This document is a project report submitted by Aniruddha Sanjay Pawar, a student at Maharshi Dayanand College of Arts, Science & Commerce Parel Mumbai, for his Bachelor of Commerce degree in Financial Markets. The report is on the Export Credit Guarantee Corporation of India Limited (ECGC). It includes sections on the history, status, functions, schemes and policies of ECGC. ECGC was established in 1957 by the Government of India to promote exports by providing credit insurance and guarantee services to exporters.
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ECGC: How India's export credit agency supports exporters
1. Export Credit Guarantee Corporation of India Limited
Bachelor of Commerce
Financial Markets
Semester V
(2010-11)
Submitted
In Partial Fulfillment of the requirement for the award of Degree of
Bachelor of Commerce – Financial Markets
By
ANIRUDDHA SANJAY PAWAR
Roll No – 44
MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE &
COMMERCE PAREL MUMBAI-400012
MAHARSHIDAYANANDCOLLEGE OFARTS, SCIENCE & COMMERCE PAREL MUMBAI-400012
CERTIFICATE
2. This is to certify that Shri ANIRUDDHASANJAY PAWAR ofB. Com.
Financial Markets Semester – v (2010 – 2011) has successfully
completed the project on Export Credit Guarantee Corporation of
India Limited under the guidance of Prof. Mr. EKNATH BIRARI.
________________ _______________
Course Co-ordinator Principal
_______________ ______________
Project Guide / Internal Examiner External Examiner
DECLARATION
3. I ANIRUDDHA SANJAY PAWAR, The student of B. Com (Financial
Markets) Semester V (2010 – 2011) hereby declare that have completed
the project on Export Credit Guarantee Corporation of India Ltd.
. The information submitted is true and original to the best of my
knowledge.
Signature of the Student
ANIRUDDHA S. PAWAR
Roll No – 44
ACKNOWLEDGEMENT
4. Prof. EKNATH BIRARI made sure that resources were made
available in time and also for advice and guidance throughout making
this project.
Co – Ordinator of our course Prof. KUNAL SONI has always been
inspiring and driving force.
The college, the faculty, the classmates and the atmosphere in the
college were all favorable contributory factors right from the point
when the topic was to be selected till the final copy was prepared.
It was a very enriching experience throughout the contribution from
the following individuals in the form in which it appears today. We
feel privileged to take this opportunity to put on records my gratitude
towards them.
We are thankful to Mr. SANTOSH SHINDE associated with
administration part of (Banking & Insurance and Financial Markets
section) has been very helpful in making the infrastructure available
for data entry.
5. EXECUTIVE SUMMARY
ECGC stands for ExportCreditGuarantee Corporation. It was formed
in the year 1957.
It was formed with a view for strengthening the export of our country. It
is managed by the Board of Directors & has representatives from
Government of India, RBI, Banking, Insurance & Export committee.
It helps the exporter in increasing the export as they make a major
contribution towards the GDP. The ECGC helps the exporters to cover
up the losses by providing them services like credit risk insurance.
ECGC is a very important institution from the perspective of exporters.
ECGC helps the country to overcome the economic difficulties &
balance of payment.
ECGC provides the risk coverage to exporters in case of solvency, non
acceptance of the export goods etc.
6. CHAPTER
NO.
TABLE OF CONTENTS PAGE
NO.
