ECGC

Export Credit Guarantee Corporation

of India

International Business Management

Presented by

Tapesh DadhichBipin ParasharAnil Tak-I

Kundan VyasHemant T. Kantiwal

Amit AndrewsMayank Sharma

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.

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

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What does ECGC do?

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

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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

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How does ECGC help exporters?

• 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

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Need for export credit insurance

• Risks even at the best of times • War or civil war may block or delay

payment • Coup or an insurrection• Balance of payment problems • Insolvency or protracted default of

buyers

Policies & Products

Credit Insurance Policies

SCR or Standard Policy

• Shipments (Comprehensive Risks) Policy, commonly known as the Standard Policy, is the one ideally suited to cover risks in respect of goods exported on short-term credit, i.e. credit not exceeding 180 days.

• This policy covers both commercial and political risks from the date of shipment.

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• It is issued to exporters whose anticipated export turnover for the next 12 months is more than Rs.50 lacs.

• The appropriate policy for exporters with an anticipated turnover of Rs.50 lacs or less is the Small Exporter's Policy, described separately.

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• Insolvency of the buyer • Failure of the buyer to make the

payment due within a specified period, normally four months from the due date

• Buyer's failure to accept the goods, subject to certain conditions

Commercial Risks


• Imposition of restriction by the Government of the buyer's country or any Government action, which may block or delay the transfer of payment made by the buyer

• War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions or cancellation of a valid import license in the buyer's country

Political Risks 1/2


• Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which can not be recovered from the buyer

• Any other cause of loss occurring outside India not normally insured by general insurers, and beyond the control of both the exporter and the buyer

Political Risks 2/2

Small Exporters Policy

• The Small Exporter's Policy is basically the Standard Policy, incorporating certain improvements in terms of cover, in order to encourage small exporters to obtain and operate the policy.

• It is issued to exporters whose anticipated export turnover for the period of one year does not exceed Rs.50 lacs.


• Period of Policy: Small Exporter's Policy is issued for a period of 12 months, as against 24 months in the case of Standard Policy.

• Minimum premium: Premium payable will be determined on the basis of projected exports on an annual basis subject to a minimum premium of Rs. 2000/- for the policy period

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• No claim bonus in the premium rate is granted every year at the rate of 5% (as against once in two years for Standard Policy at the rate of 10%).

• Declaration of shipments: Shipments need to be declared quarterly (instead of monthly as in the case of Standard Policy).

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• Declaration of overdue payments: Small exporters are required to submit monthly declarations of all payments remaining overdue by more than 60 days from the due date, as against 30 days in the case of exporters holding the Standard Policy.

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• Percentage of cover: For shipments covered under the Small Exporter's Policy ECGC will pay claims to the extent of 95% where the loss is due to commercial risks and 100% if the loss is caused by any of the political risks (Under the Standard Policy, the extent of cover is 90% for both commercial and political risks).

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• Waiting period for claims: The normal waiting period of 4 months under the Standard Policy has been halved in the case of claims arising under the Small Exporter's Policy.

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• Change in terms of payment of extension in credit period – A small exporter may, without prior approval of

ECGC convert a D/P bill into DA bill, provided that he has already obtained suitable credit limit on the buyer on D/A terms.

– Where the value of this bill is not more than Rs.3 lacs, conversion of D/P bill into D/A bill is permitted even if credit limit on the buyer has been obtained on D/P terms only, but only one claim can be considered during the policy period on account of losses arising from such conversions.

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– A small exporter may, without the prior approval of ECGC extend the due date of payment of a D/A bill provided that a credit limit on the buyer on D/A terms is in force at the time of such extension.

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• Resale of unaccepted goods: If, upon non-acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer without obtaining prior approval of ECGC even when the loss exceeds 25% of the gross invoice value, ECGC may consider payment of claims upto an amount considered reasonable, provided that ECGC is satisfied that the exporter did his best under the circumstances to minimize the loss.

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Specific Shipment Policy - Short Term (SSP-ST)

• Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit not exceeding 180 days. Exporters can take cover under these policies for either a shipment or a few shipments to a buyer under a contract

Risks covered under SSP (ST)

• Insolvency of the buyer• Failure of the buyer to make the

payment due within a specified period, normally four months from the due date.

