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EXPORT CREDIT INSURANCE

Bachelor of Commerce (Banking & Insurance) Semester VIth

(2011-2012)

Submitted In partial Fulfillment of the requirements For the award of degree of B.Com----Banking & Insurance BY SANDEEP RUDAN SHARMA Seat No: _________

TOLANI COLLEGE OF COMMERCE, 150-151, Sher-e- Punjab society, Guru Gobind Singh road, Andheri (E), Mumbai-400093.

Export Credit Insurance (ECGC)

CERTIFICATE
This is to certify that Mr.SANDEEP RUDAN SHARMA of B.com Banking & Insurance Semester VIth (2011-2012) has successfully completed the project on EXPORT CREDIT INSURANCE Under the guidance of PROFESSOR S.KANNAN.

Principal

____________ Course Co-ordinator_______________

Project Guide/Internal Examiner _________________

External Examiner __________

TYB.COM (B&I) SEM VI

Export Credit Insurance (ECGC)

DECLARATION

I SANDEEP RUDAN SHARMA the Student of B.com (Banking & Insurance) Semester VIth (2011-2012) hereby declared that I have completed the project on EXPORT CREDIT INSURANCE The Information Submitted is True & Original to the Best of my knowledge.

Signature of Student

Name of the Student SANDEEP RUDAN SHARMA SEAT NO:

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Export Credit Insurance (ECGC)

Acknowledgement

In preparing this project, I feel great pleasure because it gives me extensive practical knowledge in my career. I got idea about Export Credit Insurance. I express my deep sense of gratitude to My Guide PROFESSOR S.KANNAN for his valuable guidance during my project work. I am thankful to PROFESSOR S.KANNAN (Faculty Guide) for valuable inspiration and guidance provided me throughout the course of this project. He has been patient and has critically gone through the subject matter. I would like to take this opportunity to express my gratitude towards all who have contributed directly or indirectly to my project work. I would firstly like to thank our principal Sir Dr. Abdul Rashid. I would like to take this opportunity to express my gratitude to my God, Parents that have supported me and my friends who have helped me for my project work.

TYB.COM (B&I) SEM VI

Export Credit Insurance (ECGC)

EXECUTIVE SUMMARY
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 a 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, one has to contend with the usual commercial risks of insolvency or protracted default of buyers. The commercial risks of the foreign buyer going bankrupt or losing his capacity to pay are heightened due to the political and economic uncertainties. Conducting export business in such condition of uncertainty is fraught with dangers. The loss of a large payment may spell disaster for any exporter whatever his prudence and competence. On the other hand, too cautious an attitude in evaluating risks and selecting buyers may result in loss of hard-to-get business opportunities. 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. Export credit insurance also seeks to create a favorable climate in which exporters can hope to get timely and liberal credit facilities from banks at home. For this purpose, export credit insurer provides guarantees to banks to protect them from the risk of loss inherent in granting various types of finance facilities to exporters. There some of the companies providing Export Credit Insurance in India.

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Export Credit Insurance (ECGC)

CONTENTS
TOPIC
NEED FOR EXPORT CREDIT INSURANCE INTRODUCTION ON ECGC PRODUCTS AND SERVICES CREDIT INSURANCE POLICIES SMALL EXPORTERS POLICY SPECIFIC SHIPMENT POLICY - SHORT TERM (SSP-ST)

PAGE NO
8 10 14 23 26

EXPORT (SPECIFIC BUYERS) POLICIES BUYER EXPOSURE POLICIES SERVICE POLICY SOFTWARE PROJECT POLICY IT-ENABLED POLICY SERVICES (SPECIFIC CUSTOMER) EXPORT TURNOVER POLICY CONSIGNMENT EXPORTS POLICY

31 35 38 39 42 44 44

INSURANCE COVER FOR BUYER'S CREDIT AND LINE OF CREDIT 47 SPECIAL SCHEMES TRANSFER GUARANTEE OVERSEAS INVESTMENT GUARANTEE EXCHANGE FLUCTUATION RISK COVER 49 49 50 50 53 53 54 55 56

GUARANTEES TO BANKS PACKING CREDIT GUARANTEE EXPORT PRODUCTION FINANCE GUARANTEE POST-SHIPMENT EXPORT CREDIT GUARANTEE EXPORT FINANCE GUARANTEE

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Export Credit Insurance (ECGC)

TOPIC
EXPORT PERFORMANCE GUARANTEE EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE

PAGE NO 56 57 58 60 62 63

ECGC IN TODAYS MARKET EXIM BANK, ECGC, MIGA PARTNERSHIP EXPORTER'S CREDIT INSURANCE BIBLIOGRAPHY

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Export Credit Insurance (ECGC)

Need for Export credit insurance


Payments for exports are open to risks even at the best of times. The risks have been assumed large proportion today due to far reaching political and economic changes that are sweeping the world. An outbreak of war may block or delay the payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or the balance of payment problem may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, one has to contend with the usual commercial risks of insolvency or protracted default of buyers. The commercial risks of the foreign buyer going bankrupt or losing his capacity to pay are heightened due to the political & economic uncertainties. Conducting export business in such conditions of uncertainty is fraught with dangers. 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. The loss of a large payment may spell disaster for any exporter, whatever his prudence and competence. On the other hand, too cautions an attitude in evaluating risks and selecting buyers may result n loss of hard-to-get business opportunities. 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. Export credit insurance also seeks to create a favorable climate in which exporters can hope to get timely and liberal credit facilities from banks at home. For this purposes, export credit insurer provides guarantees to banks to protect them form risk of loss inherent in granting various types of finance facilities to exporters. Prevention is better than cure. If your debt had never impacted your business, it does not cost much to protect yourself against catastrophic losses. Should it have impacted, and if you were to buy credit insurance, then the premium will be much higher. Even though you may have a clean loss history, it is no guarantee that losses could not be made in the future. Of course a clean loss history will be reflected in the advantageous premium rate we would offer. No one can be entirely sure about their own market. When it moves fast, it becomes less predictable. Credit insurance is a

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Export Credit Insurance (ECGC) way to streamline your P&L. You pay a reasonable premium each year and you avoid that 'big hit'. If there is an impending risk, it will be too late to buy credit insurance. Even with a well-balanced portfolio, you cannot predict an unexpected claim or catastrophic loss. Unfortunately unforeseen catastrophes do exist e.g. Fraud of a manager that causes a company to go insolvent or secondary insolvency, which means the insolvency of a major buyer of your client that, affects your client's business. You can never be absolutely sure that you have all the information.

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Export Credit Insurance (ECGC)

INTRODUCTION ON ECGC
Exporters face a problem of not being paid by the overseas importer because of various reasons like out break of war or civil war, a coup or an insurrection, economic difficulties or balance of payment problems faced by importers country and commercial risks like insolvency or protracted default of buyer. All these reasons may block the amount or delay the amount. The loss of amount brings a disaster for any exporter however he is financially sound, intelligent and competent. Export credit insurance provided by ECGC helps in preventing the above risks. With insurance cover, exporters can do business confidently and in the process can increase or expand the business significantly with out fear of loss. This paper examines export insurance system in the country and the role played by ECGC. Governments are keen to promote exports because exports improve a countrys balance of payments position. For this reason, governments in various countries provide export insurance cover through government or the quasi- governmental organizations. The Risks covered by the export insurance organizations usually include the following: Insolvency of the buyer; Buyers failure to pay on the due date ; Action by other governments to block the transfer of funds; Action by other governments to confiscate the goods; Wars, revolutions and other similar disturbances within the importing country; Political events and economic difficulties.

Payments for exports are open to risks even at the best of times. The risks have assumed larger proportions due to political and economic changes in the world. A civil war in a country may block or delay the payment for exports. Economic difficulties or BOP position may also force a country to restrict payments outflow to the exporter. It is also possible tat the buyer may turn insolvent or may refuse to make the payment. In light of the above, the export business though may appear lucrative is fraught with risks. The government 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 of India

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Export Credit Insurance (ECGC) Limited in 1983. ECGC is a company wholly owned by Government of India. It functions under administrative control of the ministry of the commerce and is managed by Board of Directors representing Government, Banking, Insurance, Trade, Industry etc. ECGC is the fifth largest credit insurer of the world presently covers 17.31% of Indias total exports with the paid up capital of Rs. 1.50 bn. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.

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Export Credit Insurance (ECGC)

MAJOR FUNCTIONS OF ECGC


1. To provide a range of credit risk insurance covers to exporters against a loss in export of goods and services. 2. To offer guarantees to banks and financial institutions to enable exporters obtain better facilities from them. 3. Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan

ECGC HELPS EXPORTERS BY


1. Provide insurance protection to exporters against payment risks. 2. Provide guidance in export related activities. 3. Provide information on creditworthiness of overseas buyer. 4. Provide information on about 180 countries with its own credit ratings. 5. Making it easy to obtained export finance from banks/financial institutions 6. Assist exporters in recovering bad debts.

THE NEED FOR A POLICY


Payment for goods shipped by an exporter is open to certain risks, unless the payment has been received in advance or is supported by an irrevocable L/C confirmed by the bank India. Failure of a large payment can wreck an exporters business. In any case, the existence of the risks and the exporters knowledge of their existence may make him adopt a very cautions attitude towards new business. Orders which could have proved beneficial may be given up because of excessive caution. An ECGC policy is designed to protect exporters from losses that may rise due to a variety of commercial and political risks which are beyond their control,. Backed by this insurance, an exporter can expand his business by taking on new buyers, entering new markets or by taking up new products.

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Export Credit Insurance (ECGC)

The ECGC covers can be divided broadly into four groups:-

Standard Policies issued to:-

Exporter to protect them against payment risks involved in exports on shortterm credit; and

Small exporters policy to protect them against payment risks involved in exports on short-term credit.

Specific Policies designed to protect Indian firms against payment risks involved
in: Export on deferred terms of payment; Services rendered to foreign parties; and Construction works and turnkey projects undertaken abroad.

Financial guarantees issued to


Banks in India to protect them from risks of loss involved in extending their financial support to exporters at the pre-shipment as well as post-shipment stages; and

Special schemes viz.