1
INTRODUCTION 01
2
HISTORY OF ECGC 03
3
STATUS OF ECGC 05
4
WHAT DOES ECGC MEAN 07
5
WHAT DOES ECGC DO 08
6
WHAT IS EXPORT CREDIT AGENCY 09
7
WHY IS EXPORT CREDIT
GUARNTEE NEEDED
10
8
OFFICIALLY SUPPORTED EXPORT
CREDIT
13
9
INTERNATIONAL REGULATION 14
10
SCHEMES & POLICIES OF ECGC 16
11
HOW DOES ECGC HELP
EXPORTERS
20
12
IMPORT & EXPORT POLIC
HIGHLIGHTS 2002-03 & 2003-04
22
7. 13
OVERSEAS INVESTMENT
INSURANCE SCHEME
24
14
TYPES OF INVESTMENT 25
15
CREDIT LIMIT ON BUYERS 28
16
OUR SERVICES TO EXPORTERS &
BANKS
30
17
RISK COVERAGE 32
18
PROCEDURES TO OPEN A POLICY 33
19
SWOT ANALYSIS 34
20
FINANCIAL STATEMENT 36
21
CONCLUSION 37
22
BIBILOGRAPHY 40
8. Introduction
India, the world’s largest democracy with world’s second highest population
and 7th largest area is also the 4th largest economy in terms of purchasing
power. India ’s richness and diversity of culture, geographic and climatic
conditions, natural and only few other countries in the world match mineral
resources. One of India’s important assets is its vast reservoir of skilled
manpower. India’s enduring institutions, rooted in the principles of
democracy and justice. India’s known strength in handicrafts, gems &
Jewellery, Apparels, software and IT and tremendous e-commerce potential
ensures progressive up trend in growth of the Indian economy. The
Government’s current Import & Export policies offer a more investor
friendly economic environment and are geared towards more investment in
promoting Import and export Trade. These measures have had a significant
thrust on promoting the development of infrastructure facilities in various
parts of India , Like Export Promotion Zones etc. Every business the
probability of risk & profit .In the case of International business, the credit
risk is higher. Hence the Institutions like Export Credit Guarantee
Corporation of India Ltd and its services are more credible. It is an export
credit agency. The Export Credit Guarantee Corporation of India Limited
(ECGC in short) is a company wholly owned by the Government of India. It
provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had initially
9. set up Export Risks Insurance Corporation (ERIC) in July 1957. It was
transformed into Export Credit and Guarantee Corporation Limited (ECGC)
in 1964 and to Export Credit Guarantee of India in 1983.Export Credit
Guarantee Corporation of India is 51 years old, it was setup with the primary
objective to provide export credit insurance and trade related services to
exporters. ECGC of India Ltd, was established in July, 1957 to strengthen the
export promotion by covering the risk of exporting on credit. It functions
under the administrative control of the Ministry of Commerce & Industry,
Department of Commerce, Government of India. It is managed by a Board of
Directors comprising representatives of the Government, Reserve Bank of
India, banking, insurance and exporting community. ECGC is the fifth
largest credit insurer of the world in terms of coverage of national exports.
The present paid-up capital of the company is Rs.900 crores and authorized
capital Rs.1000 crores.
History of ECGC
Export Credit Guarantee Corporation of India Limited was established in the
year 1957 by the Government of India to strengthen the export promotion
10. drive by covering the risk of exporting on credit. Being essentially an export
promotion organization, it functions under the administrative control of the
Ministry of Commerce, Government of India. It is managed by a Board of
Directors comprising representatives of the Government, Reserve Bank of
India, banking, insurance and exporting community. ECGC is the fifth
largest credit insurer of the world in terms of coverage of national exports.
The present paid-up capital of the company is Rs.500 crores and authorized
capital Rs. 1000 crores. The paid-up capital is expected to be enhanced to
Rs.800 crores. Payments for exports are open to risks even at the best of
times. The risks have assumed large proportions today due to the far-
reaching political and economic changes that are sweeping the world. An
outbreak of war or civil war may block or delay payment for goods exported.
A coup or an insurrection may also bring about the same result. Economic
difficulties or balance of payment problems may lead a country to impose
restrictions on either import of certain goods or on transfer of payments for
goods imported. In addition, the exporters have to face commercial risks of
insolvency or protracted default of buyers. The commercial risks of a foreign
buyer going bankrupt or losing his capacity to pay are aggravated due to the
political and economic uncertainties. Export credit insurance is designed to
protect exporters from the consequences of the payment risks, both political
and commercial, and to enable them to expand their overseas business
without fear of loss. The Export Credit Guarantee Corporation of India Ltd.
