A Presentation on
ECGC
Export credit guarantee corporation of
India ltd
Presented by:-
Bhupendra Bhavsar
Apoorva Barjatya
Vaishali
Manish Kadamb
ECGC
(Export Credit Guarantee Corporation)
of India Ltd.
Introduction
The Govt. of India set up the Export Risks Insurance Corporation(ERIC)in
July 1957 in order to provide export credit insurance support to Indian
exporters.It was transformed into Export Credit & Guarantee Corporation
Ltd(ECGC)in 1964.To bring the Indian identity into sharper focus,the
Corporation’s name was once again changed to the present Export Credit
Guarantee Corporation of India Ltd in 1983.ECGC is a company wholly
owned by the Govt.of India.Being essentially an export promotion
organisation,it functions under the administrative control of the Ministry of
Commerce,Govt.of India.It is managed by a Board of Directors comprising
representatives of the Govt,RBI,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.
Objectives of ECGC
The primary objective of setting up this corporation is
to provide export credit insurance and trade related
services to exporters. The corporation provides
guarantee to financial institutions for the benefit of
the exporters. To invest in joint ventures overseas,
ECGC offers Overseas Investment Insurance (OII) to
Indian companies; the investment here is done in the
form of loan or equity. ECGC provides various credit
risk insurance covers to exporters against loss in
exports; the corporation also offers guarantees to
banks and financial institutions to enable exporters to
obtain better results
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.
Why is ECGC needed?
Export credit insurance is essential for exporters to
avoid the various risk factors. It offers insurance
protection to exporters against risk of payment, and
gives guidance in all import export related activities.
Besides this, ECGC makes information available on
various countries with its own credit ratings, makes
the process of obtaining export finance from
banks/financial institutions easy, provides information
on credit-worthiness of the overseas buyer and helps
exporters in recovering bad debts.
What does ECGC do?
Provides risk cover to the exporters against the risk associated in world
market, viz. political risks and commercial risks.
Provides exporters information regarding credit-worthiness of overseas
buyers.
Provides information on approx.180 countries with its own credit
ratings.
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
Assists exporters in recovering bad debts.
What is Risk?
Uncertainty about the future outcome
Lack of knowledge
Imperfection in knowledge
Possibility of Loss
Export Credit Risks
Exports
Goods
Services
Credit
Extending supplier credit: DP, DA, OA
Risk
Possibility of non-payment of accounts receivables
Types of Export Credit Risks
Political Credit
Risk Risk
Export
Credit
Legal Risk Exchange
Risk Risk
Transfer
Risk
Political Risk
Some countries may experience
major political instability
defaults on payments
exchange transfer blockages
nationalization
confiscation of property
Credit Risk
The risk of
Insolvency
Default
Fraud
Unwillingness to accept the goods
on the part of the buyer
Exchange Risk
The possibility of variability in the
exchange rate on account of the time
lag between the date of contract and
actual payment is referred to as
'Exchange Risk'
Transfer Risk..
Weakness in
economy of Buyer's
country, viz. low
reserves, BOP
problems
Failure of Buyer's
Exchange or trade
Bank affecting
controls introduced
payment of
in Buyer's country
outstandings
…arising from all/any of the above
Legal Risk
Differences in law can be expected in
overseas countries
These may have an impact in such areas
as:
import procedures
taxation
employment practices
currency dealings
property rights
the protection of intellectual property
agency/distributorship arrangements
Export Credit Insurance
Export Credit insurance is cover offered by insurance
companies which encompasses the risk of non-payment
within export operations
Risks covered by export credit insurers:
Commercial Risk Political Risk
Factors Leading to Commercial
Risks
Buyers ability to
pay:
Buyer’s willingness Debtors financial
to pay:
condition
Behavior of the
debtor
Commercial Risks
Insolvency/ Bankruptcy
Breach of Contract
Payment Default
Refuse to take delivery of goods
Ability or behavior?
Political Risks
Political risks cover events that occur
abroad other than commercial risks
such as:
The general political risk
The natural catastrophe risk
The non-transfer risk
Methods of Political Risk Control
by Credit Insurers
Country Risk Classification:
The arrangement on Guidelines for
Officially Supported Export Credits is a
"Gentlemen's Agreement" among OECD
Participants. The Arrangement, including
the Knaepen Package, gives a seven
fold classification of countries, which is
used by many export credit insurers
Methods of Political Risk Control
by Credit Insurers
The Country Risk Classification Method measures the
country credit risk, i.e. the likelihood that a country will
service its external debt
It uses an econometric It takes account of
model based on possible qualitative
quantitative indicators, factors, e.g. political &
e.g. the financial & other economic &
economic situation & financial factors not incl.
