» Credit Risk Insurance( ECGC)

Export risk insurance is designed to protect the exporters from the consequence of the payment risk both political and commercial and to enable them to expand their overseas business without fear of loss. Thus, Export Credit and Guarantee Corporation (ECGC) provide export credit insurance support to Indian exporter.

Export Credit and Guarantee Corporation (ECGC)

The primary goal of export credit and guarantee corporation (ECGC) is to support the export promotion drive in India by

* Providing a range of credit risk insurance cover to exporters against loss of goods and services
* Offering guarantees to banks and financial institutions to enable exporters obtain better facilities from them.

Function of Export Credit and Guarantee Corporation (ECGC)

The two main function of export credit and guarantee corporation (ECGC) are

* It covers the risk of non payment due to commercial and political risks arising in respect of exports on credit terms
* It issue guarantees to banks underwriting a major part of the loss that may arise in respect of advance or other support they extend to exporters in connection with their export business.

Risk Coverage: Shipment (Comprehensive Risks) Policy: Standard Policy

Export Credit and Guarantee Corporation (ECGC) covers the risk of exporters against overseas credit risk under standard policy and specify contract policy. Shipment (Comprehensive Risks) policy is commonly known as the standers policy and is ideally suitable to cover risk in respect of goods exported on short-term credit (credit not exceed 180 days). It is a whole turnover policy designed to provide a continuing insurance for regular flow of export shipment of raw materials, consumer goods, and consumer durables.

The policy covers both commercial and political risk from the date of shipment. It is issued to exporter, which anticipated export turnover for next 12 months is more than Rs 50 lacks.

Risk Covered under this policy

Under the shipment (Comprehensive Risks) policy, the Export Credit and Guarantee Corporation (ECGC) covers the following risk from the date of shipment.

Commercial Risk

* Insolvency of buyer
* Failure of the buyer to make the payment due within a specified period.
* Buyer failure to accept the good, subject to certain condition.

Political Risk

* Imposition of restriction by the government of the buyers country or any government action which may block or delay the transfer of payment made by the buyer
* War, civil war, revolution, civil disturbances in the buyer's country
* new import restriction or cancellation of a valid import license
* 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 caused of loss occurring outside India, not normally insured by general insurance and beyond the control of both the exporter and buyer.

Risk Not Covered under this policy

The policy does not cover losses due to following risk

* Commercial disputes like quality of the product
* Caused inherent in the nature of the goods
* Buyer's failure to obtain necessary import authorization in his country
* Insolvency or default of any agents of the exporter or the collecting bank
* loss or damage to goods which can be covered by general insurance
* Exchange fluctuation rates
* Failure of the exporter to fulfill the terms of the export contact or negligence on his part.

Shipment covered

The shipment (Comprehensive Risks) policy is meant to cover all the shipment that may be made by an exporter or credit terms during a period of 24 months ahead. The exporters required getting the insurance provided by the policy for each and every shipment that may be made by him in the next 24 months on DA, DP or open delivery terms to all buyer other than his own associates. The policy cannot be issued for selected shipment, selected buyer or selected markets.

Shipment made by air

When shipment made by air, then the buyer are often able to contain delivery of the goods from the airlines before making payment of the bill or accepting them for payments, as the case may be. If he buyer fails to make the payment subsequently as per the contract the risk of loss will not be covered under the policy if premium has been paid on the shipment for DA, DP terms of payments.

Procedure for risk coverage

Maximum Liability

As the policy is intended to cover all the shipment that may be made by exporter in a period of 24 months ahead, the Export Credit and Guarantee Corporation (ECGC) will fix its maximum liability under each policy. The maximum liability is the limit up to which ECGC would accepts liability for shipment made in each of the policy year, for both political and commercial risk. The maximum liability fixed under the policy can be enhanced subsequently, if necessary.

Credit Limit on Buyer

Commercial risk are covered subject to credit limit approved by the Export Credit and Guarantee Corporation (ECGC), on each buyer to whom shipments are made on credit limit on each buyer.

Percentage of risk covered

The Export Credit and Guarantee Corporation (ECGC) normally pays 90% of the loss, whether it arise due to commercial risk or political risk. The remaining 10% has to borne by the exporter himself.

Minimum Premium

Policy will be issued against a minimum premium of Rs 10000/-, which will be adjusted against premium payable on shipment declaration.

Resale of unaccepted goods

The policy holder is obliged to take immediate the effective action to minimize the possible loss if and when a buyer does not take delivery of the goods. If he wishes to resell the goods to an alternate buyer he should take the prior approval of the ECGC. Notice of resell should be given to the original buyer so that, it would be possible to take legal action against him subsequently, if considered necessary, for recovery of the loss. if the exporter decides to bring the goods back to India, the ECGC will make paid 90% of the reshipment expenses.

How to obtain a policy

The exporter should fill in a proposal form which can be obtained from any of the ECGC offices and send it to the nearest ECGC office. He should also confirm his acceptance of the premium rates, which will be given to him along with the proposed form and remit a minimum premium as prescribes by Export Credit and Guarantee Corporation (ECGC).

Small Exporter Policy

The small exporter's policy is basically the standard policy, incorporating certain important in terms of cover, in order to encourage small exporters to obtain and operate the policy. It will be issued to exporters whose anticipated export turnover for the next 12 months does not exceed Rs 50 lacks.

Period of policy: - small exporter's policy will be issued for a period of 12 months.

Premium: - Minimum premium payable for a small exporter's policy is Rs 2000/-.
Declaration of shipment: - Shipment needs to be declared on quarterly basis.

Declaration of overdue payment: - Small exporters are required to submit monthly declaration of all payment remaining overdue by more than 60 days from the due date.

Percentage of cover: -In this policy ECGC will pay the 95% of the loss is due to commercial risk and 100% if loss is caused by any of the political risk.

Resale of unaccepted goods

If buyer does not accept the goods, then exporter can sell the goods to an alternate buyer without obtaining prior approval from the Export Credit and Guarantee Corporation (ECGC). The Export Credit and Guarantee Corporation (ECGC) may consider payment of claim up to an amount considered reasonable by the ECGC, provided that the ECGC is satisfied that that the exporter did his best under the circumstances to minimize the loss.