(ECGC) was established to enhance the export promotion by driving away
11. the risk related to exports on credit to a considerable extent. It was
established by the Government of India in the year 1957. The Export Credit
Guarantee Corporation of India is the export promotion organization of the
government that is regulated under the direct control of the Government of
India's Ministry of Commerce & Industry, Department of Commerce.
The board of directors regulating the organization consists of representatives
from the Reserve Bank of India, the Government of India, insurance and
banking and exporting communities. When counted in terms of national
exports coverage, the Export Credit Guarantee Corporation of India Ltd.
happens to be the fifth largest credit insurer of the world. Presently, the
authorized capital of the organization is Rs. 1,000 crores and paid-up capital
is Rs. 800 crores.
Status of ECGC
Export Credit Guarantee Corporation Ltd. was set up by Govt. of India in
1957 per terms of section 3 read section 617 of Companies Act, 1956 and
fully owned by Govt. of India, under Ministry of Commerce and Industry,
to safeguard the interests of Indian exporters as a Co-Insurer in their credit
term exports. Export Credit Guarantee Corporation of India Limited was
established in the year 1957 by the Government of India to strengthen the
12. export promotion drive by covering the risk of exporting on credit. Being
essentially an export promotion organization, it functions under the
administrative control of the Ministry of Commerce & Industry,
Department of Commerce, and Government of India. It is managed by a
Board of Directors comprising representatives of the Government, Reserve
Bank of India, banking, and insurance and exporting community. ECGC is
the fifth largest credit insurer of the world in terms of coverage of national
exports. The present paid-up capital of the company is Rs.800 crores and
authorized capital Rs.1000 crores. The level of Co-insurance is 90%
coverage to exporters on the invoice value and 75% coverage to banks on
the credits availed to exporters against export bills, L.Cs etc. The percentage
difference in credit insurance cover should be beard by the exporters (10%)
and bankers (25%) respectively, as the case may be. These co-insurance
ratios are kept to the purpose of caution during transactions made by
exporters and banks with their respective customers. E.C.G.C of India Ltd
is working under the guidelines if I.R.D.A. In Brief, E.C.G.C of India Ltd is
working as a co-insurer to exporters and banking community in India by
issuing the Export Credit Coverage/Guarantee Policies. Hence it is playing
an important role in this New Global Village Market system to enhance the
exports, support export financing and thus by strengthening our foreign
exchange reserve and economy as a whole. There are 51-Credit Insurers in
the world, as per Berne Union. In India , studies reveals that, most of them
are in government sectors/institutions .The private players even in
13. international market are less than five in numbers due to high risk and less
profitable sector. The New India Assurance Co Ltd and TATA-AIG are
trying to enter in this field in the coming future. Even though S.B.I, H.S.B.C,
CANBANK, GLOBAL TRADE FINANCE and EXIM BANK are the few in
the field of offering factoring services only to the exporters. (Factoring
service is a new kind of credit guarantee policy & explained briefly in the
Coming chapters).
What does Export Credit Guarantee Corporation
of India Limited (ECGC) mean?
It is a company wholly owned by the Government of India. It provides
export credit insurance support to Indian exporters and is controlled by the
Ministry of Commerce. Government of India had initially set up Export
Risks Insurance Corporation (ERIC) in July 1957. It was transformed into
Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to
Export Credit Guarantee of India in 1983.
14. What does ECGC do?
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
Provides Overseas InvestmentInsurance to Indian companies investing in
joint ventures abroad in the form of equity or loan.
15. What is an Export Credit Agency?
Export credit agencies, known in trade finance as ECAs, are private or quasi-
governmental institutions that act as intermediaries between national
governments and exporters to issue export financing. The financing can take
the form of credits (financial support) or credit insurance and guarantees
(pure cover) or both, depending on the mandate the ECA has been given by
its government. ECAs can also offer credit or cover on their own account.