Transfer Guaran-tee meant to protect banks which add confirmation to letters of credit, Overseas Investment Insurance and Exchange Fluctuation Risk Insurance.

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Export Credit Insurance (ECGC)

PRODUCTS AND SERVICES CREDIT INSURANCE POLICIES


SCR or Standard Policy
Shipments (Comprehensive Risks) Policy, commonly known as the Standard Policy, is the one ideally suited to cover risks in respect of goods exported on short-term credit, i.e. credit not exceeding 180 days. This policy covers both commercial and political risks from the date of shipment. It is issued to exporters whose anticipated export turnover for the next 12 months is more than Rs.50 lacs. (The appropriate policy for exporters with an anticipated turnover of Rs.50 lacs or less is the Small Exporter's Policy, described separately). Risks covered under the Standard Policy Under the SCR, ECGC covers, from the date of shipment, the following risks: Commercial Risks: 1. Insolvency of the buyer; 2. Failure of the buyer to make the payment due within a specified period, normally 4 months from the date; 3. Buyers failure to accept goods, subject to certain conditions. Political Risks: 1. Imposition of restrictions by the Government of the buyers country or any Government action which may block or delay the transfer of payment made by the buyer; 2. War, civil war, revolution or civil disturbances in the buyers country; New import restrictions or cancellation of a valid import license; 3. Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer. 4. Any other cause of loss occurring outside India not normally insured by general insurers, and beyond the control of both the exporter and the buyer. Risks not covered under the Standard Policy 1. Commercial disputes including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in the buyers country in his favor; TYB.COM (B&I) SEM VI 14

Export Credit Insurance (ECGC) 2. Causes inherent in the nature of goods; 3. Buyers failure to obtain necessary import or exchange authorization from authorities in his country; 4. Insolvency or default of any agent of the exporter or of the collecting bank. 5. Loss or damage to goods which can be covered by general insurers; 6. Exchange rate fluctuation; 7. Failure of the exporter to fulfils the terms of the export contract or negligence on his part. Shipments covered under the Standard Policy The Standard Policy is meant to cover all the shipments made by an exporter, on credit terms during the period of 24 months after the issue of the policy. In other words, an exporter is required to offer for the cover of the policy each and every shipment that may be made by him in the next 24 months on DP, DA or Open Delivery terms to all buyers other than his own associates. Shipments excluded An exporter may exclude shipments made against advance payment or those, which are supported by irrevocable Letters of Credit, which carry the confirmation of banks in India, since he faces no risk in respect of such transactions. Exporters of the status of trading houses and above are allowed to exclude shipments of specified commodities or shipments to buyers in specified countries or any combination of these two, from the purview of the Standard Policies held by them. Shipments against letter of credit Exporters holding Standard Policy may opt to get shipments against irrevocable Letter of Credit excluded from the scope of the policy. However, unless they are confirmed by banks in India, payment under irrevocable Letters of Credit is subject to political risks. For such shipments, an exporter has option to obtain cover for either political risks only or for comprehensive risks, i.e., for all political risks and the risk of insolvency or default of the bank opening the irrevocable Letter of Credit. The comprehensive risk cover also provides indemnity to the exporter to the extent of 25% of the gross invoice value if the LC opening bank refuses payment on the ground of discrepancies in LC, which are not clearly attributable to the exporter. In either case, cover will be provided by ECGC only if the exporter agrees to get all the shipments made against irrevocable Letter of Credit covered under the policy. Cover will not be available for selected transactions. TYB.COM (B&I) SEM VI 15

Export Credit Insurance (ECGC) Shipments are associates Shipments to foreign buyers who are associates of the exporters, i.e. in whose business the exporter has a financial interest, are normally excluded from the policy. They can, however be, covered against political risks under the policy if an exporter so desires. Where both the exporter and the associate are public limited companies and where the exporter's share holding in the associate does not exceed 49%, cover can be provided against insolvency risks in addition to the political risks. Shipments on consignment basis Shipments made to overseas agents under consignment basis are excluded from the scope of the Standard Policy. However, if an exporter wants it, the ECGC can get them included under the policy, but the cover will be provided only against political risks, since the agent acts for the exporter, if however, goods are sold to ultimate buyers on credit term, comprehensive risks cover can be provided for the sales to such ultimate buyers if the exporter wants such cover. Air shipments When shipments are made by air, the buyers are often able to obtain delivery of the goods from the airlines before making payment of the bills or accepting them for payment, as the case may be. Earlier such shipments could be covered only if the exporter was holding appropriate credit limit on open delivery (OD) terms and had paid premium at the higher rates applicable for OD. ECGC has now decided that credit limits sanctioned under DA will be valid for OD also. Moreover, for shipments made after 1st April, 2003, the premium rates for DA will apply for OD also. As a result, shipments by air can be covered by the Standard Policy if the exporter holds a valid credit limit under DA and pays premium at the rates applicable for the relevant credit period under DA. Additional cover for shipments to government Buyers All shipments made to government buyer are covered under the policy against political risks. The exporter has, therefore, to declare such shipments to the ECGC and pay premium at the rates applicable for the covering political risks. The ECGCs Specific Approval is required to be obtained where the country is in the list of Restricted Cover Countries. This cover does not extend to commercial risks like default or non-acceptance of goods. If an exporter wants these risks also to be covered, then he is required to write to the ECGC asking that risks number (xi) described in the policy be also covered and should give information about the name TYB.COM (B&I) SEM VI 16

Export Credit Insurance (ECGC) and address of the address of the buyer, the statues of the buyer and he details of the contract. If the ECGC approves the request, the shipment concerned will be covered against comprehensive risks if the exporter pays premium on those shipments at rates applicable for comprehensive risks. ECGC considers following buyer as Government Buyers: A department of the central Government; and If the buyer be a Government body like a Board, State Government, Municipality or Government owned Corporations/ Companies, if the performance of the contract is guaranteed by the Central Government Contract cover The standard policy provides cover only for the post- shipment stage i.e.; from the date of shipment. Cover for pre-shipment losses which may be sustained by an exporter due to impossibility of exporting goods already manufactured or purchased for the reasons like ban on export of the item, restrictions on import of the item into the buyers country or war, civil war, etc. are not covered under the policy because the risk is very low in respect of raw materials, primary products, consumer goods or consumer durables which can easily be resold. Where, however, the export involves an item which is manufactured to the non-standard specifications of a buyer, cover can be provided for the pre-shipment risks as well as the post-shipment risks by means of an Endorsement to the Standard Policy. Shipments made on credit exceeding 180 days are covered The policy is meant to provide cover for shipments involving a credit period not exceeding 180 days. In exceptional cases, however, cover may be granted for shipments with longer credit period, provided that such longer credit periods are justifiable for the export items concerned. HOW THE RISKS ARE COVERED Maximum Liability The exporter has to get a credit limit approved from ECGC in respect of each foreign buyer to whom he would like to make shipments on DP/DA/OD terms of payment. In addition, if shipments are made to a buyer in some of the countries classified by ECGC as restricted cover countries (see below for details), Specific Approval of ECGC should be obtained for such shipment. Further, the exporter has to declare to ECGC all his shipments and pay premium as explained later. As the Standard Policy

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Export Credit Insurance (ECGC) is intended to cover all the shipments that may be made by an exporter in a period of 24 months ahead, the ECGC will fix its Maximum Liability under each Policy. The Maximum Liability for the shipments made by an exporter in each of the policy years. To obtain the policy with maximum liability, exporters are advised to estimates the maximum outstanding payments due from overseas buyers at any one time during the policy period and convey it to ECGC. The Credit limits on buyers Commercial risks are covered under the policy only if a credit limit is approved by ECGC on each buyer to whom shipments are made on credit terms. The exporter has, therefore, to apply for a suitable credit limit on each buyer. On the basis of its own judgement of the creditworthiness of the buyer, as ascertained from credit reports obtained from banks and specialised agencies abroad, ECGC will approve the credit limit which is the limit upto which it will pay claim on account of losses arising from commercial risks on account of that buyer. The credit limit is a revolving limit and once approved, it will hold good for all shipments to the buyer as long as there is no gap of more than 12 months between two shipments. Credit limit is a limit on ECGC's exposure on the buyer for commercial risks and not a limit on the value of shipments that may be made to him. In case of losses due to political risks, ECGC's exposure is not restricted by the credit limit. Premium has, therefore, to be paid on the full value of each shipment even where the value of the shipment or the total value of the bills outstanding for payment is in excess of the credit limit. As the credit limit is indicative of the safe limit of credit that can be extended to the buyer, the exporters are advised to see that the total value of the bills outstanding with the buyer at any one time is not out of proportion to the credit limit. In cases where the credit limit that ECGC is prepared to grant is far lower than the value of outstanding bills, exporters may discuss the problem with ECGC officials. Credit limits need not be obtained if a shipment is made on D.P. or C.A.D. terms and if the value of the shipment does not exceed Rs. 10, 00,000. Political as well as commercial risks will stand automatically covered for such shipments, the only qualification been the claims will not be paid on more than two buyers during the policy under this provision. Charges for credit limit sanctioned ECGC spends a considerable amount of money for obtaining reports on overseas buyers from banks and credit information agencies abroad in order to assess their TYB.COM (B&I) SEM VI 18