• Buyer's failure to accept the goods

1/3Commercial Risks


• Imposition of restrictions by the Government of the buyer's country or any Government action which may block or delay the transfer of payment made by the buyer

• War, civil war, revolution or civil disturbances in the buyer's country

• New import restrictions or cancellation of a valid import license

• Interruption of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer

2/3Political Risks


• Insolvency of the LC opening bank• Failure of the LC opening bank to

make the payment due within a specified period, normally four months, from the due date

3/3Insolvency & default of LC opening bank

Risks not covered under SSP (ST)

• Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer's country in his favour

• Causes inherent in the nature of goods

• Buyer's failure to obtain necessary import or exchange authorization from authorities in his country

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Risks not covered under SSP (ST)

• Insolvency or default of any agent of the exporter or of the collecting bank

• Loss or damage to goods• Exchange rate fluctuation• Failure of the exporter to fulfill the

terms of the export contract or negligence on his part

• Non-payment under a letter of credit due to any discrepancy pointed out by the LC opening bank

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Export (Specific Buyers) Policy

• Buyerwise Policies - Short Term (BP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit to a particular buyer. All shipments to the buyer in respect of whom the policy is issued will have to be covered (with a provision to permit exclusion of shipments under LC).

Different types of BP (ST)

• Buyerwise (commercial and political risks) Policy - short-term

• Buyerwise (political risks) Policy - short-term.

• Buyerwise (insolvency & default of L/C opening bank and political risks) Policy - short-term

Export (Specific Buyers) Policy

• The Maximum Liability (ML) is the limit up to which ECGC would accept liability under the policy

• A credit assessment fee of Rs. 1000/- shall be payable for proposals for buyerwise policy in respect of each buyer/bank.

• A credit enhancement fee of Rs. 500/- is payable in case an enhancement in the limit is desired due to increased volume of business.

Obligations on the part of the exporter holding BP

• Submission of statement of shipments made: Exporter has to submit, within 15 days after the end of the quarter, a statement of shipments made during the quarter in respect of the buyer/bank covered under the Buyer wise policy

• Submission of statement of overdue: On or before 15th of every month is required to a statement of payments against the shipments under the contract which have remained overdue for more than thirty days from the due date

• Intimation of event affecting the risk: If the exporter comes to know any event likely to affect the risk the same has to be intimated to ECGC and in any case by not later than 30 days

• Action for minimizing loss: Immediate steps are to be taken in the event of non-payment for any shipment. On learning of non-payment for the shipment, for which the policy is obtained, exporter is required to take action to prevent / minimize the loss

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 lacs per annum towards premium. Therefore all the exporters who will pay a premium of Rs. 10 lacs in a year are entitled to avail of it.

The Buyer Turnover Policy V/s Standard Policy

• The turnover policy envisages projection of the export turnover of the exporter for a year and the initial determination of the premium payable on that basis, subject to adjustment at the end of the year based on actuals

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The Buyer Turnover Policy V/s Standard Policy

• The policy provides additional discount in premium with an added incentive for increasing the exports beyond the projected turnover and also offers simplified procedure for premium remittance and filing of shipment information

• The holders of turnover policy need not submit monthly declarations of shipment. Instead, they have only to submit a statement of shipments made during the quarter in a prescribed format within 30 days of the end of the quarter

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Buyer Exposure Policies

• There has been a demand for simplification of the procedures as well as for rationalization of the premium structure. Considering the requirements of such exporters, the Corporation has decided to introduce policies on which premium would be charged on the basis of the expected level of exposure.

Buyer Exposure Policies

• Two types of Exposure policies are offered, viz,– Exposure (Single Buyer) Policy – for

covering the risks on a specified buyer and

– Exposure (Multi Buyer) Policy – for covering the risks on all buyers.

Exposure (Single Buyer) Policy

• Buyer Exposure Policy will be issued for each buyer covering all the exports to be made to the buyer during a period of twelve months.

