Export Credit Guarantee Corporation: Submitted To Aparna Jain Mam Class: SYBMS

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Export Credit Guarantee Corporation

Submitted to Aparna Jain mam Class: SYBMS DIV: B

NAMES

ROLLNO

HEENA SHAIKH SNEHAL THORAT RACHANA RANE PRIYA SHARMA NEETA WALODRA NEHA SHETYE SHRUTI SAWANT VIRALI SHAH DINESH PANDEY

100 119 81 102 127 106 93 99 132

Acknowledgement:
We the students of SYBMS (B), with Roll No: 119, 100, 81, 102, 127, 106, 99, 93,138 glad to present the hard copy of our project on Export Credit Guarantee Corporation. We are thankful to you providing us with such an interesting Topic and we had a great time in collecting all relevant matter of this project. Youre sincerely, SYBMS (B)

Introduction
Export Guarantee Corporation of India (ECGC) 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. To bring the Indian identity into sharper focus, the corporations name was once again changed to the present Export Credit Guarantee Corporation of India Limited in 1983. ECGC is a company wholly owned by the government of India. Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, RBI, Banking, and Insurance and exporting community The ECGC with its headquarters in Bombay and several regional offices is the only institution providing insurance cover to Indian exporters against the risk of non-realization of export payments due to occurrence of the commercial and political risks involved in exports on credit terms and by offering guarantees to commercial banks against losses that the bank may suffer in granting advances to exports, in connection with their export transactions.

Definitions

of ECGC:

The Export Credit Guarantee Corporation of India Limited (ECGC in short) is a company wholly owned by the Government of India. It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce.

OBJECTIVES OF ECGC

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

LOGO

Description This is a logo for Export Credit Guarantee Corporation of India.

Need for export credit insurance:


Payments for exports are open to risk even at the best of times. The risks have assumed large proportion today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of goods imported. In addition, the exporters have to face commercial risk of insolvency or protracted default of buyers. The commercial risk of a foreign buyer going bankrupt or losing his capacity to pay is aggravated due to political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

ECGC An Export Promotion Institution


Provides credit risk covers to Exporters against

nonpayment risks of the overseas buyers / buyers country in respect of the exports made.
Provides credit Insurance covers to banks against

lending risks of exporters


Assessment of buyers for the purpose of

underwriting
Preparation of country reports International experience to enhance Indian

capabilities
An ISO organization excelling in credit insurance

services

VISION

To excel in providing credit insurance and trade-related services.

MISSION

To support the Indian Export Industry by providing costeffective insurance and trade-related services to meet the growing needs of the Indian export market through the optimal utilization of available resources

Quality Policy

To provide quality services through cost effective export credit insurance and other trade related services while striving to ensure Stability, dynamism and growth to all its stakeholders Enhanced level of customer satisfaction and Continual improvement in business processes and procedures to attain global standards, through full employee participation. And continually reviewing and updating the Quality Management System to align it with the dynamic business environment.
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A Brief Profile of ECGC

No. of offices

5 Regional offices and 51 Branches (Head office and all Branches ISO certified)

Paid Up Capital Reserves

Rs 900 Cr Rs 913.42 Cr

IRDA registered Insurance company classified under General Insurance-Specialized Institution

Data for 2007-08


Premium Income Claims paid Recoveries No. of Policies in force No. of shipments covered No. of buyers covered No. of countries covered No. of banks holding covers No. of bank branches covered

Rs 668.36 Cr Rs 419.74 Cr Rs 161.50 Cr 12533 364848 46799 193 65 3709

No. of exporters financed by banks 20568

Statistics

Particulars Premium Claims Recoveries Value of shipments covered Policies in Force No. of banks covered under Guarantees No. of bank branches Paid up Capital

Initial Years (1957-60) Rs 43,109 (1957-58) Rs 4.51 lacs (1960) Rs 2.00 lacs (1960) Rs 1.30 crores(1957 58) 146 no. (1957-58) 3 no. (1960)

2007-08 Rs 668.36 crores Rs 419.74 crores Rs 161.50 crores Rs 52766.57 crores

12533 no. 65

3 no. Rs 50.00 lacs

3709 no. Rs 900 crores

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Risks Covered by ECGC

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RISKS COVERED
COMMERCIAL RISKS
Insolvency of buyer/LC opening bank Protracted Default of buyer Repudiation by buyer

POLITICAL RISKS
War/civil war/revolutions Import restrictions Exchange transfer delay/embargo Any other cause attributable to importing country

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Policies Issued by ECGC:


The covers issued by ECGC can be divided broadly into four groups: 1. STANDARD POLICIES issued to exporters to protect them against payment risks involved in exports on shortterm credit. 2. SPECIFIC POLICIES designed to protect Indian firms against payment risk involved in (I) exports on deferred terms of payment (ii) service rendered to foreign parties, and (iii) construction works and turnkey projects undertaken abroad. 3. FINANCIAL GUARANTEES issued to banks in India to protect them from risk of loss involved in their extending financial support to exporters at pre-shipment and post-shipment stages; and 4. SPECIAL SCHEMES such as Transfer Guarantee meant to protect banks which add confirmation to letters of credit opened by foreign banks, Insurance cover for Buyers credit, etc.