Export Credit Insurance (ECGC) credit standing and approves credit limits based on such assessment. ECGC charges a status enquiry fee of Rs.500 for each credit limit application. An exporter need not pay status enquiry fee for credit limits upto Rs.5 lac, if he furnishes a bank report not older than 6 months on the buyer. Status Enquiry Charges In order to access the credit standing, ECGC obtain reports on overseas buyers from banks and credit information agencies abroad and spends considerable amount for obtaining such reports. The credit limits on buyers are based on such assessment. ECGC charges a nominal fee for each credit limit application. If an exporter submits a bank report not older than 6 months on the buyer, he need not pay any status enquiry fee for credit limits up to Rs. 5, 00,000. In case the limit is required urgently, exporters may request ECGC to obtain fax report on the buyer and pay towards fax expenses. Alternatively exporter may obtain cable report through his bank and furnish the same in original to ECGC for a quick decision. Restricted cover countries For a large majority of countries, the Corporation places no limit for covering political risks. Such countries are referred to as 'open cover' countries. More than 85% of the countries in the world, which account for over 99% of the country's exports, are open cover countries. However, in the case of certain countries where the political risks are very high, cover is granted on a restricted basis. In respect of a majority of such countries, revolving limits normally valid for one year are issued in place of credit limits. The procedure for sanction of revolving limits is the same as for credit limits. In respect of the few remaining countries under restricted cover, which are high risk countries, specific approvals are given on the merits of each case. The period of validity of the specific approval is six months. Percentage of cover ECGC normally pays 90% of the losses, whether it arises due to commercial risks or political risks. The remaining 10% has to be borne by the exporter himself. However, ECGC reserves the right to offer a lower percentage of cover in certain cases. Premium an exporter has to pay Premium payable will be determined on the basis of projected exports on an annual basis subject to a minimum premium of Rs. 10,000 for the policy period. Cash discount can be availed by the exporters paying premium upfront under the policies TYB.COM (B&I) SEM VI 19

Export Credit Insurance (ECGC) (on quarterly / annually basis as the case may be under relevant policy @ 1% and 5% respectively). Additional premium will have to be paid on the shipments declared by the exporter after the minimum premium gets fully adjusted. No part of the minimum premium will be refunded to the exporter if the premium payable on the actual shipments falls below the amount of minimum premium. Declaration of shipments and payment of additional premium On or before the 15th of every month the policyholder is required to declare to ECGC in a prescribed form, all the shipments made by him in the preceding calendar month. If no shipment is made in a month, a NIL declaration should be sent. The premium is required to be calculated by the exporter on the basis of schedule of premium given by the ECGC along with the policy. The premium rates vary according to country classification and the length of credit. Premium rates In order to facilitate the exporters, if there is no claim paid to the exporters during the earlier policy period of 2 policy year , at the time of renewal , no claims bonus rates of 10% shall be offered to them. The maximum bonus rate offered to them is 50%. Reduction allowed in the premium rates If no claim is made on ECGC during a policy period of one year, a no-claim bonus of 5% is granted in the premium rates at the time of renewal of the policy. No claim bonus can be accumulated for every policy period till a maximum bonus of 50% is reached. Exporter liable to pay premium In respect of shipments to buyers on whom ECGC has refused credit limits, the exporter will have the option of either paying premium for only political risks or not paying any premium at all. If the full amount of credit limit asked for by an exporter on a buyer is not sanctioned by ECGC, the exporter will have the option of paying comprehensive premium on all shipments to the buyer (with the cover for commercial risks restricted to the credit limit sanctioned, but cover for political risk to the full extent) or paying premium for political risks only on all shipments or not paying any premium for the shipments to that buyer under the Standard Policy. Non-payment of the bill In the event of non-payment of any bill by the foreign buyer by the due date, the policyholder is required to take prompt and effective steps to prevent or minimize TYB.COM (B&I) SEM VI 20

Export Credit Insurance (ECGC) loss. A monthly declaration of all bills which remain unpaid for more than 30 days should be submitted to ECGC in the prescribed form indicating action taken in each case. Prior approval of ECGC is required for granting extension of time for payment, converting bill from DP to DA terms or resale of unaccepted goods at a lower price (if the loss exceeds a certain limit). Extending credit period or changing the tenor of the bills It may sometimes become necessary for an exporter to extend the credit period of a DA bill or to convert a DP bill into a DA bill in circumstances in which the buyer is unable to meet the payment obligation as per the original tenor of the bill. Whenever a policyholder wishes to grant such extensions or conversions for good reasons, he should get the prior approval of ECGC and pay the necessary additional premium. Premium rates and payment of premium The ECGC has refused to approve credit limits and where cover has been provided at the request of the exporter on shipments to associates and shipments made against Irrevocable Letter of Credit. In cases where an exporter obtains cover for shipments made on consignment basis comprehensive cover for shipments made against Irrevocable Letter of Credit or contracts cover (only in exceptional cases) or cover for shipments with a credit period exceeding 180 days premium rates will be quoted while granting such cover. Premium at comprehensive rates will be payable where additional cover is provided for shipments made to government buyers. Approval is taken for resale of unaccepted goods The policyholder is obliged to take immediate and 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 or bring back the goods to India, approval of ECGC is to be obtained only if the loss on account of resale or reshipment exceeds 25% of the gross invoice value. Notice of resale 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. Eligible for receiving payment of a claim under the Policy A claim will arise when any of the risks insured under the policy materializes. If any overseas buyer goes insolvent, the exporter becomes eligible for a claim one month after his loss is admitted to rank against the insolvent's estate or after four months from the due date, whichever is earlier. In case of protracted default the claim is TYB.COM (B&I) SEM VI 21

Export Credit Insurance (ECGC) payable after four months from the due date. Claims in respect of additional handling, transport or insurance charges incurred by the exporter because of interruption or diversion of voyage outside India are payable after proof of loss is furnished. In all other cases claim is payable after four months from the date of the event causing loss. However, in case of exports to countries where long transfer delays are experienced, ECGC may extend the waiting period and claims for such shipments are payable after the expiry of such extended period. Debt recovery Payment of claims by the ECGC does not relieve an exporter of his responsibility for taking recovery action and realizing whatever amount can be recovered. The exporter should, therefore, consult ECGC and take prompt and effective steps for recovery of the debts. For its part, ECGC will help the exporter by providing the name of a reliable lawyer and/or debt collecting agency and by enlisting the help of India's commercial representative in the buyer's country. It is also to be noted that receipt of a claim from ECGC does not relieve an exporter from obligations to the Exchange Control Authority for recovering the amount from the overseas buyers. Sharing recovery with ECGC All amounts recovered, net of recovery expenses should be shared with ECGC in the ratio in which the loss was originally shared. Receipt of a claim from ECGC does not relieve an exporter from obligations to the Exchange Control Authority for recovering the amount from the overseas buyers. How to obtain a policy The exporter should fill in a Proposal Form, which can be downloaded from here or 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, a schedule of which will be given to him along with the Proposal Form and remit applicable premium.

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Export Credit Insurance (ECGC)

Small Exporters Policy


The Small Exporter's Policy is basically the Standard Policy, incorporating certain improvements in terms of cover, in order to encourage small exporters to obtain and operate the policy. It is issued to exporters whose anticipated export turnover for the period of one year does not exceed Rs.50 lacs. The small exporter the policy is basically the standard policy the main feature of which are as follows:Period of Policy: Small Exporter's Policy is issued for a period of 12 months, as against 24 months in the case of Standard Policy. Minimum premium: Premium payable will be determined on the basis of projected exports on an annual basis subject to a minimum premium of Rs. 2000/- for the policy period. No claim bonus in the premium rate is granted every year at the rate of 5% (as against once in two years for Standard Policy at the rate of 10%). Declaration of shipments: Shipments need to be declared quarterly (instead of monthly as in the case of Standard Policy). Declaration of overdue payments: Small exporters are required to submit monthly declarations of all payments remaining overdue by more than 60 days from the due date, as against 30 days in the case of exporters holding the Standard Policy. Percentage of cover: For shipments covered under the Small Exporter's Policy ECGC will pay claims to the extent of 95% where the loss is due to commercial risks and 100% if the loss is caused by any of the political risks (Under the Standard Policy, the extent of cover is 90% for both commercial and political risks). Waiting period for claims: The normal waiting period of 4 months under the Standard Policy has been halved in the case of claims arising under the Small Exporter's Policy. Change in terms of payment of extension in credit period: In order to enable small exporters to deal with their buyers in a flexible manner, the following facilities are allowed: A small exporter may, without prior approval of ECGC convert a D/P bill into DA bill, provided that he has already obtained suitable credit limit on the buyer on D/A terms.

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Export Credit Insurance (ECGC) Where the value of this bill is not more than Rs.3 lacs, conversion of D/P bill into D/A bill is permitted even if credit limit on the buyer has been obtained on D/P terms only, but only one claim can be considered during the policy period on account of losses arising from such conversions. A small exporter may, without the prior approval of ECGC extend the due date of payment of a D/A bill provided that a credit limit on the buyer on D/A terms is in force at the time of such extension. Resale of unaccepted goods: If, upon non-acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer without obtaining prior approval of ECGC even when the loss exceeds 25% of the gross invoice value, ECGC may consider payment of claims upto an amount considered reasonable, provided that ECGC is satisfied that the exporter did his best under the circumstances to minimize the loss. In all other respects, the Small Exporter's Policy has the same features as the Standard Policy. Benefits:This policy pays in the event of loss to the policyholder on account of: Commercial Risks: Insolvency of the buyer. Failure of the buyer to make the payment due within a specified period, normally 2 months from the due date. Buyer's failure to accept the goods, subject to certain conditions.

Political Risks Imposition of restriction by the Government of the buyer's country or any Government action which may block or delay the transfer of payment made by the buyer. War, Civil War, revolution or civil disturbances in the buyer's country. New Import restrictions or cancellation of a valid import license. Any other cause of loss occurring outside India, not normally insured by general insurers, and beyond the control of both the exporter and the buyer. Premium The premium rates depend on the country to which exports are made and the period of repayment.

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Export Credit Insurance (ECGC) At least 20% of the total amount of premium should be paid in advance. The balance amount of premium may be paid on a quarterly basis in proportion to the amount of credit disbursed. Requirements Completely filled in Proposal Form along with minimum premium of Rs.2,000 is to be submitted to the ECGC. Exporter should also confirm his acceptance of the premium rates, a schedule of which will be given along with the Proposal Form. Recommendations Policy covers most of the risks faced by small exporters and provides the confidence to exporters to expand the business aggressively. Further it has been specifically designed keeping in view their requirements. Hence it is recommended. Exclusions Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer's country in his favor. Causes inherent in the nature of the goods. Buyer's failure to obtain necessary import or exchange authorization from authorities in his country. Insolvency or default of any agent of the exporter or of the collecting bank. Exchange rate fluctuation. Failure or negligence on the part of the exporter to fulfill the terms of the export contract.