• If the exporter has opted for commercial and political risks cover, failure of the LC opening bank in respect of exports against LC will also be covered, for the banks with World Rank (WR) up to 25,000 as per latest Banker’s almanac

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Exposure (Single Buyer) Policy

• For covering any bank with ranking beyond that level, the exporter has to obtain specific approval from the branch, which issued the policy prior to making the shipment

• Shipments to the buyers covered under Buyer Exposure Policies would be excluded from the purview of the Standard Policy. Risks covered would be same as covered under the existing Buyerwise Policy.

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Exposure (Multi Buyer) Policy

• Some exporters export to large number of buyers. The number of shipments made by them is also quite high. They may not find it convenient to apply for buyer exposure policy for all their buyers. It may also be difficult for them to declare their exports shipment-wise under the Standard policies. In order to meet the needs of such exporters, “Multi-buyers Exposure Policy” has been introduced.

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Exposure (Multi Buyer) Policy

• Exporters can take cover for an Aggregate Loss Limit (ALL) on all their buyers to whom they propose to sell on credit terms in open cover countries

• While accepting the proposal, the Corporation would expect the ALL sought to be not less than 10% of the past 12 month turnover applicable for the categories/countries for which cover is sough

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Consignment Exports Policy

• There are two policies available for covering consignment export viz;– Consignment Exports (Stock-holding

Agent) – Consignment Exports (Global Entity

Policy)

Risks covered under Consignment Exports (Stock-holding Agent)

• Commercial risks on both stock-holding agent and ultimate buyers with political risks for the entire period

• Commercial risks on the ultimate buyers only with political risks for the entire period

• Commercial risks on the stock-holding agent only with political risks for the entire period

• Only political risks for the entire period

Consignment Exports (Stock Holding Agent) Policy

• A consignment Exports (Stock-holding Agent) Policy will be appropriate for each exporter – stock holding agent combination provided the following criteria are satisfied:– Merchandise are shipped to an overseas

entity in pursuance of an agency agreement – The overseas agent would be an independent

and separate legal entity with no associate/sister concern relationship with the exporter

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Consignment Exports (Stock Holding Agent) Policy

• The agent’s responsibilities could be any or all of the following, viz., receiving the shipment, holding the goods in stock, identifying ultimate buyers and selling the goods to them in accordance with the directions, if any, of his principal (exporter); and

• The sales being made by the agent would be at the risk and on behalf of the exporter (whether or not such sales are in the agent’s own name or otherwise) in consideration of a commission or some similar reward or compensation on sales completed

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Consignment Exports (Global Entity) Policy

• The merchandise are shipped for stockholding to an overseas party who receives and holds the goods whether or not under written agreement

• The overseas party could be the exporter’s own branch office / authorized representative / warehousing agent / associate or sister concern / subsidiary company

Risks covered under Consignment Exports (Global Entity Policy)

• Commercial risks on the ultimate buyers only with political risks for the entire period

• Insolvency of the global entity and commercial risks on ultimate buyers with political risks for the entire period

• Insolvency of the global entity with political risks for the entire period

Service Policy

• Where Indian companies conclude contracts with foreign principals for providing them with technical or professional services, payments due under the contracts are open to risks similar to those under supply contracts. In order to give a measure of protection to such exporters of services, ECGC has introduced the Services Policy

Different types of Services Policy

• Specific Services Contract (Comprehensive Risks) Policy

• Specific Services Contract (Political Risks) Policy

• Whole-turnover Services (Comprehensive Risks) Policy

• Whole-turnover Services (Political Risks) Policy

Specific Services Policies

• Specific Services Policy, as its name indicates, is issued to cover a single specified contract. It is issued to provide cover for contracts, which are large in value and extend over a relatively long period. Contracts under which the value of services to be rendered forms only a small part of a contract involving supply of machinery or equipment will be covered under an appropriate specific policy for supply contracts

Whole-Turnover Services Policies

• Whole-turnover services policies are appropriate for exporters who provide services to a set of principals on a repetitive basis and where the period of each contract is relatively short. Such policies are issued to cover all services contracts that may be concluded by the exporter over a period of 24 months ahead.

