by the exporter, as approved by EXIM Bank or the AD bank, may be remitted through an AD bank, “in advance in one lump sum or at monthly intervals”. So for an Indian exporter the question is not whether forfaiting is available but who may provide it, and the answer is EXIM Bank and AD Category – I banks. The Direction does not define the instrument’s mechanics — without recourse, at a discount, against the receivable — which are market practice, not Indian regulation.

What this source settles. The Reserve Bank of India’s Master Direction is a direction to Authorised Dealer banks under sections 10(4) and 11(1) of FEMA 1999. It settles what an AD bank in India may do and what an Indian exporter must do — not what the instrument means in general commercial use elsewhere. Where the entry above states a rule, it is India’s rule for an Indian transaction; the market practice behind the term is wider than the Direction and is not defined by it.

Related terms

• Advance Payment
• Aval
• Back-to-Back LC
• Bank Guarantee
• Bill Discounting
• Bill of Exchange

From the AJG lexicon archive (July 2026).