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Export Credit Insurance (ECGC)

Specific Shipment Policy - Short Term (SSP-ST)


Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit not exceeding 180 days. Exporters can take cover under these policies for either a shipment or a few shipments to a buyer under a contract. These policies can be availed of by Exporters who do not hold SCR Policy and By exporters having SCR Policy, in respect of shipments permitted to be excluded from the preview of the SCR Policy. Specific policy for the contracts may take any of the following forms: Specific Shipments (commercial and political risks) Policy - short-term. Specific Shipments (political risks) Policy - short-term. Specific Shipments (insolvency & default of L/C opening bank and political risks) Policy - short-term. Risks covered under SSP (ST) Commercial risks: [For SSP-ST policies of the type Specific Shipments commercial and political risks] Insolvency of the buyer. Failure of the buyer to make the payment due within a specified period, normally four months from the due date. Buyer's failure to accept the goods (subject to certain conditions).

Political risks: [For all the SSP-ST policies] Imposition of restrictions by the Government of the buyer's country or any Government action which may block or delay the transfer of payment made by the buyer; War, civil war, revolution or civil disturbances in the buyer's country; New import restrictions or cancellation of a valid import license; Interruption of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer. Any other cause of loss occurring outside India not normally insured by general insurers, and beyond the control of both the exporter and the buyer.

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Export Credit Insurance (ECGC) Insolvency & default of LC opening bank [For SSP-ST policies of the type insolvency & default of L/C opening bank and political risks]. Insolvency of the L/C opening bank; Failure of the LC opening bank to make the payment due within a specified period, normally four months, from the due date. Risks not covered under SSP (ST) Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer's country in his favour; Causes inherent in the nature of goods; Buyer's failure to obtain necessary import or exchange authorization from authorities in his country; Insolvency or default of any agent of the exporter or of the collecting bank; Loss or damage to goods; Exchange rate fluctuation; Failure of the exporter to fulfill the terms of the export contract or negligence on his part; Non-payment under a letter of credit due to any discrepancy pointed out by the L/C opening bank. Procedure to obtain SSP (ST) The exporter has to submit a proposal in the prescribed form along with a copy of the L/C or relevant contract. Different proposal forms are to be used for different types of SSP-ST policies. Normally, the proposal has to be submitted before making the shipment and the cover would be given only from the date of receipt of proposal. However, in case the exporter approaches ECGC for covering a shipment already made, issue of policy can be considered provided not more than 15 days have elapsed between the date of shipment and the date of receipt of proposal. Shipments covered under SSP (ST) The exporter can opt to cover one or more shipments under a particular contract. He can also choose to cover shipments made during a given period within the validity of the contract. For example if an exporter has received a contract for supply of goods within a period of say, one year, he can choose to cover a batch of shipments to be

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Export Credit Insurance (ECGC) made within a period, say 90 days or 180 days. He may opt to cover further shipments under another specific policy at a later date. Period of validity The policy would be valid for shipment(s) made from the date of receipt of proposal up to the last date allowed under the relevant contract for shipment. If the exporter has chosen to cover the shipments to be made during a particular period, the policy would be issued for that period. In case the policy is issued to cover a shipment already made before the proposal is submitted, the policy would be valid only for that shipment. If the proposal is to cover the shipment already made under a contract and to cover further shipments to be made under the same contract, the policy shall be issued for the period from the date of the shipment already made up to the period of contract or the period as desired by the exporter, whichever is earlier. Percentage covered The percentage of cover normally available under the policy would be 80% of the gross invoice value of the shipments covered, in respect of countries in open cover. However, policy could also be issued with a lower percentage of cover with proportionate reduction in the amount of premium payable and the amount of maximum liability. The percentage of cover in respect of countries under restricted cover category would depend upon the underwriting policy applicable for the country at the relevant point of time. HOW THE RISKS ARE COVERED Maximum liability The maximum liability (ML) which is the limit up to which ECGC would accept liability under the policy is arrived at by applying the agreed percentage of cover to the gross invoice value of the shipments covered under the policy. Enhancement in ML, if necessitated by amendment to the original contract, can be considered subject to payment of additional premium by an endorsement to the policy issued. Processing fee and premium payable Along with the proposal the exporter is required to pay a processing fee of Rs.1000/which is non-refundable. Premium will be charged on the gross invoice value in rupee terms converted at the rate prevailing on the date of submission of the proposal. Where the exporter has chosen to cover shipments to be made during a particular period premium shall be charged for the shipments scheduled to be made during the chosen period. TYB.COM (B&I) SEM VI 28

Export Credit Insurance (ECGC) Premium rates The rates of premium vary depending upon the terms of payment, the classification of the buyer's country and whether a shipment is covered against comprehensive risks or only political risk. To find out the premium, please contact your nearest ECGC Branch. Withdrawal In case of any adverse experience / report on the buyer or his country ECGC or the exporter can withdraw the cover. For the shipments made prior to such withdrawal, cover would be available. Seek extension of the validity period If the exporter fails to make the shipment within the validity of the contract, he can seek extension of the period of validity of the policy after getting the contract duly extended. Obligations on the part of the exporter holding SSP (ST) Submission of statement of shipments made: On or before 15th of every month the exporter is required to submit a statement of shipments made during the previous month under the contract, which is covered under the policy. Submit along with the proposal form. Submission of statement overdue: of On or before 15th of every month the exporter is required to submit a statement of payments against the shipments covered under the contract which have remained overdue for more than thirty days from the due date; Intimation of event affecting the risk: If the exporter comes to know about any event likely to affect the risk the same has to be intimated to ECGC immediately and in any case by not later than 30 days; Action for minimizing loss: Immediate steps are to be taken in the event of nonreceipt of payment for any shipment. On learning of non-payment of the shipment, for which the policy is obtained, exporter is required to take suitable action to prevent / minimize the loss, including such action as may be suggested by ECGC. Action to prevent / minimize loss will depend on the facts and circumstances of each case. Given below is the course of action that may have to be taken immediately. Persuading the buyer to make the payment while, at the same time, maintaining recourse against him by getting the bill noted and protested for non-payment;

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Export Credit Insurance (ECGC) Not agreeing to give any extension of the due date of the bill unless there are good reasons for doing so. Prior approval of the Corporation should be taken for granting such extension. In case any condition is stipulated by ECGC while granting extension, it should be ensured that the conditions If resale is not possible, to bring the goods back to India, with the prior approval of ECGC (if the loss is up to 25% of the gross invoice value such permission is not required). Desisting from making any further shipment to the buyer until he has made the payment for the bill in default. Ascertained loss Normally loss shall be ascertained four months after the due date. In case of insolvency risk, loss shall be ascertained one month from the date of admission of debt by the receiver or four months from the due date whichever is earlier. Where the debt is yet to be admitted by the receiver an undertaking from the exporter has to be obtained stating that he has done nothing or not omitted to do anything that will make his claim in the insolvent estate in-admissible. Otherwise dispose of and in any case not earlier than four months from the due date of the payment. Filling a claim An exporter can file his claim under the policy any time after the loss is ascertained but within one year from the due date of payment for the shipment under claim. Recovery on payment of claim Upon payment of a claim the exporter shall continue to take steps for recovering the dues from the buyer including action, if any, stipulated by ECGC. Any amount spent on recovering the dues shall have a first charge on recovery. Any amount recovered net of recovery expenses shall be shared between ECGC and the exporter in the same ratio in which the loss is shared. Closing a SSP (ST) At the time of issue of SSP-ST Policy, a "Payment Advice Slip" ('PAS') is attached requesting the exporter to advise ECGC about the payment when it is received from the buyer or the L/C opening bank. If the exporter has sent the statement of shipments made but fails to send the 'PAS' and if no statement of overdue is received from the exporter within the prescribed period, action would be initiated to close the policy presuming that the payment has been received from the buyer.

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Export Credit Insurance (ECGC)

Export (Specific Buyers) Policy


Buyer wise Policies - Short Term (BP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit to a particular buyer. All shipments to the buyer in respect of whom the policy is issued will have to be covered (with a provision to permit exclusion of shipments under LC). For every buyer, a separate policy has to be obtained. The policy would be valid for a period of one year. These policies can be availed of by exporters who do not hold SCR Policy and by exporters having SCR Policy, In case all the shipments to the buyer in question have been permitted to be excluded from the purview of the SCR Policy. Types of BP (ST) Buyer wise (commercial and political risks) Policy - short-term Buyer wise (political risks) Policy - short-term. Buyer wise (insolvency & default of L/C opening bank and political risks) Policy short-term. Risks covered under BP (ST) Commercial risks Insolvency of the buyer Failure of the buyer to make the payment due within a specified period, normally four months from the due date. Buyers failure to accept the goods (subject to certain conditions). Political risks: (For all the BP-ST policies) Imposition of restrictions by the Government of the buyer's country or any Government action which may block or delay the transfer of payment made by the buyer; War, civil war, revolution or civil disturbances in the buyer's country; New import restrictions or cancellation of a valid import license; Insolvency & default of LC opening bank [For BP-ST policies of the Buyer wise (insolvency & default of L/C opening bank and political risks) Policy - short-term.] Insolvency of the L/C opening bank; Failure of the LC opening bank to make the payment due within a specified period, normally four months from the due date; Risks not covered

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Export Credit Insurance (ECGC) Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer's country in his favor; Causes inherent in the nature of goods; Buyer's failure to obtain necessary import or exchange authorization from authorities in his country; Loss or damage to goods; Exchange rate fluctuation