This does not differ from normal banking activities.ECAs currently finance
or underwrite about $430 billion of business activity abroad - about $55
billion of which goes towards project finance in developing countries - and
provide $14 billion of insurance for new foreign direct investment, dwarfing
16. all other official sources combined (such as the World Bank and Regional
Development Banks, bilateral and multilateral aid, etc.). As a result of the
claims against developing countries that have resulted from ECA
transactions, ECAs hold over 25% of these developing countries' US$2.2
trillion debt. Sadly, these data are unreliable in the absence of source,
definition, or date.
Why is Export Credit Guarantee needed?
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. 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 credit-
worthiness of the overseas buyer and helps exporters in recovering bad
debts.
Export Credit Guarantee Corporation is required for the smooth
functioning of all aspects relate to exports of goods. 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 at any time.
17. 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 organization like Export Credit Guarantee
Corporation to safeguard the interest of the exporter.
Need for export credit insurance
Payments for exports are open to risks even at the best of times. The risks
have assumed large proportions today due to the far-reaching political and
economic changes that are sweeping the world. An outbreak of war or civil
war may block or delay payment for goods exported. A coup or an
insurrection may also bring about the same result. Economic difficulties or
balance of payment problems may lead a country to impose restrictions on
either import of certain goods or on transfer of payments for goods
imported. In addition, the exporters have to face commercial risks of
insolvency or protracted default of buyers. The commercial risks of a
foreign buyer going bankrupt or losing his capacity to pay are aggravated
due to the political and economic uncertainties. Export credit insurance is
designed to protect exporters from the consequences of the payment risks,
18. both political and commercial, and to enable them to expand their overseas
business without fear of loss.
Officially supported export credits
Credits may be short term (up to two years), medium term (two to five
years) or long term (five to ten years). They are usually supplier's credits,
extended to the exporter, but they may be buyer's credits, extended to the
importer. The risk on these credits, as well as on guarantees and
insurance, is borne by the sponsoring government. ECAs limit this risk by
being "closed" on risky countries, meaning that they do not accept any
risk on these countries. In addition, a committee of government and ECA
officials will review large and otherwise riskier than normal transactions.
19. International Regulation
Both officially supported export credits and tied aid credit and grants are
extended on terms controlled by governments. Therefore, there is a constant
temptation to use these financial instruments to subsidize commercial exports
in order to win a temporary advantage on an export market or to
counterbalance such an action from another government (matching).
However, the end result of such action is negative for importing countries
(usually developing countries), who are rendered unable to choose the best
combination of quality and price but consider financing first. It is also
negative for tax payers, who foot the bill. It may only to the benefit of
exporters whose government had the deepest pockets and the greatest
willingness to subsidize, even though the macro-economic outcome of the
subsidy is doubtful. In the past, there have been big, government-sheltered
companies that were kept alive to a very large extent by export credits and
20. tied aid credits. To avoid these traps, it was considered useful to standardize
export credit conditions and to monitor matching and tied aid credits. This
situation has led first to an informal agreement in 1976 among some OECD
countries, known as "The Consensus". This was succeeded in 1978 by a
gentlemen's agreement facilitated by the OECD's now defunct Trade
Directorate, which established a Working Party on Officially Supported
Export Credits. This gentleman's agreement, officially known as the
Arrangement on Guidelines for Officially Supported Export Credits, is known
as "The Arrangement". Although negotiations are facilitated by the OECD, not
all OECD member countries are participants ad membership is possible for
non-OECD countries.
