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The idea of trading with other countries is undoubtedly very broad. However, most business owners, especially those who are small ventures, are afraid of the payment related risk from other countries. To eliminate these risks, the Government of India set up the Export Credit Guarantee Corporation of India.
Are you curious to know about ECGC? Stay tuned!
Export Credit Guarantee Corporation of India Limited (ECGC) is a company entirely owned by the Government of India that provides Indian exporters with export credit insurance support. This company was established in 1957 by GOI, and the Ministry of Commerce and Industry controls all the activities.
Below is a list of functions ECGC covers,
As the definition, role and purpose of ECGC are now clear to individuals, let's learn about the ways this company helps exporters, the benefits it offers (in the form of insurance, guarantee) and other important details.
As stated earlier, ECGC saves Indian exporters from payment risks by providing insurance protection. This kind of initiative helps Indian exporters in various ways,
ECGC provides different types of policies and schemes. These are as follows:
The ECGC issue covers exporters, which primarily focus on giving protection in case of payment risk in exports on short-term credit. There are four types - Shipments (Comprehensive Risks) Policy, Shipments (Political Risks) Policy, Contracts (Comprehensive Risks) Policy, Contract (Political Risks) Policy.
Under Specific Policies, ECGC insures export of capital goods or projects for construction works and for services rendered abroad and protects exporters/Indian firms in case of deferred payment.
These schemes protect banks that provide confirmation of Letters of Credit opened by foreign banks, Insurance cover for Buyer's Credit, Line of Credit, Overseas Investment Insurance and Exchange Fluctuation Risk Insurance.
Along with these, ECGC offers various types of Guarantees to banks. These are as follows:
Financial Guarantees
ECGC issues Financial Guarantees to banks in India in order to protect them against risks of losses. ECGC takes care of payment default cases if they occur at the exporter's end both during the pre-shipment and post-shipment stages.
Packing Credit Guarantee
Packing Credit Guarantee enables exporters to avail improved facilities from bankers. The Guarantees assure the banks that in case the exporter fails to complete the liability towards banks, ECGC will make up a major portion of losses incurred.
Export Performance Guarantee
This guarantee is more like a counter-guarantee offered to banks in case they experience losses for providing guarantees on behalf of exporters.
Export Production Finance Guarantee
Export Production Finance Guarantee helps banks approve advances required at pre-shipment stages and the full cost of production when the amount crosses the threshold of f.o.b (free on board) of contracts or orders. Here, the difference represents incentive or duty drawback receivables.
Post-shipment Credit Guarantee
Banks usually provide finance to exporters at post-shipment stages via purchase, discount or negotiation of export bills as well as an advance against export bills. Post-shipment Credit Guarantee protects banks from payment-related defaults of foreign countries, which results in non-payment of advances taken by exporters.
Export Finance (Overseas Lending) Guarantee
This type of guarantee protects banks that offer foreign currency loans to contractors handling overseas projects in case they fail to make repayment.
For businesses related to export, ECGC does not cover certain risks. For example, standard policies of ECGC do not cover losses in the following list of risks:
Now that you know about Export Credit Guarantee Corporation of India Limited and the various types of insurances and guarantees it provides, you can get involved in the export business without any worry.