Procedure The exporter has to submit a proposal in the prescribed form. The proposal has to be submitted before making the shipments and the cover would be given only from the date of receipt of proposal. (In case the exporter desires to cover any shipment made prior to the submission of proposal, the same can be covered under Specific Shipment Policy, subject to its terms and conditions). Percentage to be covered The percentage of cover normally available under the policy would be 80% of the gross value of the shipments covered. However, policy could also be issued with a lower percentage of cover with proportionate reduction in the amount of premium payable. HOW THE RISKS ARE COVERED Maximum Liability The Maximum Liability (ML) is the limit up to which ECGC would accept liability under the policy. Credit assessment A CD fee of Rs. 1000/- shall be payable for proposals for buyer wise policy in respect of each buyer/bank. A credit enhancement fee of Rs. 500/- is payable in case an enhancement in the limit is desired due to increased volume of business. In case of proposals for covering political risks only, no credit assessment fee will be charged. Applicable premium rates The rates of premium vary depending upon the terms of payment, the classification of the buyer's country and whether a shipment is covered against comprehensive risks, bank risks or only political risk. To find out the premium rate for a particular

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Export Credit Insurance (ECGC) transaction, go to the 'Premium Calculator' by clicking here. There is bonus claims are available Premium payable Premium will be worked out on the projection given in the proposal in the proposal form and taking into account the applicable premium rates. The premium for the first quarter has to be paid within 15 days from the date the premium is called for. Premium for the subsequent quarters has to be remitted based on the projected turnover and also after adjusting any shortfall or excess in the premium paid for the earlier quarter, within 15 days from the beginning of the respective quarter. Renew the policy Where the exporter does not seek renewal of cover in respect of any buyer on whom he had taken cover earlier, the following course of action would be taken. If the actual premium for the quarter is more than the premium collected on the projected turnover for the quarter, the exporter would be advised to pay the difference. In case the exporter fails to pay the premium within 15 days from the date the premium is called for, cover for any loss in respect of the policy would be limited to the turnover in respect of which premium has been paid. If the actual premium is less than the premium collected on the projected turnover the excess would be refunded. Withdrawal ECGC can withdraw the cover any time by informing the exporter in writing its intention to do so. The cover shall stand terminated from the date of such withdrawal. Shipments made to the buyer after that date will not stand covered under the buyerwise policy. Obligations on the part of the exporter holding BP (ST) Submission of statement of shipments made: Exporter has to submit, within 15 days after the end of the quarter, a statement of shipments made during the quarter in respect of the buyer/bank covered under the Buyer wise policy. It is also necessary to indicate in the statement the projected turnover for the next quarter in respect of the buyer/bank covered under the policy. Submission of statement of overdue: On or before 15th of every month is required to a statement of payments against the shipments under the contract which have remained overdue for more than thirty days from the due date;

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Export Credit Insurance (ECGC) Intimation of event affecting the risk: If the exporter comes to know any event likely to affect the risk the same has to be intimated to ECGC and in any case by not later than 30 days; Action for minimizing loss: Immediate steps are to be taken in the event of non-payment for any shipment. On learning of non-payment for the shipment, for which the policy is obtained, exporter is required to take action to prevent / minimize the loss, including such action as may be intimated by ECGC. Given below is the course of action that may to be taken immediately: Persuading the buyer to make the payment while, at the same time, maintaining recourse against him by getting the bill noted and protested for non-payment; If resale is not possible, bringing the goods back to India , with the prior approval of ECGC (if the loss is up to 25% of the gross invoice value such permission is not required). Desisting from making any further shipment to the buyer until he has made the payment for the bill in default. Ascertained loss Normally loss shall be ascertained four months after the due date. In case of insolvency risk, loss shall be ascertained one month from the date of admission debt by the receiver or four months from the due date whichever is earlier. Where the debt is yet to be admitted by the receiver an undertaking from the exporter has to be obtained stating that he has done nothing or not omitted to anything that will make his claim in the insolvent estate in-admissible. Filling a claim An exporter can file his claim under the policy any time after the loss is ascertained but within one year from the due date of payment for the shipment claim. Recovery on payment Upon payment of a claim the exporter shall continue to take steps for recovering dues from the buyer including action, if any, stipulated by the Corporation. Any amount spent on recovering the dues shall have a first charge on recovery. The amount recovered net of recovery expenses shall be shared between ECGC and the exporter in the same ratio in which the loss is shared.

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Export Credit Insurance (ECGC)

Buyer Exposure Policies


Presently, in the policies offered to exporters premium is charged on the export turnover, though the Corporations exposure on each buyer is controlled through a system of approval of credit limits on the buyer for covering commercial risks. While this suits the small and medium exporters, many large exporters having large number of shipments have been complaining about the volume of returns to be filed under the policy necessitating the deployment of their resources for this purpose and also resulting in possible unintentional omissions or commissions in such reporting, which have an impact on the settlement of claims. There has been a demand for simplification of the procedures as well as for rationalization of the premium structure. Considering the requirements of such exporters, the Corporation has decided to introduce policies on which premium would be charged on the basis of the expected level of exposure. Two types of exposure policies one for covering the risks on a specified buyer and another for covering the risks on all buyers- are offered. Two types of Exposure policies are offered, viz, Exposure (Single Buyer) Policy for covering the risks on a specified buyer& Exposure (Multi Buyer) Policy for covering the risks on all buyers.

Exposure (Single Buyer) Policy covers

An exporter can choose to obtain exposure based cover on a selected buyer. The cover would be against commercial and political risks attached to the buyer for both non-LC and LC transactions. A separate Buyer Exposure Policy will be issued for each buyer covering all the exports to be made to the buyer during a period of twelve months. If the exporter has opted for commercial and political risks cover, failure of the LC opening bank in respect of exports against LC will also be covered, for the banks with World Rank (WR) up to 25,000 as per latest Bankers almanac. For covering any bank with ranking beyond that level, the exporter has to obtain specific approval from the branch, which issued the policy prior to making the shipment. For covering the political risks only, in respect of LC transactions or shipments to associates, Buyer Exposure policy with endorsement restricting the cover to political risks only with significantly less premium is offered. Percentage of loss

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Export Credit Insurance (ECGC) The loss of coverage would be 90 percent for those who also hold our Standard Policies and at 80 percent for others. If it is mutually agreed between the Corporation and the policyholder, the Policy could provide for a higher share of loss to be retained by the insured with proportionate reduction of premium. Applicable premium rates The existing premium structure for SCR Policies is related to the shipments made and not to the loss limits (credit limit / maximum liability) specified for a buyer. The premium structure for an exposure-based policy is therefore quite different from that for the SCR Policies. Procedure for payment of premium Exporters opting for this Policy would be offered the option to remit the premium either on a quarterly installment basis or on an annual basis. Where the exporter opts to pay premium on an annual basis, a discount of 5% would be given in the premium payable. Premium for every quarter shall be payable in advance prior to the beginning of the quarter. In case of any delay, the cover shall not be available in respect of shipments made during the period from the beginning of the quarter up to the date of remittance. Premium once paid is treated as non-refundable. In case the Corporation withdraws cover during the period of the policy due to any reason, the proportionate premium for the balance period in months beyond the month in which the cover is withdrawn will be refunded subject to retention of minimum premium equivalent to 25% of the total premium. Other procedural The policy would specify the loss limit up to which claim will be entertained due to any of the risks covered under the policy in respect of shipments made to the buyer during the policy period. The actual turnover in the prescribed format would be required at the time of renewal of the policy. The exporter is required to obtain the prior approval of the Corporation for extending the due date for any shipment, if the revised due date is beyond 180 days from the date of shipment. The non-receipt of payments is to be notified within 30 days from the due date or extended due date of payment.

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Export Credit Insurance (ECGC) The claim is required to be filed in the prescribed form with in one year from the due date of payment. The exporter is required to submit the proposal form prescribed with the nonrefundable policy fee of Rs.1,000/-. Need for Exposure (Multi Buyer) Policy Some exporters export to large number of buyers. The number of shipments made by them is also quite high. They may not find it convenient to apply for buyer exposure policy for all their buyers. It may also be difficult for them to declare their exports shipment-wise under the Standard policies. In order to meet the needs of such exporters, Multi-buyers Exposure Policy has been introduced. Features of Exposure (Multi Buyer) Policy Exporters can take cover for an Aggregate Loss Limit (ALL) on all their buyers to whom they propose to sell on credit terms in open cover countries. While accepting the proposal, the Corporation would expect the ALL sought to be not less than 10% of the past 12 month turnover applicable for the categories/countries for which cover is sought. The policy would be issued for a period of one year. If the transaction is on LC terms, failure of the LC opening bank in respect of exports against LC will also be covered, for banks with World Rank up to 25000 as per latest Bankers Almanac. Cover in respect of exports to restricted cover countries would not be available under this policy. Loss limit in respect of export to any individual buyer/bank will, however, be restricted to 10% of the ALL. Premium at the rate of 275 paise per Rs.100/- is payable on the ALL fixed to cover all shipments to be made during the Policy year. The risks covered, percentage of loss, payment of premium, declaration of turnover, enhancement of ALL, overdue declaration, extension in due date, claim etc will remain the same as Exposure (Single Buyer) Policy. The exporter has to apply in the prescribed proposal form along with the nonrefundable policy fee of Rs.5, 000/-.

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Export Credit Insurance (ECGC)

Service Policy
Where Indian companies conclude contracts with foreign principals for providing them with technical or professional services, payments due under the contracts are open to risks similar to those under supply contracts. In order to give a measure of protection to such exporters of services, ECGC has introduced the Services Types of Services Policy and Protection Specific Services Contract (Comprehensive Risks) Policy; Specific Services Contract (Political Risks) Policy; Whole-turnover Services (Comprehensive Risks) Policy; and Whole-turnover Services (Political Risks) Policy

Specific Services Policy, as its name indicates, is issued to cover a single specified contract. It is issued to provide cover for contracts, which are large in value and extend over a relatively long period. Whole-turnover services policies are appropriate for exporters who provide services to a set of principals on a repetitive basis and where the period of each contract is relatively short. Such policies are issued to cover all services contracts that may be concluded by the exporter over a period of 24 months ahead. The Corporation would expect that the terms of payment for the services are in line with customary practices in international trade in these lines. Contracts should normally provide for an adequate advance payment and the balance should be payable periodically based on the progress of work. The payments should be backed by satisfactory security in the form of Letters of Credit or bank guarantees. Services policies are designed to cover contracts under which only services are to be rendered. Contracts under which the value of services to be rendered forms only a small part of a contract involving supply of machinery or equipment will be covered under an appropriate specific policy for supply contracts.