Since 1999, country risk categories have been harmonized by the Arrangement
and minimum premium rates have been allocated to the various risk
categories. This is intended to ensure that competition takes place via pricing
and the quality of the goods exported, and not in terms of how much support
a state provides for its exporters. The Arrangement does not extend to exports
of agricultural commodities or military equipment. A recent decision at the
World Trade Organization (WTO) indicates that the use of officially
supported export credits in agriculture is bound by WTO members'
commitments with respect to subsidized agricultural exports (see the WTO
Appellate Body decision on the Brazil-US cotton case as it relates to the
General Sales Manager (GSM) 102 and 103 programs and other US
21. agricultural export credits). The Berne Union, or officially, the International
Union of Credit & Investment Insurers, is an international organization for the
export credit and investment insurance industry. The Berne Union and Prague
Club combined have more than 70 member companies spanning the globe.
Payments for exports are open to risks even at the best of times. The risks
have assumed large proportions today due to the far- reaching political and
economic changes that are sweeping the world. An outbreak of war or civil
war may block or delay payment for goods exported. A coup or an
insurrection may also bring about the same result. Economic difficulties or
balance of payment problems may lead a country to impose restrictions on
either import of certain goods or on transfer of payments for goods imported.
In addition, the exporters have to face commercial risks of insolvency or
protracted default of buyers. The commercial risks of a foreign buyer going
bankrupt or losing his capacity to pay are aggravated due to the political and
economic uncertainties. Export credit insurance is designed to protect
exporters from the consequences of the payment risks, both political and
commercial, and to enable them to expand their overseas business without
fear of loss.
22. SCHEMES & POLICIES OF ECGC
The credit insurance policies offered by ECGC are the
following:
SCR or Standard Policy
Specific Shipment Policy
Small Exporters Policy
Export Policy
Buyer Exposure Policies
Export Turnover Policy
Consignment Exports Policy
Software Project Policy
Service Policy
Construction Works Policy
The guaranteesoffered to the banks by ECGC are the
following:
Packing Credit Guarantee
Post-Shipment Export-Credit Guarantee
Export Production Finance Guarantee
Export Finance Guarantee
Export Finance Guarantee
23. Export Performance Guarantee
The Special Schemes offered by ECGC are the following:
Transfer Guarantee
Exchange Fluctuation Risk Cover
Overseas Investment Guarantee
ECGC Schemes
Maturity Factoring
Overseas Investment Guarantee
Exchange Fluctuations Risk Cover
Export (Specific Buyers) Policy
Post-Shipment Export Credit Guarantee
Construction Works Policy
Buyer Exposure Policies
Transfer Guarantee
Export Performance Guarantee
Export Finance (Overseas Lending) Guarantee
Software Project Policy
Insurance covers for Buyer's Credit and Line of Credit
Service Policy
24. Consignment Exports Policy (Stockholding Agent and Global
Entity)
Export Production Finance Guarantee
Specific Policy for Supply Contract
Specific Shipment Policy - Short Term (SSP-ST)
SCR or Standard Policy
Export Turnover Policy
IT - Enabled Service (Specific Customer) Policy
Small Exporters Policy
Packing Credit Guarantee
25. How does ECGC help Exporters?
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.
27. Jute
Others
IMPORT & EXPORT
POLICY HIGHLIGHTS
2002-03 & 2003-04
1. The International business becomes more priority sector and abolished
License Raj.
2. Gold control Act, abolished with free import.
3. Give incentives to exporters in the mode of Replenishment Licenses
(now abolished completely step by step process as per GATT regulations
& allows free trade), D.E.P.B and Duty Drawback systems.
4. Exemption of duties and sale taxes on raw materials used for making
export products.
5. Avail easy finance to exporters on a minimum rate of interest from
nationalized banks.
6. Give more authorities to Commodity export boards.
7. Institute new systems of re-imbursement of exhibition participation
and international market study tours & other projects for improving
28. Indian exports to Latin American & many other countries (vide MDA
programme of Ministry of Commerce).
8. Introduced schemes to re-imburse up to 75% of the actual cost of ISO
Standardization & auditing to S.S.I units for assuring the quality levels of
our products to compete in the international market.
9. Introduced total computerization of Indian Customs for speedy
shipping & clearance of export shipments.
10. Introduced I.C.D systems in many places to manage bulk shipments via
Sea.