Software Project Policy

• It was found that the general services policy does not meet with the exact requirements of software exporters. It was therefore decided to introduce a new credit insurance cover to meet the needs of the software exporters, namely, software projects policy, where the payments will be received in foreign exchange

• The following software services will be eligible for cover under the Software Projects Policy:– Development of software off-shore (i.e.

at the exporters location in India) to be delivered and implemented in the buyer’s (client) location

– Development of software on-site of the client and supply and implementation

– Both off-shore and on-site development

Features

• Instead of monthly declaration, exporter would be required to submit a progress report indicating the level of completion, payment sought and payment received and deviations in these areas

• The exporter has to specify in advance the manner in which the work in progress would be estimated

• Liability of the Corporation would be only for the work reported in the progress report

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Features

• The Corporation will have the right to examine the books of accounts and other documents of the exporter either on its own or through an authorized agency prior to admission of claim

• Certification by banks may be dispensed with in cases where it is felt that it is not possible

• Loss coverage will be restricted to 80% as there is no salvage possibility

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IT-enabled Services (Specific Customer) Policy

• ITES policy will provide cover in respect of contracts for rendering service during a defined period with billing on the basis of service rendered during a period say, a week, a month or a quarter, where the payments due for the services rendered will be received in foreign exchange

Features

• Monthly declaration indicating the services rendered, invoices raised and invoices paid will have to be submitted by the exporters in the prescribed form.

• The policyholder has to specify in advance the manner in which the work in progress would be estimated

• Liability of the Corporation would be for the services rendered and reported in the monthly declaration

• Cover will be given only up to 80%.• The policy will be offered for

contracts, which contain standard terms and conditions as per the norms and practices of the IT-enabled Services export industry

Construction Works Policy

• Construction Works Policy is designed to provide cover to an Indian contractor who executes a civil construction job abroad

Features

• The contractor keeps raising bills periodically throughout the contract period for the value of work done between one billing period and another

• To be eligible for payment, the bills have to be certified by a consultant or supervisor engaged by the employer for the purpose

Features

• Unlike bills of exchange raised by suppliers of goods, the bills raised by the contractor do not represent conclusive evidence of debt but are subject to payment in terms of the contract which may provide, among other things, for penalties or adjustments on various counts.

The risks covered by Construction Works Policy

• Insolvency of the employer (when he is a non-Government entity)

• Failure of the employer to pay the amounts that become payable to the contractor in terms of the contract, including any amount payable under an arbitration award


• Restrictions on transfer of payments from the employer's country to India after the employer has made the payments in local currency

• Failure of the contractor to receive any sum due and payable under the contract by reason of war, civil war, rebellion, etc


• The failure of the contractor to receive any sum that is payable to him on termination or frustration of the contract if such failure is due to its having become impossible to ascertain the amount or its due date because of war, civil war, rebellion etc

• Imposition of restrictions on import of goods or materials (not being the contractor's plant or equipment) or cancellation of authority to import such goods or cancellation of export license in India, for reasons beyond his control


• Interruption or diversion of voyage outside India, resulting in his incurring in respect of goods or materials exported from India, of additional handling, transport or insurance charges, which cannot be recovered from the employer

Specific Policy for Supply Contract

• Contracts for export of capital goods or turnkey projects or construction works or rendering services abroad are not of a repetitive nature and they involve medium/long-term credits. Such transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies

The different policies are

• Specific Shipment (Comprehensive Risks) Policy

• Specific Shipments (Political Risks) Policy

• Specific Contract (Comprehensive Risks) Policy

• Specific Contract (Political Risks) Policy.

• Specific Shipments (Comprehensive Risks) Policy - provides cover against all the risks covered under the Standard Policy for shipments to be made under the contract in question. It is, therefore, the appropriate policy for an exporter to take if the payments are open to both commercial and political risks

• Specific Shipments (Political Risks) Policy - Where the Commercial risks are absent e.g. where the payments are guaranteed by a bank or by the Government of the overseas country, the exporter may opt for the Specific Shipments (Political Risks) Policy for which the premium rate will be lower than that for the Comprehensive Risks Policy

• Specific Contract Policy (which also can be for comprehensive or political risks) - Specific Contract Policy differs from Shipments Policy in that the former provides the exporter not only with the post-shipment cover like the latter but also with some pre-shipment cover from the date of contract. Premium rates for Contract Policies will be higher than that for Shipment Policies

Insurance Cover for Buyer's Credit and Line of Credit

• Buyer's Credit is a credit extended by a bank in India to an overseas buyer enabling the buyer to pay for machinery and equipment that he may be importing from India for a specific project.