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Export Credit Insurance (ECGC)

Software Project Policy


The Services Policies of the Corporation which have been in existence for some time were offered to provide protection of exporters of services including software and related services. However it was found that the general services policy does not meet with the exact requirements of software exporters. It was therefore decided to introduce a new credit insurance cover to meet the needs of the software exporters, namely, software projects policy, where the payments will be received in foreign exchange. The general services policies will continue to be offered for the export of services other than software and related services. Cover under the Software Project Policy The following software services will be eligible for cover under the Software Projects Policy: Software project services, either on one time/turnkey basis or

progressive/milestone basis, involving Development of software off-shore (i.e. at the exporters location in India) to be delivered and implemented in the buyers (client) location; or Development of software on-site of the client and supply and implementation; or Both off-shore and on-site development.

Features of Software Projects Policy Instead of monthly declaration, exporter would be required to submit a progress report indicating the level of completion, payment sought and payment received and deviations in these areas. The exporter has to specify in advance the manner in which the work in progress would be estimated (namely, the reports that would be available on the volume of work done and the rate to be applied on the defined unit to arrive at the work done - it could be a document giving the man hours spent and rate per man hour or it could be a simple number of days worked and rate per day). Liability of the Corporation would be only for the work reported in the progress report. The Corporation will have the right to examine the books of accounts and other documents of the exporter either on its own or through an authorized

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Export Credit Insurance (ECGC) agency prior to admission of claim. Certification by banks may be dispensed with in cases where it is felt that it is not possible. The contract should provide for a clear acceptance mechanism in respect of services rendered and, if possible, a procedure for arbitration. It should also provide for rectification of mistakes errors and also omissions. The Corporation would not cover any loss due to errors or omissions. Loss coverage will be restricted to 80% as there is no salvage possibility. Apart from stipulating the loss limit on the buyer, the policy document would also specify the limit up to which the losses are covered under other risks. Risks covered under the Software Projects Policy The risks covered under the Policy would be similar to the risks covered under standard policies in character but the wordings are slightly amended to be in line with the special features of the software exports. The risks covered would be as under: Commercial risks: Default the failure of the customer to pay to the exporter within four months after the due date of payment the contract price of services rendered to and accepted by the customer: or Insolvency of the customer: or Wrongful repudiation of the contract by the customer after the exporter has incurred expenses for commencement of services. Political risks: The operation of a law or of an order, decree or regulation having the force of law, which, in circumstances outside the control of the Exporter and/or of the buyer prevents, restricts or controls the transfer of payment from the customers country to India: or The occurrence of war between the customers country and India: or The occurrence of war, hostilities, civil war, rebellion, revolution, insurrection or other disturbances in the customers country; or The imposition in India or in the customers country after the date of contract, of any law or of an order, decree or regulation having the force of law, which in circumstances outside the control of the Exporter and/ or the customer, prevents performance of the contract; or

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Export Credit Insurance (ECGC) Any of the following causes of loss not being within the control of the exporter and/ or the customer which arises from an event occurring outside India; Refusal of visa for employees of exporter who are required to be in the place of the project to enable the exporter to execute contractual obligations for reasons not attributable to the exporter or customer. Unjustified restraining of personnel of the exporter by authorities in customers country. Increase in any tax or introduction of a new tax payable by the exporter in the customers country, which is not recoverable from the customer. Imposition by a competent court of law or the government, a rule or law or an order which results in losses / additional costs due to infringement of Intellectual Property Rights (IPR) of a process or software which was either in the domain of free software or the IPR was not established on the date of contract. Variation in exchange rates between Indian rupee and foreign currency concerned beyond three percentages over the stipulated level resulting in loss to the exporter for contracts involving service beyond 360 days. The losses due to the risks described under (e) above would be covered by the Corporation subject to a maximum of 25% of the value of export. Policy supply of software products and packages will be covered under Pure supply of software products and packages could be covered under the standard and specific policies offered for commodities.

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Export Credit Insurance (ECGC)

IT-enabled Policy Services (Specific Customer)


IT-enabled Services (Specific Customer) Policy is issued to cover the following commercial and political risks involved in rendering IT-enabled services to a particular customer: Commercial risks: Insolvency of the customer. Failure of the customer to make the payment due within a specified period, normally four months from the due date. Buyer's failure to accept the services rendered (subject to certain conditions).

Bank risks: Bankruptcy of L/c opening bank. Failure of L/c opening bank to make the payment due within a specified period, normally within four months from the due date (Non-payment due to discrepancies in the document will not be covered). Political risks: Imposition of restrictions by the Government of the customers country or any Government action which may block or delay the transfer of payment made by the customer; War, civil war, revolution or civil disturbances in the customers country; New import restrictions or cancellation of a valid import license by authorities in the customers country; Cancellation by the Govt. of India a legally valid and binding contract between the exporter and the customer. Types of ITES contracts covered ITES policy will provide cover in respect of contracts for rendering service during a defined period with billing on the basis of service rendered during a period say, a week, a month or a quarter, where the payments due for the services rendered will be received in foreign exchange. Features of IT- enabled services contract that will be eligible for cover under ITenabled services policy Some of the important features of the IT enabled services contracts are as follows: The contract would be for providing certain service during a defined period. It is not for completion of a particular work or job.

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Export Credit Insurance (ECGC) Billing would be for the service rendered during a pre-determined interval a week, a fortnight or a month. The contract should stipulate the manner for assessment of service rendered, periodicity of billing, manner of acceptance and due date for the payment of bills. Where there is a non-payment problem, there can be certain services invoiced and accepted but not paid, certain services invoiced but not accepted yet and certain services rendered but yet to be invoiced. There can be cases where there is no physical documentation. The entire process may be carried out through electronic media including billing. Consequently, there may not be any bank, which handles the documents. The contract could also provide for detection of mistakes or errors while rendering the service and the procedure for correction. Penalties or reduction in payment for errors and omissions are also possible. Features of the IT-enabled services policy Some of the important features of these policies would be as follows: Monthly declaration indicating the services rendered, invoices raised and invoices paid will have to be submitted by the exporters in the prescribed form. No separate overdue report will be necessary. In case of non-payment, Liability of the Corporation would be for the services rendered and reported in the monthly declaration. The Corporation will have the right to examine the books of accounts and other documents of the exporter either on its own or through an authorized agency prior to admission of claim. Certification by banks may be dispensed with in cases where it is felt that it is not possible. The contract should provide for a clear acceptance mechanism in respect of services rendered and, if possible, a procedure for arbitration. It should also provide for rectification of mistakes errors and also omissions. The Corporation would not cover any loss due to errors or omissions. Cover will be given only up to 80%.

The policy will be offered for contracts, which contain standard terms and conditions as per the norms and practices of the IT-enabled Services export industry. Procedure for payment of premium

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Export Credit Insurance (ECGC) Exporters opting for this Policy would be offered the option to remit the premium either on a quarterly installment basis or on an annual basis. Where the exporter opts to pay premium on an annual basis, a discount of 5% would be given in the premium payable. Premium for every quarter shall be payable in advance prior to the beginning of the quarter. In case of any delay, the cover shall not be available in respect of shipments made during the period from the beginning of the quarter up to the date of remittance. Premium once paid is treated as non-refundable. In case the Corporation withdraws cover during the period of the policy due to any reason, the proportionate premium for the balance period in months beyond the month in which the cover is withdrawn will be refunded subject to retention of minimum premium equivalent to 25% of the total premium. Other procedural The policy would specify the loss limit up to which claim will be entertained due to any of the risks covered under the policy in respect of services rendered to the customer during the policy period. If the exporter desires enhancement of the customer loss limit and if the Corporation is satisfied with the reasons, the same may be agreed to with proportionate increase in the premium payable for the rest of the policy period from the month following the request for change subject to a minimum of three months. Similarly, the Corporation will have the discretion to reduce the loss limit on an insured customer with corresponding reduction in the premium amount payable for the rest of the policy period from the following month. The actual turnover in the prescribed format would be required at the time of renewal of the policy. The exporter is required to obtain the prior approval of the Corporation for extending the due date for any service rendered, if the revised due date is beyond 180 days from the date of rendering of such service. The claim is required to be filed in the prescribed form with in one year from the due date of payment. The exporter is required to submit the proposal form prescribed with the nonrefundable policy fee of Rs.1, 000/-.

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Export Credit Insurance (ECGC)

Export Turnover Policy


Turnover policy is a variation of the standard policy for the benefit of large exporters who contribute not less than Rs. 10 lacs per annum towards premium. Therefore all the exporters who will pay a premium of Rs. 10 lacs in a year are entitled to avail of it. Difference in turnover policy and standard policy The turnover policy envisages projection of the export turnover of the exporter for a year and the initial determination of the premium payable on that basis, subject to adjustment at the end of the year based on actual. The policy provides additional discount in premium with an added incentive for increasing the exports beyond the projected turnover and also offers simplified procedure for premium remittance and filing of shipment information. It also provides for higher discretionary credit limits on overseas buyers, based on the total premium paid by the exporter under the policy. The turnover policy is issued with a validity period of one year. In most of the other respects the provisions relating to standard policy will apply to turnover policy. Procedure for submission of shipping declarations The holders of turnover policy need not submit monthly declarations of shipment. Instead, they have only to submit a statement of shipments made during the quarter in a prescribed format within 30 days of the end of the quarter. Premium rates and discount rates The basic premium rates applicable for the standard policy will apply to the turnover policy also. However, an exporter holding a standard policy opts for turnover policy, he will be entitled to an additional discount of 10% over and above the 'no claim bonus' which he is enjoying under the standard policy, subject to a minimum total discount of 20%. If an exporter not holding the standard policy avails of the turnover policy, he will be entitled to a discount of 20%. In case of no claims in future, the exporter will be entitled to further 'no claim bonus' and consequently total discount. Thus the total discount could go up to 60%. Procedure for payment of premium

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Export Credit Insurance (ECGC) The premium calculated on the projected turnover is payable in four quarterly installments (grant of facility of payment of premium in monthly instilments will be considered on a case to case basis).