the payment experience in the quantitative
of the countries Econometric Model
Methods of Political Risk Control
by Credit Insurers
The final classification, based
only on valid country risk
elements, is a consensus
decision of the sub-Group of
Country Risk Experts that
involves the country risk experts
of the participating Export
Credit Agencies
Role of ECGC as an Export
Credit Insurer
Providing credit insurance covers to exporters
against loss in export of goods & services
Providing export credit guarantees to banks &
FI’s to enable exporters obtain better facilities from
them
Providing Overseas Investment Insurance to
Exporters - Indian Entrepreneurs in Overseas
Ventures (Equity/Loans)
Maturity Factoring
Financial Guarantees Issued by
ECGC to Banks:
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 the
guarantees provided by the ECGC depends upon the
purposed of finance.The main types of guarantees offered
are:
1. Packing Credit Guarantee.
2. Post Shipment Export Credit Guarantee.
3. Export Production Finance Guarantee.
4. Export Finance Guarantee.
5. Export Performance Guarantee.
6. Export Finance(Overseas Lending)Guarantee.
Special Schemes of ECGC:
Special schemes consist of bundle of
covers addressing the needs of banks
and investors in foreign
ventures.These schemes are targeted
at specific audiences such as
banks,investors in foreign countries
and exporters taking up long term
projects abroad,covering distinct risks
faced by them.
Salient Features of the Scheme:
ECGC offers three types of special
schemes:-
1. Transfer guarantee.
2. Overseas investment insurance.
3. Exchange fluctuation risk cover.
Transfer Guarantee:
When a bank in India adds its confirmation to a
foreign Letter of Credit,it binds itself to honor the
drafts drawn by the beneficiary of the Letter of Credit
without any resource to him provided such drafts are
drawn strictly in accordance with the terms of the
Letter of Credit.The confirming bank will suffer a loss
if the foreign bank fails to reimburse it with the
amount paid to the exporter.Transfer Guarantee
seeks to safeguard banks in India against losses
arising of such risks.
Transfer Guarantee is issued,at the option of the bank
to cover either political risks alone or both political
and commercial risks. Loss due to political risk is
covered up to 90% and loss due to commercial risk is
covered up to 75%.
Overseas Investment Insurance:
This scheme provides protection for Indian Investments
abroad.The features of this schemes are:
Any investment made by way of equity capital or untied
loan for the purpose of setting up or expansion of
overseas projects will be eligible for cove under
investment insurance.
The investment may be either in cash or in the form of
Indian capital goods and services.
The cover would be available for the original investment
together with annual dividends or interest receivable.
As the investor would be having a hand in management
of the joint venture, no cover for commercial risks
would be provided under the scheme.
For investment in any country to qualify for
investment insurance,there should preferably be a
bilateral agreement protecting investment of one
country in the other.ECGC may consider providing
cover in the absence of any such agreement provided
it is satisfied that the general laws of the country
afford adequate protection to the Indian investments.
The period of insurance cover will not normally exceed
15 years in case of projects involving long
construction period.The cover can be extended for a
period of 15 years from the date of completion of the
project subject to a maximum of 20 years from the
date of commencement of investment.Amount insured
shall be reduced progressively in the last 5 years of
the insurance period.
Exchange Fluctuation Risk:
It covers exchange fluctuation risk of
exporters of capital goods,civil
engineering contractors and
consultants who may have to receive
foreign currency payments over a
period of years for their exports,
construction works or services. The
features of this cover are:-
Exchange Fluctuation Risk Cover is available for payments
scheduled over a period of 12 months or more,upto a
maximum of 15 years.
Cover can be obtained from the date of bidding right up to
the final installment.
At the stage of bidding,an exporter/contractor can obtain
Exchange Fluctuation Risk(Bid)Cover.The basis for cover will
be a reference rate prevailing on the date of bid or rate
approximating it.
The cover will be provided initially for a period of 12 months
and can be extended if necessary.
If the bid is successful, the exporter/contractor is required
to obtain Exchange Fluctuation (contract) cover for all
payments due under the contract.The reference rate for the
Bid Cover or the rate prevailing on the date of contract, at
the option of the exporter/contractor.
If the bid is unsuccessful 75% of the premium paid by the
exporter /contractor is refunded to him.
Cover will be available for all amounts receivable under the
contract,whether it is payment for goods or services or
interest or any other payment.Contracts coming under
Buyer’s credit and Line of Credit are also eligible for cover
under the schemes.
Cover under the schemes is available for payments
specified in US Dollar,Pound Sterling,Deustche
Mark,Japanese Yen,French Franc,Swiss Franc,UAE Dirham
and Australian Dollar.However,cover can be extended for
payment specified in other convertible currencies at the
discretion of ECGC.
Exchange Fluctuation Risk Cover will normally be provided
along with suitable credit insurance cover.However,cover
can be granted independently also, in which case premium
will be loaded by 20%.
