Exports are promoted by the government as it helps in boosting our country’s economy. Export Guarantee Scheme is an initiative to secure exports and encourage exporters. There are risks in trading with foreign country because of which Indian exporters need to be ensured that their exports are smoothly functioning. Export Credit Guarantee Corporation of India (ECGC) originally known as Export Credit Guarantee Corporation of India Ltd is a government owned enterprise was set up to provide various benefits to exporters. It gives assistance and credit facilities to exporters
The points covered in this article are
1. What is Export Credit Guarantee Corporation?
2. Functions of Export Credit Guarantee Corporation
3. Types of Credit Guarantees
4. Need of Export Credit Insurance
5. Procedure of obtaining ECGC cover
6. Risks not covered by ECGC
1. What is Export Credit Guarantee Corporation?
ECGC is an enterprise owned by government of India and is managed through Ministry of Commerce. ECGC was set up with an initiative to give export credit insurance to exporters. It covers all the risks in exporting and strengths export promotion. The Ministry of Commerce and Industry which administrates ECGC comprises of government officials, Reserve Bank of India and representatives from GST department. It provides insurance as per the requirements of exporter.
2. Functions of Export Credit Guarantee Corporation
● The most important function of ECGC is the credit risk insurance to the exporters against loss or fraud on export of goods or services
● Supports banks and financial institutions so that more and more exporters can get credit and other facilities at ease
● If any exporter wants to make foreign investment, overseas investment insurance is given to Indian companies investing in joint ventures as equity or advances
● The insurance provided by ECGC acts as security on payment risk
● Not only that the exporters get credit facility but guidance is provided in every step of export
● Before exporting, exporters can check the credit ratings of the buyer and see if has enough credit worthiness
3. Types of Credit Guarantees
ECGC offers different credit policies based on the need of exporter. Different credit schemes are
i. Standard policy
This policy covers short term export risk, which is for about 180 days. It covers both financial and political risks of exports from the date of shipment. These policies are also called as Shipment policy
ii. Other policies
Other Specific policy covers Indian firms from the risk of
● Exports on deferred payments
● Services rendered to foreign companies
● Construction projects in foreign country
These policies are used to cover risk of specific contracts, from the
date of contract. A specific cover named Construction works policy is
to the contractors executing construction job abroad
iii. Financial Guarantee
These are not the policies for exporters instead to the banks of exporter. It is to protect Indian banks from risk of providing high financial support at post and pre shipment stages.
iv. Special Guarantee
Some banks issue Letter of Credit to foreign banks. These guarantees are meant to protect banks that include such letter for Buyers Credit and Exchange Fluctuation Risk Insurance
4. Need of Export Credit
Exports are influenced by economical and political issues as the transaction is between two countries. So there can risk of any kind, any time during exports. Problems like war or tension between two countries can cause delay in settlement of payments. Not only external issues, the importer can face financial problems which shall result in bad debt to the exporter
● Export Credit insurance protects exporters from both financial and political risks
● The exporters can conduct overseas business without fear of loss
● Whenever exporters face bad debts, ECGC helps in recovering such bad debt
● Guidance is given with any step in export
● Credit worthiness of importer can be checked which can ensure exporter about payment
5. Procedure of obtaining ECGC cover
The exporter after executing the purchase order to the importer, should submit it with the Export Guarantee Corporation located in Mumbai, India. The purchase order should include all the necessary details from name of the importer to his bank details. The ECGC checks credit worthiness of importer and on the basis of that, informs about the maximum amount that can be covered under insurance policy. The policy can be taken on shipment wise or lump sum amount can be taken. Amount covered under insurance policy decides the policy premium. It varies for different policies.
6. Risks not covered by ECGC
Many exporters have been benefited from ECGC. It covers for about 90% of losses incurred. However there are certain risks which are specifically excluded from the cover, they are
● Loss due to exchange rate fluctuations
● Default on part of exporter
● Loss due to dispute regarding quality of goods or services exported
● Not obtaining import authorisation by the importer
Both banks and exporters can cover themselves against risk of non payment by the buyer. These schemes enhances the accessibility and affordability of credit to the exporters. This initiative makes Indian exporters competitive benefiting the country’s economy