A Quick Guide on Export Credit Guarantee Corporation (ECGC) of India

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,

• ECGC offers credit risk covers to exporters. The enterprise takes care of the non-payment risks of importers/overseas buyers.
• This enterprise provides credit Insurance covers to banks. Here, they handle the lending risks of exporters and provide support to banks.
• ECGC helps exporters avail themselves of credit facilities from financial institutions.
• It provides Overseas Investment Insurance to Indian companies that are investing in Joint Ventures in foreign countries either in loans or equity.

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 guides business owners in business-related activities
• This company enables business owners to get easy credit facilities from banks and other financial institutions.
• ECGC provides credit ratings and provides information about different countries, and notifies exporters of the possible risks that may arise from doing business in these counties.
• Further, ECGC provides information regarding the creditworthiness of foreign buyers. Thus, this company not only protects the Indian exporters against credit risks but also from the political and commercial conditions of that country.

ECGC provides different types of policies and schemes. These are as follows:

1. Standard Policies

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.

2. Specific Policies

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.

3. Special Schemes

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:

• Commercial disputes such as quality disputes
• Loss due to exchange rate fluctuations
• Loss or damage to goods that can otherwise be easily covered by a general insurer
• Cases where exporters fail to fulfil or neglect their terms of an export contract
• If buyers fail to get import or exchange authorisation from respective authorities in their countries
• In cases of default of exporter’s agent or of the bank responsible for collecting money
• Issues arising from the nature of goods

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.