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Export Credit Insurance (ECGC)

Insurance Cover for Buyer's Credit and Line of Credit


Buyer's Credit is a credit extended by a bank in India to an overseas buyer enabling the buyer to pay for machinery and equipment that he may be importing from India for a specific project. A Line of Credit is a credit extended by a bank in India to an overseas bank, institution or government for the purpose of facilitating import of a variety of listed goods from India into the overseas country. A number of importers in the overseas country may be importing the goods under one Line of Credit. ECGC has evolved schemes to protect the lending banks from certain risks of nonpayment. These covers take the form of an agreement between the lending bank and ECGC and are issued on a case to case basis. Credit terms and the length of the credit period should be in conformity with what is appropriate for the export of the relevant items. There should be adequate security for the repayments to be made by the borrower. Cover can be granted either for political risks or for comprehensive risks. Political risks covered under the scheme are: The occurrence of war between the country of the overseas party and India. The occurrence of war, hostilities, civil war, revolution, rebellion, insurrection or other disturbances in the country of overseas party. If ECGC agrees to provide comprehensive risks cover, the risk of protracted default of the borrower to pay the amounts due under the loan agreement and insolvency of the borrower, where applicable, will be covered in addition to the political risks mentioned above. The premium rates applicable to comprehensive risk cover will naturally be higher than that for political risks cover. Normally ECGC covers up to 85% of the loss. The premium rates depend on the country to which exports are made and the period of repayment. Benefits This policy pays in the event of loss to the bank on account of: Commercial Risk

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Export Credit Insurance (ECGC) 1. The risk of protracted default of the borrower to pay the amounts due under the loan agreement 2. Insolvency of the borrower Political Risks

1. The occurrence of war between the country of the overseas party and India. 2. The occurrence of war, hostilities, civil war, revolution, rebellion, insurrection or other disturbances in the country of overseas party. 3. The operation of law or of an order, decree or regulation having the force of law which in circumstances outside the control of the lender and/or the overseas party, prevents, restricts or controls, the transfer of the sums due to the lender by the overseas party under the Financial Agreement. Premium 1. The premium rate depends on the country to which exports are made and the period of repayment. 2. At least 20% of the total amount of premium should be paid in advance. The balance amount of premium may be paid on a quarterly basis in proportion to the amount of credit disbursed. Requirements These covers take the form of agreement between ECGC and bank. Credit terms and the length of the credit period should be in conformity with what is appropriate for the export of the relevant items. There should be adequate security for the repayments to be made by the borrower. Recommendations This policy helps the banks in reducing the risk profile of their portfolio. Hence it is recommended.

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Export Credit Insurance (ECGC)

Special Schemes
Transfer Guarantee
When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honour the drafts drawn by the beneficiary of the Letter of Credit without any recourse 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. This may happen due to the insolvency or default of the opening bank or due to certain political risks such as war, transfer delays or moratorium, which may delay or prevent the transfer of funds to the bank in India. The Transfer Guarantee seeks to safeguard banks in India against losses arising out 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 risks is covered upto 90% and loss due to commercial risks upto 75%.

Applicable premium rates The premium rates depend on the country of export and the tenor of L/C.

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Export Credit Insurance (ECGC)

Overseas Investment Guarantee


ECGC has evolved a scheme to provide protection for Indian Investments abroad. 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 cover under investment insurance. The investment may be either in cash or in the form of export of Indian capital goods and services. The cover would be available for the original investment together with annual dividends or interest receivable. The risks of war, expropriation and restriction on remittances are covered under the scheme. As the investor would be having a hand in the management of the joint venture, no cover for commercial risks would be provided under the scheme. Features of the Overseas Investment Insurance 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 five years of the insurance period.

Exchange Fluctuation Risk Cover


The Exchange Fluctuation Risk Cover is intended to provide a measure of protection to exporters of capital goods, civil engineering contractors and consultants who have often to receive payments over a period of years for their exports, construction works or services. Where such payments are to be received in foreign currency, they are open to exchange fluctuation risk as the forward exchange market does not provide cover for such deferred payments. Terms of the Exchange Fluctuation Risk Cover

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Export Credit Insurance (ECGC) 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 agreed upon. The reference rate can be the rate prevailing on the date of bid or rate approximating it. The cover will be provided initially for a period of twelve 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 contract cover will be either the reference rate used 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 percent of the premium paid by the exporter/contractor is refunded to him. Features The Exchange Fluctuation Risk (Contract) Cover can be issued, if the payments under the contract are scheduled to be received beyond 12 months from the date of contract but in such cases, the cover will apply for any installment falling due within 12 months as well. 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. Currencies covered 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. Bear / receive loss or gain in exchange rate The loss or gain within a range of 2 percent of the reference rate will go to the exporter's account. If the loss exceeds 2 percent, ECGC will make good the portion of loss in excess of 2 percent but not exceeding 35 percent of the reference rate. In other words, loss/gain upto 2 percent and beyond 35 percent of the reference rate will be to the exporter's account. If there is gain in excess of 2 percent and upto 35 percent it will be turned over to ECGC. Applicable premium rates TYB.COM (B&I) SEM VI 51

Export Credit Insurance (ECGC) The rate of premium is 40 paise per Rs.100/- per year or 10 paise per Rs.100/- per quarter for the bid cover. The total premium is payable at the time of issue of the Policy. Premium for contract cover is also payable at the rate of 40 paise per Rs.100/per annum. Ten percent of the total premium payable and premium for the first two years should be paid at the time of issue of the Policy. Thereafter, the annual premium will have to be paid in such a manner that premium for two years ahead is always kept paid to the Corporation. Exchange Fluctuation Risk Cover will normally be provided along with suitable credit insurance cover. There is, however, provision to grant the cover independently also in which case premium will be loaded by 20%. These schemes are targeted at specific audiences such as banks, investors in foreign countries and ex

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Export Credit Insurance (ECGC)

Guarantees to Banks
Packing Credit Guarantee
Timely and adequate credit facilities at the pre-shipment stage are essential for exporters to realize their full export potential. Exporters may not, however, be easily able to obtain such facilities from their bankers for several reasons, e.g. the exporter may be relatively new to export business, the extent of facilities needed by him may be out of proportion to the equity of the firms or the value of collateral offered by the exporter may be inadequate. The Packing Credit Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers. The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss. The bank is required to be co-insurer to the extent of the remaining loss. Loans and advances for Packing Credit Guarantee Any loan given to an exporter for the manufacture, processing, purchasing or packing of goods meant for export against a firm order or Letter of Credit qualifies for Packing Credit Guarantee. Pre-shipment advances given by banks to parties who enter into contracts for export of services or for construction works abroad to meet preliminary expenses in connection with such contracts are also eligible for cover under the Guarantee. The requirement of lodgment of Letter of Credit or export order for granting packing credit advances is waived if the bank grants such advances in accordance with the instructions of the Reserve Bank of India in that respect. General conditions The Guarantee, issued for a period of 12 months based on a proposal from the bank, covers all the advances that may be made by the bank during the period to an individual exporter within an approved limit. The bank is required to submit monthly declarations of advances and repayments and to pay premium at the rate of 13 paise per Rs.100 per month on the highest amount outstanding on any day. Approval of ECGC has to be obtained if the period for repayment of any advance is to be extended beyond 360 days from the date of advance. The bank will be entitled to claim 66 2/3% of its loss from ECGC if the entire amount due from the exporter is not recovered

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Export Credit Insurance (ECGC) within a period of 4 months from the due date of repayment. The claims are payable if ECGC is satisfied that the bank had conducted the account with normal banking prudence and has also complied with the terms and conditions of the Guarantee. Benefits ECGC issues Whole-turnover Packing Credit Guarantee (WTPCG) to banks which undertake to obtain cover for packing credit advances granted to all its customers on all-India basis. In consideration of the large volume of business offered for cover and the spread of risks that will thus become available to it, the Corporation grants a higher percentage of cover, lower premium rate and considerable reduction in procedural formalities. Applicable of premium rates A differential premium rate is now applicable for the banks, which have opted for WTPCG. The rates vary between 7 paise to 10 paise per Rs.100 per month payable on the average outstanding for the month. The rate for each bank is fixed based on the actual claim premium ratio for the bank for the period of immediately preceding five years. The percentage of cover is normally 75% for most of the banks (except a few banks for which it is 65%, taking into account the extremely high claim premium ratio of those banks). There is a reduction of 10% in the cover if the total advance sanctioned to any particular exporter exceeds the total premium received from the bank (for all the accounts put together) in the immediately preceding year; even in respect of such exporters, the lower percentage of cover will apply only for the advances sanctioned over and above the value of such total premium.

Export Production Finance Guarantee


The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage to the full extent of cost of production when it exceeds the f.o.b. value of the contract/order, the differences representing incentive/duty drawback receivable. Premium covered The extent of cover and the premium rate are the same as for Packing Credit Guarantee. Banks which have opted for WTPCG are eligible for concessionary premium rate.

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Export Credit Insurance (ECGC)

Post-Shipment Export Credit Guarantee


Packing credit sanctioned, if any, to an exporter is treated as repaid once the exporter effects the shipment and submits the export documents to the bank. If the exporter intends to continue the credit facilities till the value of shipment is realised from the foreign buyer, he has to avail of post-shipment credit. The post shipment credit guarantee provides protection to banks against non-realisation of export proceeds and the resultant failure of the exporter to repay the advances availed. Post-shipment finance given to the exporters by banks through purchase, negotiation or discount of export bills or advances against bills sent on collection basis qualifies for this guarantee. It is necessary, however, that the exporter concerned should hold suitable policy of ECGC to cover the overseas credit risks. The premium rate for this guarantee is 7 paise per Rs.100 per month. The percentage of loss covered under the Individual Post-Shipment guarantee is 75. Individual Post-Shipment Credit Guarantee can also be obtained for finance granted against L/C bills, even where an exporter does not hold an ECGC Policy, provided that the exporter makes shipments solely against Letters of Credit. The premium rate for this cover is 10 paise per Rs.100 per month on the highest amount outstanding on any day during the month and the percentage of cover is 75. Advances against bills under Letters of Credit/confirmed orders from banks/buyers in countries placed under restricted cover shall, however, be subject to prior approval of the Corporation. Available benefits to banks This guarantee can also be issued on whole turnover basis, offering a higher percentage of cover at a reduced rate of premium. The percentage of cover under the Whole-turnover Post shipment Guarantees is 90 for advances granted to exporters holding ECGC policy. Advances to non-policyholders are also covered with the percentage of cover being 65. The premium rate is 5 paise per Rs.100/- per month if advances against L/C bills are also covered under the guarantee and 6 paise otherwise.

