ASSIGNMENT ON ROLE OF ECGC

Submitted By: Bhawna Dagar Roll. No. 6 PGDM (IB)-VI

What is ECGC? Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the 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 Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by the Government based in Mumbai, Maharashtra. 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.

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 Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan

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, both political and commercial, and to enable them to expand their overseas business without fear of loss. Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of World Bank. MIGA provides: 1. Political insurance for foreign investment in developing countries. 2. Technical assistance to improve investment climate. 3. Dispute mediation service. Under this agreement protection is available against political and economic risks such as transfer restriction, expropriation, war, terrorism and civil disturbances etc.

Notable Records
     

Largest Policy short term Rs.450 crores Largest database on buyers 8 lakhs Largest credit limit Rs.80 Crores Largest claim paid Rs.120 crores Quickest claim paid 2 days Highest compensation-Iraq Rs 788 Crores

ECGC now offers various products for the exporters and bankers. If readymade products are NOT suited to an exporter/banker then ECGC designs tailor made products.

There are two major risks in international trade: a) Risk of loss of or damage to the goods. b) Risk of non-realization of export proceeds. The risk of loss of damage of the goods is covered by general insurers under marine insurance.  Non receipt of export proceeds may be due to the failure of the buyer to accept and/or pay for the goods. This is known as commercial risk.  Such difficulties mat be attributed to political and economic changes.

ECGC and its administrative structure y ECGC is a company wholly owned by GoI. y It functions under the administrative control of the Ministry of Commerce and is managed by board of Directors representing Government, banking, insurance, trade and industry Schemes of ECGC y The functions of ECGC are reflected in the different schemes it has evolved to protect the exporter and the exporters bank. y Schemes of ECGC for Exporters Bank is in the form of various guarantees issued by them. a) Packing Credit Guarantee b) Export Production Finance Guarantee c) Post-shipment Export Credit Guarantee

d) Export Finance Guarantee e) Export Performance Guarantee f) Export Finance (Overseas Lending) Guarantee g) Transfer Guarantee

ECGC Schemes For Exporters y ECGC provides three kind of schemes to exporters. a) Whole Turnover policy 1) Standard Policy 2) Small Exporters Policy b) Factoring 1) Maturity Factoring c) Specific Policies 1) Specific Shipment policy ( short term) 2) Supply Contracts Policy 3) Exporters ( Specific Buyers ) Policy 4) Export Turnover policy 5) Buyer Exposure policy. 6) Consignment Exports Policy 7) Buyers Credit 8) Services Policy 9) Construction Works Policy 10) Software Project Policy

11) 12) 13)

IT Enabled Services ( Specific Customer) Policy Overseas Investment Insurance Exchange Fluctuation Risk Cover

For Exporters- Whole Turnover Policy Standard Policy  The standard policy issued by ECGC are meant to provide cover for shipments on short term credit on whole turnover basis.  The risks covered may be divided into two categories a) Commercial risk b) Political risk  Commercial risk covered include:  Insolvency of the buyer  Buyers protracted default to pay for the goods accepted by him.  Buyers failure to accept goods subject to certain conditions.  Political risk covered are:  Imposition of restrictions on remittances by the government in the buyers country or any action which may block or delay the payment of the exporter.  War, revolution or civil disturbances in the buyers country.  New import licensing restrictions or cancellation of a valid import license in the buyers country.  Cancellation of export license or imposition of new export licensing restrictions in India.  Payment of additional handling, transport or insurance charges occasioned by interruption or diversion of the voyage which cannot be covered from the buyer; and

 Any other cause of loss occurring outside India, not normally insured by commercial insurer, and beyond the control of exporter and/or the buyer

Risks Not Covered The following risks are not covered under Standard Policy 1) Commercial disputes raised by the buyer, unless the exporter obtains a decree from the competent court of law in the buyers country in his favor. 2) Causes inherent in the nature of the goods. 3) Buyers failure to obtain necessary import or export authorization from authorities in his country. 4) Insolvency or default of an agent of the exporter or of the collecting bank. 5) Loss or damage of the goods which can be covered by commercial insurers. 6) Exchange fluctuations.

Types of Policies The policy issued may cover risk from the date of shipment or from the date of contract and may cover political risk and commercial risk or only commercial risk. On this basis policies issued are classified as 1. Shipment ( Comprehensive Risks) Policy 2. Shipment ( Political Risk ) Policy 3. Contract ( Comprehensive Risk) Policy 4. Contract ( Political Risk ) Policy 5. Policy covering the political risk alone may be preferred if the export is covered by letter of credit or where the export is made to an associate concern.