11. Set up separate systems through S.B.I, M.M.T.C etc.to Import & avail
precious raw materials like Gold, Silver, and Platinum etc. on behalf of
the exporters at International prices.
12. Give full freedom on Import of Gold & silver in the Interim budget of
2004.
13. Import & export documentation systems simplified.
14. Introduced B.I.N systems to exporters.
15. Introduced new EPU & EPZ
29. OVERSEAS INVESTMENT INSURANCE SCHEME
The overseas investment insurance scheme provides cover for the
investments made by Indian corporate abroad in joint venture or their wholly
owned subsidiary (WOS) either in the form of equity or loan. Government of
India or RBI should approve the joint venture. The basic principles are that
the investment should emanate from India and benefit of dividend/interest
should accrue to India. The investment should not in any way conflict with
the policy of both our government and the overseas government. Normally
there should be a bilateral agreement between India and the host country for
promotion and protection of Indian investment. In case there is no such
agreement the (ECGC) corporation should be satisfied that the existing laws
of the host country adequately safeguard Indian investment.
30. Types of Investment
The overseas investment may be made either by way of equity or by way
of loans.
Equity:
Any contribution made to the enterprise in return for shares either by
cash remittance or by way of export of capital goods or services can be
covered. Any fees payable towards technical know-how consultancy or
management services etc. and agreed to be converted into capital will be
considered for cover at the discretion of the ECGC.
Loans:
Loans advanced by way of a formal agreement but not tied to export of
goods and supplies are eligible for cover. Any suppliers/buyers credits
and lines of credit extended to support sale of goods or services from India
may be covered under the appropriate insurance schemes of the ECGC
and not under investment insurance.
Dividend and profit
31. In case of equity the investor can choose to cover the original investment
as well as his share of retained earnings and dividends declared, to the
extent they are eligible for repatriation. Cover on account of original
investment, retained earnings, dividend receivable and any additional
investment will be subject a ceiling of 150 per cent of the original
investment calculated as in the proceeding paragraphs. In the case of loan,
the insurance will cover the principal as well as interest actually earned.
Portfolio investment:
Any investment in shares of overseas concerns not related to setting up,
development and expansion of overseas projects would not be eligible for
cover under the investment insurance.
Additional investment
Additional investment can be covered subject to a ceiling of 50 per cent of
the original investment. Any additional investment out of retained
earnings should have been made by formal capitalization and for the
purpose of expansion for development of the enterprise. If the additional
investment is made out of retained profits, which are not eligible for
repatriation such as investment will not be eligible for cover. Initially cover
is issued for 3-years. On expiry of the 3 years it is at the option of the
exporter to renew the cover/review of the JV/WOS by ECGC. The duration
of insurance cover shall not normally exceed 15 years but extension can be
given up to 20 years for longer projects. The amount of investment eligible
32. for cover shall be to the full extent during the first 10 years of cover.
Percentage of cover is 90 per cent- can be reduced. The amount of
investment eligible for cover will be reduced to 90 %, 80%, 70%, 60% and
50% respectively of the original investment during the 11th, 12th, 13th, 14th
and 15th years of insurance. O.L.L covers only political risks of war,
expropriation and restrictions on remittances.
Premium rate
Base rate 1 per cent of the investment value. Actual premium rate will
depend on size of investment, country of investment, previous experience
of the importer etc…
The exporter has to furnish proposal form along with fee of Rs.01 percent
of the investment amount subject to ceiling of Rs.25000.00 if cover is
agreed application fee paid shall be adjusted towards premium
payable. In case, the application for insurance is rejected, half the fee paid
shall be refunded. Premium is taken upfront. Income from the premium
is allocated over the tenor of the cover extended. Installment facility is
provided by ECGC for collecting premium after analyzing and approving
the proposal.
ECGC enters into agreement with the exporters for providing cover
mentioning the terms and conditions along with the maximum
liability. The exporters have to submit annual report about the progress
and the working of the project.