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Export Credit Insurance (ECGC)

Export Finance Guarantee


This guarantee covers post-shipment advances granted by banks to exporters against export incentives receivable in the form of cash assistance, duty drawback, etc. Features of Export Finance Guarantee The premium rate for this guarantee is 7 paise per Rs.100 per month and the cover is 75 percent. Banks having WTPSG are eligible for concessional premium rate and higher percentage of cover.

Export Performance Guarantee


Exporters are sometimes called upon to execute bonds duly guaranteed by an Indian bank at various stages of export business. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee in the form of a bid bond. If he wins the contract, he may have to furnish bank guarantees to foreign buyers to ensure due performance or against advance payment or in lieu of retention money or to a foreign bank in case he has to raise overseas finance for his contract. Further, for obtaining import licenses for raw materials or capital goods, exporters may have to execute an undertaking to export goods of a specified value within a stipulated time, duly supported by bank guarantees. Bank guarantees are also furnished by exporters to the Customs, Central Excise, or Sales Tax authorities for the purpose of clearing goods without payment of duty or for exemption from tax for goods procured for export. Exporters may also be required to furnish guarantees in support of export obligations to Export Promotion Councils, Commodity Boards, and The State Trading Corporation of India, the Minerals and Metals and Metals Trading Corporation of India etc. An export proposal may be frustrated if the exporter's bank is unwilling to issue a guarantee, which the exporter may be required to furnish. The Export Performance Guarantee provided by ECGC is aimed at helping the exporter in such cases. The Guarantee, which is in the nature of a counter guarantee to the bank, is issued to protect the bank against losses that it may suffer on account of guarantees given by it

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Export Credit Insurance (ECGC) on behalf of exporters. This protection is intended to encourage banks to give guarantees on a liberal basis for export purposes. Normally, cover is extended upto 75 percent of loss in the case of guarantees in connection with bid bonds, performance bonds, advance payment and local finance guarantees and guarantees in lieu of retention money. In the case of bid bonds relating to exports on medium/long term credit, overseas projects, and projects in India financed by international financial institutions as well as supplies to such projects, ECGC is agreeable to issue Export Performance Guarantee on payment of 25% of the prescribed premium. The balance of 75% becomes payable by the bankers if the exporter succeeds in the bid and gets the contract. Applicable of Premium rates While the premium rate for guarantee issued to cover bond relating to exports on short-term credit is 0.90% p.a. for 75% cover, it is lower for bonds relating to exports on deferred credit and projects, namely 0.80% p.a. for 75% cover and 0.95% p.a. for 90% cover.

Export Finance (Overseas Lending) Guarantee


If a bank financing an overseas project provides a foreign currency loan to the contractor, it can protect itself from the risk of nonpayment by the contractor by obtaining Export Finance (Overseas Lending) Guarantee. Applicable of Premium rates The premium rate is 0.90% per annum for 75% cover and 1.08% per annum for 90% cover. Premium is payable in Indian Rupees. Claims under the Guarantee will also be paid in Indian Rupees.

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Export Credit Insurance (ECGC)

ECGC in todays market


Many countries of the world have started adopting market oriented economy and the world is being integrated into a global village. The market oriented economy also means that there will be keen competition in all entrepreneurial activity and the fittest will only survive. The emphasis will be on quality, price offer competitive prices industries will necessarily have to give greater importance to research and development and mass production. There will be more collaboration and technology and capital are bound to flow to developing countries where the production costs are cheaper. With mass production the companies cannot contend with only domestic trade and are compelled to consider the world as a market to increase their sales. This being the scenario, there will be grater trade among countries resulting in new entrants in the export - import trade. Besides, quality and price, credit is going to play an important role in clinching an export deal. Credit while becoming an instrument in expanding export trade will increase payment risks in our export transaction. Payments for exports are always opened to risks at the best of times. The risks have assumed even larger proportions today, due to the political and economic changes that are sweeping the world over. It is in such a situation the need for export credit insurance is felt, even for credit transactions which are normally considered as safe. Export Credit Guarantee Corporation of India Ltd. has been providing the facility of export credit in the country since it was set up in the tear 1957. It is the oldest export credit insurance agency in the developing world. ECGC is a company wholly owned by the Government of India and functions under the administrative control of the Ministry of Commerce. The primary goal of ECGC is to support and strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export ECEG Has designed several schemes of Guarantees to Banks with a view to enhancing the creditworthiness of the exporters so that they would be able to secure liberal and adequate facilities from their bankers. of goods and service also by offering guarantee covers to banks and financial institutions of enable exporters to obtain better facilities from them.

ECGC basically provides two types of services. Export Credit insurance policies are issued to the exporters protecting them from credit related risks and enabling them to

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Export Credit Insurance (ECGC) expand their export trade. ECGC insures exporters against the risks of not being paid by the overseas customers. There risks include default or insolvency of the buyer, exchange difficulties which may block or delay remittance and new restrictions on imports imposed in the buyer's country. The corporation issues Specific policies for exports of high value goods where payment are normally made on deferred terms. Such exports are in the nature of export of capital goods, constructions works, turnkey jobs or rendering services abroad. Guarantees to Banks: Timely and adequate credit facilities, at the pre - shipment as well as post - shipment stage are essential for exporters to realize their full export potential. Exporters may not however, be able to obtain such facilities from their bankers for several reasons e.g., the exporter may be relatively new to export business the extent of facilities needed by him may be out of proportion to the equity of the firm or the value of the collaterals offered by the equity of the firm or the value of the collaterals offered by the exporter may; be inadequate. ECGC has designed several scheme of Guarantees to Banks with a view to enhancing the creditworthiness of the exporters so that they would be able to secure liberal and adequate facilities from their banks. The Guarantees seek to achieve this objective by assuring the banks that in the event of an exporter failing to discharge his liabilities to the banks and thereby making the bank incur a loss, ECGC would make good a major portion of the bank's loss. The bank is required to be co - insurer to the extent of the remaining loss. Any amount recovered from the exporter subsequent to payment of claims shall be shared between the corporation and the bank in the same ratio in which the loss was borne by them at the time of settlement of claim. Recovery expenses shall be first change on the amounts recovered.

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Export Credit Insurance (ECGC)

Exim Bank, ECGC, MIGA Partnership


New Partnership Provides Package of Financing and Insurance Solutions for Indian Companies Investing Overseas Export-Import Bank of India (Exim Bank), Export Credit Guarantee Corporation of India Ltd. (ECGC) and the World Bank's Multilateral Investment Guarantee Agency (MIGA) have formed a partnership that will provide a package of services that combines competitively-priced financing with risk mitigation to Indian companies investing overseas. The objective is to support the outward expansion Indian companies, as they increasingly seek opportunities to invest overseas. Outbound foreign direct investment by Indian companies is about $1 billion a year and growing. "By providing financing and risk mitigation tools, the partnership between MIGA, Exim Bank and ECGC would cater to the needs of the Indian enterprise and encourage them in venturing abroad with higher level of confidence", said Mr. T.C. Venkat Subramanian, Chairman & Managing Director of Exim Bank, during the launch of the partnership in Mumbai. Under the new arrangement, Exim Bank will provide the needed financing, while ECGC and MIGA will provide insurance against the risks that are out of investors' control such as currency inconvertibility and transfer restrictions; expropriation; war, terrorism and civil disturbance; and breach of contract. MIGA and ECGC will work together largely through reinsurance/co-insurance arrangements. Investors can opt for either financing or insurance or the combined package of services. Additionally, investors can interact locally with ECGC while still benefiting from the World Bank's involvement. MIGA's presence brings the World Bank umbrella of deterrence against host government actions that might affect project viability, says Luis Dodero, Vice President and General Counsel of MIGA. "MIGA's involvement can help protect

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Export Credit Insurance (ECGC) investments, and in the event that disagreements do occur between investors and host governments, MIGA can mediate disputes and prevent claims from arising and disrupting projects." MIGA also brings unparalleled knowledge of country conditions and opportunities in developing countries, as well as international best practice in terms of environmental and social standards. Investors will able to take advantage of all the benefits of partnership with the World Bank without having to interact directly with MIGA staff in Washington DC. Says Mr. P.K. Dash, Chairman-cum-Managing Director of ECGC, "The new arrangement will have a very strong impact on efficiency and turnaround time. Investors can, for example, work with a primary contact at ECGC who coordinates the process and eliminates duplication. Documentation for the non-commercial risk insurance aspect of the partnership has been standardized by MIGA and ECGC."

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Export Credit Insurance (ECGC)

Exporter's Credit Insurance


ECGC JOINS HANDS WITH SIB UNDER BANCASSURANCE MODEL: Export Credit Guarantee Corporation of India (ECGC) has appointed SIB as its Corporate Agent on 28.10.2003 to market their Exporters credit insurance policies. As SIB is already extending the Life and Non-Life insurance facilities, it is now equipped to cover the entire range of insurance products under one roof. ECGC, a Government of India enterprise established to promote Export / Import in our country, provides a range of credit risk insurance covers to exporters against loss in export of goods. SIB with more than 400 branches across 14 States will facilitate the distribution of credit policies of ECGC. The customers of other banks may also approach SBI.

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Export Credit Insurance (ECGC)

BIBLIOGRAPHY
By the help of Books

Marketing Management and Export Credit By the Help of Manuals

ECGC Norms & Internet.

By the help of Websites 1. www. ECGC.org. 2. www.insure2bsecure.com 3. www. Wikkipedia.com 5. www.google.com (Search Engine)

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