• A Line of Credit is a credit extended by a bank in India to an overseas bank, institution or government for the purpose of facilitating import of a variety of listed goods from India into the overseas country.

Policies & Products

Guarantees to Banks

Packing Credit Guarantee

• The Packing Credit Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers. The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss. The bank is required to be co-insurer to the extent of the remaining loss

• Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order or Letter of Credit qualifies for Packing Credit Guarantee

• Pre-shipment advances given by banks to parties who enter into contracts for export of services or for construction works abroad to meet preliminary expenses in connection with such contracts are also eligible for cover under the Guarantee

Export Production Finance Guarantee

• The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage to the full extent of cost of production when it exceeds the f.o.b. value of the contract/order, the differences representing incentive/duty drawback receivable

Post-Shipment Export Credit Guarantee

• If the exporter intends to continue the credit facilities till the value of shipment is realised from the foreign buyer, he has to avail of post-shipment credit. The post shipment credit guarantee provides protection to banks against non-realisation of export proceeds and the resultant failure of the exporter to repay the advances availed.

• Individual Post-Shipment Credit Guarantee can also be obtained for finance granted against L/C bills, even where an exporter does not hold an ECGC Policy, provided that the exporter makes shipments solely against Letters of Credit

• The premium rate for this guarantee is 7 paise per Rs.100 per month.

• The percentage of loss covered under the Individual Post-Shipment guarantee is 75.

Export Finance Guarantee

• This guarantee covers post-shipment advances granted by banks to exporters against export incentives receivable in the form of cash assistance, duty drawback, etc.

• The premium rate for this guarantee is 7 paise per Rs.100 per month and the cover is 75 percent

Export Performance Guarantee

• The Export Performance Guarantee, which is in the nature of a counter guarantee to the bank, is issued to protect the bank against losses that it may suffer on account of guarantees given by it on behalf of exporters. This protection is intended to encourage banks to give guarantees on a liberal basis for export purposes

• While the premium rate for guarantee issued to cover bond relating to exports on short-term credit is 0.90% p.a. for 75% cover, it is lower for bonds relating to exports on deferred credit and projects, namely 0.80% p.a. for 75% cover and 0.95% p.a. for 90% cover.

Export Finance (Overseas Lending) Guarantee

• If a bank financing an overseas project provides a foreign currency loan to the contractor, it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance (Overseas Lending) Guarantee

• The premium rate is 0.90% per annum for 75% cover and 1.08% per annum for 90% cover. Premium is payable in Indian Rupees

Policies & Products

Special Schemes

Transfer Guarantee

• The confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to the exporter. The Transfer Guarantee seeks to safeguard banks in India against losses arising out of such risks

• Loss due to political risks is covered upto 90% and loss due to commercial risks upto 75%.

Overseas Investment Guarantee

• Any investment made by way of equity capital or untied loan for the purpose of setting up or expansion of overseas projects will be eligible for cover under investment insurance. The investment may be either in cash or in the form of export of Indian capital goods and services. The cover would be available for the original investment together with annual dividends or interest receivable

• The cover can be extended for a period of 15 years from the date of completion of the project subject to a maximum of 20 years from the date of commencement of investment.

Exchange Fluctuation Risk Cover

• The Exchange Fluctuation Risk Cover is intended to provide a measure of protection to exporters of capital goods, civil engineering contractors and consultants who have often to receive payments over a period of years for their exports, construction works or services. Where such payments are to be received in foreign currency, they are open to exchange fluctuation risk as the forward exchange market does not provide cover for such deferred payments.

• Exchange Fluctuation Risk Cover is available for payments scheduled over a period of 12 months or more, upto a maximum of 15 years

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