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, 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.800 crores and authorized capital Rs.1000 crores.

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

How does ECGC help exporters?

ECGC 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

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.

Policies issued by ecgc

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. 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).

What are the risks covered under the Standard Policy?

Under the Standard Policy, ECGC covers, from the date of shipment, the following risks: a. Commercial Risks 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. b. Political 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. 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.

Q-56 A-56

What is specific policy? What are the specific policies issued by the ECGC? Specific policies are those policies which provide insurance cover for transactions i (ie. exceeding 180 days) and are issued by ECGC on case to case basis. exam construction work abroad, turnkey projects. Specific policies have been categorized a For supply contracts Specific shipments (comprehensive risks) policy Specific contracts (political risks) policy For services Specific services contract (comprehensive risks) policy. Specific services contract (political risks) policy. Whole turnover services (comprehensive risks) policy. Whole turnover services (Political risks) policy For construction work abroad Construction work policy

Credit Insurance Policies

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.

In what respects is the Small Exporter's Policy different from the Standard Policy?
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. 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). 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. 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). 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. Change in terms of payment of extension in credit period: In order to enable small exporters to deal with their buyers in a flexible manner, the following facilities are allowed: 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.

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. 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.

In all other respects, the Small Exporter's Policy has the same features as the Standard Po

Credit Insurance Policies

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.

What are the different types of Services Policy and what protection do they offer?
Specific Services Contract (Comprehensive Risks) Policy; Specific Services Contract (Political Risks) Policy; Whole-turnover Services (Comprehensive Risks) Policy; and Whole-turnover Services (Political Risks) Policy 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. 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. The Corporation would expect that the terms of payment for the services are in line with customary practices in international trade in these lines. Contracts should normally provide for an adequate

advance payment and the balance should be payable periodically based on the progress of work. The payments should be backed by satisfactory security in the form of Letters of Credit or bank guarantees. Services policies are designed to cover contracts under which only services are to be rendered. 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.

Credit Insurance Policies

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

The distinguishing features of a construction contract are that (a) the contractor keeps raising bills periodically throughout the contract period for the value of work done between one billing period and another; (b) to be eligible for payment, the bills have to be certified by a consultant or supervisor engaged by the employer for the purpose and (c) that, 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 scope for disputes is very large. Besides, the contract value itself may only be an estimate of the work to be done, since the contract may provide for cost escalation, variation contracts, additional contracts, etc. It is, therefore, important that the contractor ensures that the contract is well drafted to provide clarity of the obligations of the two parties and for resolution of disputes that may arise in the course of execution of the contract. Contractors are well advised to use the Standard Conditions of Contract (International) prepared by the Federation International Des Ingenieurs Conseils (FIDIC) jointly with the Federation International du Batiment et des Travaux Publics (FIBTP).

What are the risks covered by Construction Works Policy?

The Construction Works Policy of ECGC is designed to protect the Contractor from 85% of the losses that may be sustained by him due to the following risks: 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; and 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.

Financial gurantees issued by ecgc

In order to provide financial assistance to the exporters through commercial banks and other financial institutions, ECGC guarantees various loans provided by these financial intermediaries to the exporters. Due to the guarantees given by the ECGC, commercial banks can liberally lend money to the exporters. The nature of guarantees provided by the ECGC depends upon the purpose of finance.

Main types of guranyee issued

1. Packing Credit Guarantee:- Any loan given by banks to an exporter at the preshipment stage against a confirmed export order or L/C qualifies for PCG. 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 banks loss; bank is required to be co-insurer to the extent of the remaining loss. Features of this guarantee are:  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 PCG.  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.  The guarantee, issued for a period of 12 months based on a proposal from the bank, covers all the advances that may be made by the bank during the period to an individual exporter within an approved limit.  Approval of ECGC has to be obtained if the period for repayment of any advance is to be extended beyond 360 days from the date of advance.  Whole-turnover Packing Credit Guarantee can be issued to banks which wish to obtain cover for packing credit advances granted to all its customers on all India basis. Under this option, premiums are lower and higher percentage of cover is offered.

. Post shipment Export Credit Guarantee: Banks extend post-shipment finance to exporters through purchase, negotiation or discount of export bills or advances against such bills. The post-shipment credit guarantee provides protection to banks against non-realization of export proceeds and the resultant failure of the exporter to repay the advances availed. However, it is necessary that the exporter concerned should hold suitable policy of ECGC. The percentage of loss covered under this guarantee is 75%.

Features of this policy are: 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.  This guarantee can also be issued on whole turnover basis wherein the percentage of cover under shall be 90% for advances granted to exporters holding ECGC policy. Advances to non-policyholders are also covered with the percentage of cover being 65%.

. Export Production Finance Guarantee:- This guarantee enables banks to sanction advances at pre-shipment stage to the full extent of the domestic cost of production. Here again, the bank would be entitled to 66.67% of its loss from the corporation. 4. Export Finance Guarantee:- This guarantee covers post-shipment advances granted by banks to exporters against export incentives receivable in the form of duty drawback. The percentage of loss covered under this agreement is 75%. 5. Export Finance (Overseas Lending) Guarantee:- If a bank financing an overseas project provides a foreign currency loan to a contractor, it can protect itself from the risk of nonpayment by obtaining Export Finance (Overseas Lending) Guarantee. The percentage of loss covered under this guarantee is 75%.

6. Export Performance Guarantee:- This is akin to a counter-guarantee to protect a bank against losses that it may suffer on account of guarantees given by it on behalf of exporters. Exporters are often called upon to furnish a bank guarantee to the foreign parties to ensure due performance or against advance payment or in lieu of retention money. The Export Performance Guarantee protects the banks against 75% of the losses. In the case of bid bonds relating to exports on medium/long term credit, overseas projects and projects in India financed by international financial institutions as well as supplies to such projects, guarantee is granted on payment on 25% of the prescribed premium. The balance of 75% becomes payable by the bankers if the exporter succeeds in the bid and gets the contract.