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Forfaiting: is a form of export finance
involving the discount of trade related debt
obligations due to mature at a future date
without recourse to exporter/endorser. It is
usually applied to discounting of negotiable
instruments such as Letter of Credit, Promissory
Note, Bill of Exchange, etc. There is no recourse
to the exporter if importer defaults except on the
event of fraud. The forfeiter deducts interest (in
the form of a discount), at an agreed rate for the
full credit period covered by the notes. The debt
instruments are drawn by the exporter (seller),
accepted by the importer (buyer) and will bear an
aval, or unconditional guarantee. The guarantee
shall normally be issued by the importer’s bank.
Exporters across the world have realized the
benefits of forfaiting monetising their export
sales supported by negotiable instruments avalised
or guaranteed by the buyer’s bank.
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