33. Credit Limit on Buyers
Commercial risks are covered subject to a Credit Limit approved by the
corporation on each buyer to whom shipments are made on credit terms. The
exporter has, therefore, to apply for a suitable Credit Limit on each buyer, as
ascertained from credit reports obtained from banks and specialized agencies
abroad, the ECGC will approve Credit Limit which is the limit up to which it
will pay claim on account of loss arising from commercial risks. The Credit
Limit is a revolving limit and once approved, it will hold good for all
shipments to the buyer as long as there is no gap of more than 12 months
between two shipments. Credit Limit is a limit on the Corporation’s exposure
on the buyer for commercial risks and not a limit on the value of shipments
that may be made to him. Premium has, therefore, to be paid on the full value
of each shipment even where the value of the shipment or the total value of the
bills outstanding for payment is in excess of the Credit Limit.
As the Credit Limit is indicative of the safe limit of credit that can be
extended to the buyer, it will be advisable for exporters to see that the total
value of the bills outstanding with the buyer at any one time is not out so
proportion to the Credit Limit. In cases where the Credit Limit that the
Corporation is prepared to grant is far lower than the value of outstanding,
exporters should discuss the problem with the Corporation.
Discretionary limit in the case of absence of credit limit on buyer is up to
Rs.20 lakhs on commercial risks for DP and CAD transactions/shipments. The
34. corporation normally pays 90 per cent of the loss under this policy. The
minimum premium for this policy is Rs.10, 000.00. All kinds of policy the
exporter must submit the shipment declarations along with necessary
premiums on or before the 15th of every month. In the event of non-payment
of any bill, the policyholder is required to take prompt and effective steps to
prevent or minimize loss. A monthly declaration of all bills, which remain
unpaid for more than 30 days, should be submitted to ECGC in the prescribed
form indicating action in each case.
Granting extension of time for payment, converting bills from DP terms or
resale of unaccepted goods at a lower price require prior approval
ECGC. Now a day ECGC has proved their efficiency by settling genuine
claims up to Rs.20 lakhs even a period of less than seven days from the date of
claims.
OUR SERVICES TO
EXPORTERS AND BANKS
35. ECGC offers the following covers to exporters:
1. Standard Policy, Small Exporters Policy, Specific Shipment Policy,
Exports (Specific Buyer) Policy, Exports Turnover Policy, Buyer
Exposure Policy, Multi-Buyer Exposure Policy, Consignment Export
Policy (Stockholding Agent) and Consignment Exports Policy (Global
Entity), Services Policy, IT-Enabled Services Policy, Software Projects
Policy, Fully Fledged Factoring Scheme to protect them against Payment
risks involved in exports on short term credit.
2. Specific policies and export credit insurance cover to banks designed
to protect Indian firms against payment risk involved in Exports on
deferred terms of payment (b) services rendered to Foreign parties and
(c) construction works and turn-key projects Undertaken abroad;
3. Insurance cover for Buyer’s Credit, Line of Credit, Overseas
investment Insurance and Exchange Fluctuation Risk Cover. ECGC
issues various types of export credit insurance cover to banks in India to
protect them from risks of loss involved in their extending Financial
support to exporters at the pre-shipment as well as post-shipment
36. AND EXPORT CREDIT INSURANCE COVER TO BANKS:
Average time taken for approval of credit limit applications
o For overseas buyers on record 5
o For new overseas buyers 9
Average time in days for issue of Standard and Small Exporter's Policy 8.8
Average time in days taken for Settlement of claims
o Under short term policies
40% claims 6
60% claims 40
o Under short term export credit insurance to banks
40% claims 44
60% claims 88
Risk Coverage
1. In the case of insolvency/default of importers.
2. Non-acceptance of exported goods.
3. War.
37. 4. Political risks, if mentioned.
The following risks are not covered by E.C.G.C
1. Consumer disputes
2. causes inherent in the nature of goods.
