2. INTRODUCTION
• The Export Credit Guarantee Corporation of India is an Indian Government-owned company that
provides export credit insurance support to Indian exporters. Also known as ECGC, this company
was set-up in July 1957 and works under the Ministry of Commerce and Industry. Department of
Commerce, Government of India. ECGC is managed by a Board of Directors consisting of
representatives from the Government, Reserve Bank of India, banking, insurance, and the export
community in the country, ECGC is the fifth largest credit insurer of the world in terms of
coverage of national exports.
• The primary objective of setting-up this corporation is to provide export credit insurance and
trade-related services to exporters. The corporation provides guarantee to financial institutions for
the benefit of the exporters. To invest in joint ventures overseas, ECGC offers Overseas
Investment Insurance (OII) to Indian companies; the investment here is done in the form of loan
or equity.
3. • Export Credit Insurance (ECI) protects an exporter of products and services against the risk of
non-payment by a foreign buyer. In other words, ECI significantly reduces the payment risks
associated with doing international business by giving the exporter conditional assurance that
payment will be made if the foreign buyer is unable to pay.
• The maximum amount of claim against an individual buyer that ECGC will accept under its
standard policy issued to an exporter is known as credit limit. The standard policy of ECGC is
issued on whole turnover basis for 24 months. The standard policy of ECGC protects loss to the
extent of 90% for both political and commercial risk.
• ECGC policy covers risk under following situations:
1) Buyer's protracted default to pay the goods,
2) War in buyer's country,
3) Cancellation of export license and
4) Cancellation of import license in the buyer's country.
4.
5. NEED FOR ECGC
1. Export credit insurance is essential for exporters to avoid the various risk factors. It offers
insurance protection to exporters against risk of payment, and gives guidance in all import
export-related activities.
2. Besides this, ECGC makes information available on various countries with its own credit
ratings, makes the process of obtaining export finance from banks/financial institutions easy,
provides information on creditworthiness of the overseas buyer and helps exporters in
recovering bad debts.
3. Payments for exports are prone to risks even in good times and in the present political and
economically changing scenario, the risk is even higher in regards to the payments. Factors
like a coup, an outbreak of a war or civil war, problems in balance of payment and such other
risks can happen anytime.
4. Besides all these, commercial risks of a foreign buyer becoming bankrupt are enhanced due
to the prevailing political and economic uncertainties. To tackle all these and various other
issues related to exports, it is very important to have an organisation like Export Credit
Guarantee Corporation to safeguard the interest of the exporter.
6. FUNCTIONS OF ECGC
• Provides a range of credit risk insurance covers to exporters against loss in export of goods
and services.
• Offers guarantees to banks and financial institutions to enable exporters to obtain better
facilities from them.
• Offers insurance protection to exporters against payment risks.
• Provides guidance in export-related activities.
• Makes available information on different countries with its own credit ratings.
• Makes it easy to obtain export finance from banks/financial institutions.
• Assists exporters in recovering bad debts.
• Provides information on credit-worthiness of overseas buyers.
7. TYPES OF COVERS ISSUED BY
ECGC
They're generally divided into four groups:
1. Standard Policies : They're ideally appropriate to exporters to cover payment risks concerned with
exports on short credit basis.
2. Specific Policies : These policies are specifically designed protect Indian exporters from the risks
involved in :
a. Deferred payment contracts in exports
b. Services rendered to foreign parties and
c. Construction works and turnkey projects undertaken abroad Special Policies, beside the risks
covered under Standard policies, are issued ECGC cover to meet the specific requirements of export
transactions.
4. Financial Guarantee : They're the policies issued to banks for covering risks in extending credit at
pre-shipment as well as post cargo stages.
5. Special Schemes : They're meant to hide risks concerned with confirmation to letters of credit
opened by foreign banks, insurance cover for buyers credit, line of credit and exchange fluctuations
risks.
8. ECGC POLICIES
Specific Policy (for
Exports under Deferred
Payments ,Project
Exports ,Service
Exports)
Standard Policy (for
short term shipments
180 days)
Financial Guarantees to
Banks (For giving credit
to exporters)
Special Schemes
(Transfer Guarantee)
9. SOME OF THE MAIN POLICIES
• Contract Policy
+ Exporters that have secured contract for Turnkey Projects, EPC contract or any other contract
which involves supplies of capital goods and services for commissioning of the project
+ The cover provides protection against non - receipt of payments due to commercial and/or
political risks
+ Risks Covered - Political, Legal and L/C opening bank risks
+ Loss Coverage - 90%
Obligations
Obtain indicative premium rate at bid stage.
Seek cover after payment of premium.
Advise progress of project in accordance with PEM guidelines.
Declaration of overdue payments.
Filing of claim within 12 months from due date.
Sharing of recovery.
Highlights
Cover can be either for Political or
Comprehensive Risks
Pre shipment risk cover can also be obtained
Premium in instalments
Reduced premium for projects funded by
Multi-lateral agencies
10. • Shipment Policy
+Exporters that have secured contract for supply of capital goods such as machinery or
equipment on deferred terms of payment
+The cover provides protection against non receipt of payments due to commercial and/or
political risks
+Risks Covered Political, Legal and L/C opening bank risks
+Loss Coverage - 90%
+ Obligations and Highlights are the same as mentioned in the previous slides
• Services Policy
+Covers contracts under which only services are to be provided
+ The cover offers protection to the Indian exporters against payment risks involved in
rendering services to the foreign buyers
+A wide range of services like technical or professional, hiring or leasing can be covered under
these policies
+ Risks Covered - Political, Legal and L/C opening bank risks
+ Loss Coverage – 90%
+Obligations and Highlights are the same as mentioned in the previous slides
11. • Construction Works Policy
+ It is designed to provide cover to an Indian contractor who executes a civil construction job abroad
The cover provides protection against non- receipt of payments due to commercial and/or political
risks
+ Risks Covered - Political and Legal Risks
+ Loss Coverage- 85% +
+Obligations and Highlights are the same as mentioned in the previous slides
• Overseas Investment Insurance
+ Provides cover for the investments made by Indian investor abroad in joint ventures or in their
wholly owned subsidiary in the form of equity or untied loan
+The basic principle is that the investment should emanate from India and benefit of
dividend/interest there from should accrue to India
+ The cover provides protection against non-receipt of
receivables due to specified political risks.
