Trade Finance for Indian Agro Exporters: LC, DA, TT and ECGC Insurance Explained

One of the biggest challenges for Indian agro exporters is choosing the right payment method. Whether you export mustard oil to the Gulf, cotton bales to Bangladesh, or spices to Europe, understanding LC, DA, TT, and ECGC insurance is critical to protecting your revenue and building long-term trade relationships.

Letter of Credit (LC) — Safest for New Trade Relationships

An LC is issued by the buyer's bank guaranteeing payment once shipping documents are presented. LC at Sight is the gold standard for agro commodity exports — payment releases immediately on document presentation. It protects both parties. Drawback: LC opening charges 0.5-2% of invoice value.

Documents Against Acceptance (DA) — For Trusted Buyers Only

Under DA, documents are released when the buyer signs a bill of exchange promising payment after 30, 60, or 90 days. This gives buyers a credit period but carries higher risk for exporters. Only use DA with buyers you have traded with for 2-3+ years. ECGC export credit insurance is strongly recommended for all DA shipments.

Telegraphic Transfer (TT) — Fast but Trust-Based

TT (SWIFT wire transfer) is a direct bank-to-bank payment. Common structure: 30% advance TT + 70% TT against copy of Bill of Lading. Fastest and cheapest but no bank guarantee. Suitable for repeat buyers. New exporters should insist on LC at sight or 100% advance TT for first 2-3 shipments.

ECGC Export Credit Insurance — Protect Against Buyer Default

ECGC covers up to 90% of export invoice value against buyer default or country risk. All Indian MSME agro exporters should have ECGC coverage before offering credit terms to new buyers.

Packing Credit — Working Capital Finance for Exporters

Packing Credit is a pre-shipment bank loan given to exporters to purchase raw materials and pack goods for export. Interest rates are concessional at 7-8.5% p.a. under priority sector. MSME agro exporters with confirmed orders or LC can avail this from any public sector bank. Aarav Broking provides trade finance consulting to help MSMEs access Packing Credit and ECGC.