3. Risk covered in G.I.C
4. Insolvent/black listed by E.C.G.C or any other institution in earlier.
Procedures to Open a Policy
Any exporter can open a policy with E.C.G.C according to his need, by
submitting the concerned form duly filled up & signed along with a payment
of minimum (opening) premium Rs.10000.00. He will get 80% of gross invoice
value covered in S.S policy schemes.
39. o Strong business equity consumer Nation wide branch network &
synergy (confidence with co-insurance)
o High experience, infrastructure & latest Internet assisted facilities.
o High level of managerial efficiency
WEAKNESSES
o Not much established branch network infrastructure in remote
places
o Not much established and happy subscriber base to leverage in
Indian market.
o Govt./large organization takes a lot of time for decision making
o It lacks flexibility in rules & regulations according to market
demand
o It couldn’t win the minds of its customers completely yet, due to
lack of customer awareness programme
o Now a day’s customer/policy holders seems it as a mandatory
burden for availing export finance than a facilitator.
OPPORTUNITIES
o Large addressal market created by new relaxed export policies of
Govt. of India .
40. o Large demand for fresh policyholders due to increased facility of
easy export finance from banks.
o Increasing trend of bankruptcy of big/established importers in
Europe/abroad.
o Increasing rate of Bank’s N.P.A, due to defaulters in export credits.
THREATS
o Regulatory issues-from I.R.D.A. (Insurance Regulatory &
Development Authority of India )
o Opening up of Insurance to Private sectors attracts international
giants
o Reactive Premium rates/pricing by private sectors
Financial Statement
41.
42. Conclusion
No business, be it export business, can competitively sustain without
extending credit. But extending credit is a risky business, with inherent risk of
default by the buyer. Credit risk in case of exports wherein the overseas buyer
is an unknown entity, is not easily approachable in case of need, is governed
by different set of laws and rules and regulations, and is living in different
economic and political environment, becomes all the more pronounced.
Payment of export credit thus is open to high risk even at best of times;
exporters have to face commercial risk of insolvency or protracted default on
the part of overseas buyers. This becomes all the more aggravated in case of
political and economic changes, in case of outbreak of war or civil strife, in
case of coup or an insurrection, and in case of economic difficulties and
balance of payment problems of the importing country
Export Credit Guarantee Corporation of India Limited provides credit risk
insurance covers to exporters and bankers for loss in export of goods and
services. It also offers guarantees to banks and financial institutions to enable
exporters to obtain better facilities from banks and financial institutions. In
addition, the company provides overseas investment insurance to Indian
companies investing in joint ventures abroad in the form of equity or loan.
Export Credit Guarantee Corporation is required for the smooth functioning
of all aspects relate to exports of goods. Payments for exports are prone to
43. 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 at anytime. 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
organization like Export Credit Guarantee Corporation to safeguard the
interest of the exporter.
ECGC has different products and services to take care of all the export credit
insurance needs of exporters. Shipments policy, well known as the standard
policy is a policy that is ideal to cover risks of goods exported on short term
credit. The policy covers political and commercial risks starting from the date
of the shipment. This policy is issued to exporters whose expected export
turnover for the next twelve months is more than Rs.50 Lakh. Some of the
commercial risk covered by the standard policy includes bankruptcy of the
buyer, failure by the buyer to make the due payment within specified period
and the buyer's failure to accept the goods, subject to certain conditions.
Some of the political risks against which the Export Credit Guarantee
Corporation provides protection are: war, civil war, revolution or civil
disturbances in the buyer's country, imposition of limitation by the
Government of the buyer's country which may block or delay the transfer of
44. payment made by the buyer, new import limitations or termination of a valid
import license in the buyer's country and any other cause of loss occurring
outside India not normally covered by general insurers, and beyond the
control of both the exporter and the buyer.
Bibliography
BOOKS REFFERED
ImportExport in India.
Foreign Trade.
ECGC prospectus