+Political Risks Covered –
War, Civil War, Revolutions in buyer's country
Expropriation
Restrictions on remittances
+Loss Coverage – 90%
+Obligations are same as mentioned in the previous
slides
Highlights –
Cover for Political Risks only.
Investments in form of cash or through export of goods
and services.
Cover available up to 15 years
Extendable up to 20 years with reduced insured
amount.
Reduced loss coverage with proportionate reduction in
premium.
12. OBJECTIVES OF ECGC
1. To encourage and facilitate globalization of India's trade.
2. To assist Indian exporters in managing their credit risks by providing timely information on
worthiness of the buyers, bankers and the countries.
3. To protect the Indian exporters against unforeseen losses.
4. To facilitate availability of adequate bank finance to the Indian exporters by providing
export credit insurance to bankers at competitive rates.
5. To achieve improved performance in terms of profitability, financial and operational
efficiency indicators, and achieve optimum return on investment.
6. To develop world class expertise in credit insurance among employees and ensure
continuous innovation and achieve highest customer satisfaction by delivering top quality
service.
7. To educate the customer by continuous publicity and effective marketing.
13. TYPES OF RISK
The various kinds of risks that an international trade faces an divided into the following :
1. COMMERCIAL RISKS It arises due to :
(i) Lack of knowledge about the foreign markets:
(ii) Inadaptability of the export product to alter to the conditions of the foreign market necessities
(iii)Longer transit time and
(iv)As nature of risk is different in International Trade. Various situations are required to be
handled in international trade not anticipated before export. It also exists in domestic market
too.
(v) Insolvency of the buyer.
(vi)Protracted default of the buyer.
(vii)Buyer’s failure to accept the goods.
14. 2. POLITICAL RISKS importing and exporting countries. Following are the confecting the political
situation :
i. Changes in the party in power in the concerned countries, factors, followed by 1 head of the
Government;
ii. Civil wars, coups and rebellions;
iii. Wars between the countries or among- several countries
iv. Enemies capturing cargo during war. Political risks can be avoided, to a certain extent, by judicious
selection of the countries to which goods are exported. Insurance firms may agree to provide protection
for these risks, by collecting premium. Export Credit Guarantee Corporation (ECGC.) also core some of
the risks.
3. RISKS ARISING OUT OF FOREIGN LAWS (LEGAL RISKS) Each country has its own commercial
law. So, different Je prevail both in exporter and importer countries. Legal proceedings are complex as well
as expensive. In each relationship, however cordial and long-standing it may be, differences are likely to
arise. Legal risks can be avoided by incorporating the provision for appointment of intermediator, to deal
with dispute concerning written agreement, in case they arise.
15. 4. CARGO RISKS Transportation of product has undergone radical enhancements over a period.
Most of the goods are transported by sea. Transit risk= are a typically hazardous for those
engaged in export/import business The list of dreaded and dangerous risks in transit is long viz.
storm, collisions, theft, leakage, explosion, spoilage, fire, and international waters theft. Every
exporter ought to have working knowledge of marine insurance so he obtains the required
specified risk protection at the minimum value. It is always possible to transfer the monetary
losses ensuing from perils of ocean and perils in transit to skilled risk bearers called
underwriters. Principles of marine insurance are equally applicable to insurance of air cargo.
5. CREDIT RISKS Risks are inherent in credit transactions, more so in international business.
International business is invariably riskier than the domestic trade. Credit risk is not constant
whether or not one sells the products in domestic market or in foreign market. Success, in
international business depends, largely, on the ability of the exporters to give credit to importers
on competitive and favorable terms.
16. 6. FOREIGN EXCHANGE FLUCTUATION RISKS Risk arising due to changes in home
currency or foreign currency affects the price realization. If the value of in-house currency is less,
the competitive capacity of the exporter is enhanced. If the foreign currency is depreciated, there is
considerable reduction in the exporter's competitive strength. Export business has become
extremely risky as marketing on credit has become quite common .Importers are sort after so its
however natural they dictate terms as there are several exporters competing for the sake of
international trade. Insolvency rate is on the increase. Balance of payment difficulties has severely
affected the Capability of the many countries to pay the import value.
However, giving credit has become ineluctable to the exporters to face competition. Two issues
stand before the exporters:
i. The exporters should have enough funds to supply credit to the
consumers abroad and
ii. The exporter should be prepared to take credit risks.
17. RISK NOT COVERED
• Risks of loss due to commercial or quality disputes Insolvency or default of any agent of the
exporter or of the collecting bank
• Loss or damage to the goods which can be covered by general insurers
• Exchange Rate Fluctuation
• Failure of the exporter to fulfil the terms of the contract or negligence on his part
18. CONCLUSION
Conclusion Through the establishment of ECGC and Export Inspection Council (under the
Export-Quality Control and Inspection Act, 1963 there has been an increase in, ease in doing
trade for the exporters and importers of India. The main motive of making India globally
competent could be achieved by providing the exporters appropriate insurance covers for their
products, covering all the types of risks involved in International trade creating awareness about
the current situation of trade in world market and providing them credit to deal with
international fluctuations Thus making our Indian Economy stable and globally strong.