6. Contract policies, which cover risks from the date of contract, are issued only in special cases when the goods exported are manufactured to nonstandard specifications of a buyer.

Extent of Cover ECGCs liability is subject to two limits: a) Maximum liability: is the limit up to which ECGC would accept liability for shipments made during the period of policy. b) Credit limit: is the limit up to which ECGC accepts claims in respect of each buyer. ECGC normally pays 90 percent of the losses on account of political and commercial risk

Small Exporters Policy

y It is a standard policy issued to exporters whose anticipated export turnover for next 12 months does not exceeds Rs. 25 lakhs. y This policy differs from standard policy in following respects: a) Period of policy: Issued for 12 months as against 24 months in the case of standard policy. b) Minimum premium: The minimum premium payable is 0.3% of the anticipated turnover on DP and DA terms of payment, plus 0.10% of the anticipated turnover on LC terms or Rs. 1000 whichever is higher. c) Declaration of Shipments: Shipments need to be declared only twice: in the seventh month and the thirteenth month. d) Declaration of overdue payment: Monthly declaration of all payments overdue be more than 60 days from the due date, as against 30 days in the case of the standard policy.

e) Percentage of Cover: 95% for loss due to commercial risk and 100% if due to political risk. f) Waiting period for claim: Two months as against four months in standard policy g) Change in terms of payment or extension of credit period: 1) A small exporter may without the prior approval of ECGC , convert DP bill into DA bill, provided he has already obtained suitable credit limit on the buyer on DA terms. 2) Where the value of the bill is not more than Rs. 3.00 lacs, conversion of DP bills into DA bills is permitted even if credit limit of buyer has been obtained on DP terms only, but not more than one claim can be considered during the policy period on account of losses arising from such conversions. 3) Due date of payment of a DA bill can be extended, provided a credit limit from on the DA terms is in force at the time of such extension. 4) Resale of unaccepted goods: If, upon non acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer without obtaining the prior approval of ECGC. The corporation may consider payment of claims up to an amount considered reasonable by it, provided it is satisfied that the exporter did his best under the circumstances to minimize the loss. 5) Claims due to loss or damage to goods: ECGC may also consider payment of claim up to an amount considered by it as reasonable where loss is due to loss or damage of goods due to certain risks which are not normally included in general/ marine insurance policies.

Specific Policies
y Specific Shipment Policy ( Short Term): Offers to cover one or more shipments only under a particular contract. Option is to cover both commercial and political risk. The percentage cover is 80%. This policy is taken by exporters who do not hold standard policy or even by those

holding it to cover the shipments specifically permitted to be excluded from the purview of the Standard Policy. y Specific Policy for Supply Contracts: Specific policy for supply contracts covers exports of commodities for period beyond 180 days. Both contract and shipment policies ( for both comprehensive and political risks) are available. Losses that may be sustained by an exporter at the pre-shipment stage due to frustration of contract are covered under this policy. y Export (Specific Buyer) Policy: Buyer-wise Policies-Short Term provide cover to Indian exporters against commercial and political risks involved in export of goods on short term credit to a particular buyer. Three types of policies are available: a) Buyer-wise (commercial and political risks) Policy- Short Term b) Buyer-wise (political risks) Policy- short term. c) Buyer-wise (insolvency & default of L/C opening bank and political risks) Policy-Short Term d) Export Turnover Policy: Turnover policy is a variation of the standard policy for the benefit of large exporters who contribute not less than Rs. 10 lakhs per annum towards premium. The policy provides additional discount in premium with an added incentive for increasing the exports beyond projected turnover and also offers simplified procedure for premium remittance and filing of shipment information. It also provides for higher discretionary credit limits on overseas buyers. y Buyer Exposure Policies: Two types of exposure policies are offered a) Exposure (Single Buyer) Policy- for covering the risks on a specified buyer; and b) Exposure (Multi Buyer) Policy- for covering the risks on all buyers.

y Consignment Exports Policy: Indian exporters are increasingly adopting consignment exports where the goods are shipped and held in stocks overseas ready for sale to overseas buyers. To protect the Indian exporters from possible losses under Consignment Policy Cover. There are two policies for covering consignment export viz. a) Consignment Exports ( Stock-holding Agent) b) Consignment Exports ( Global Entity Policy)