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(A) STANDARD POLICIES:


ECGC has designed 4 types of standard policies to provide cover for shipments made on short term credit: 1. Shipments (comprehensive risks) Policy to cover both political and commercial risks from the date of shipment 2. Shipments (political risks) Policy to cover only political risks from the date of shipment 3. Contracts (comprehensive risks) Policy to cover both commercial and political risk from the date of contract 4. Contracts (Political risks) Policy to cover only political risks from the date of contract

RISKS COVERED UNDER THE STANDARD POLICIES:


1. Commercial Risks

Insolvency of the buyer Buyers protracted default to pay for goods accepted by him Buyers failure to accept goods subject to certain conditions

2. Political risks

Imposition of restrictions on remittances by the government in the buyers country or any government action which may block or delay payment to exporter.

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War, revolution or civil disturbances in the buyers country. Cancellation of a valid import license or new import licensing restrictions in the buyers country after the date of shipment or contract, as applicable.

Cancellation of export license or imposition of new export licensing restrictions in India after the date of contract (under contract policy). Payment of additional handling, transport or insurance charges occasioned by interruption or diversion of voyage that cannot be recovered from the buyer. Any other cause of loss occurring outside India, not normally insured by commercial insurers and beyond the control of the exporter and / or buyer.

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RISKS NOT COVERED STANDARD POLICIES:

UNDER

The losses due to the following risks are not covered: 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 favour, unless the exporter obtains a decree from a competent court of law in the buyers country in his favour 2. Causes inherent in the nature of the goods. 3. Buyers failure to obtain import or exchange authorization from authorities in his county 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 commerci8al insurers 6. Exchange fluctuation 7. Discrepancy in documents.

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(B). SPECIFIC POLICIES


The standard policy is a whole turnover policy designed to provide a continuing insurance for the regular flow of exporters shipment of raw materials, consumable durable for which credit period does not normally exceed 180 days. Contracts for export of capital goods or turnkey projects or construction works or rendering services abroad are not of a repetitive nature. Such transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies. Specific policies are issued in respect of Supply Contracts (on deferred payment terms), Services Abroad and Construction Work Abroad.

1) Specific policy for Supply Contracts:


Specific policy for Supply contracts is issued in case of export of Capital goods sold on deferred credit. It can be of any of the four forms:

Specific Shipments (Comprehensive Risks) Policy to cover both commercial and political risks at the Postshipment stage. Specific Shipments (Political Risks) Policy to cover only political risks after shipment stage.

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Specific Contracts (Comprehensive Risks) Policy to cover political and commercial risks after contract date. Specific Contracts (Political Risks) Policy to cover only political risks after contract date.

2) Service policy:
Indian firms provide a wide range of services like technical or professional services, hiring or leasing to foreign parties (private or government). Where Indian firms render such services they would be exposed to payment risks similar to those involved in export of goods. Such risks are covered by ECGC under this policy. If the service contract is with overseas government, then Specific Services (political risks) Policy can be obtained and if the services contract is with overseas private parties then specific services (comprehensive risks) policy can be obtained, especially those contracts not supported by bank guarantees. Normally, cover is issued on case-to-case basis. The policy covers 90%of the loss suffered.

3) Construction Works Policy:


This policy covers civil construction jobs as well as turnkey projects involving supplies and services. This policy covers construction contracts both with private and foreign government.

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This policy covers 85% of loss suffered on account of contracts with government agencies and 75% of loss suffered on account of construction contracts with private parties.

(C). FINANCIAL GUARANTEES


Exporters require adequate financial support from banks to carry out their export contracts. ECGC backs the lending programmers of banks by issuing financial guarantees. The guarantees protect the banks from losses on account of their lending to exporters. Six guarantees have been evolved for this purpose:(I). Packing Credit Guarantee (ii). Export Production Finance Guarantee (iii). Export Finance Guarantee (iv). Post Shipment Export Credit Guarantee (v). Export Performance Guarantee (vi). Export Finance (Overseas Lending) Guarantee. These guarantees give protection to banks against losses due to non-payment by exporters on account of their insolvency or default. The ECGC charges a premium for its services that may vary from 5 paise to 7.5 paise per month for Rs. 100/-.
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The premium charged depends upon the type of guarantee and it is subject to change, if ECGC so desires.
(I)

for the manufacture, processing, purchasing or packing of goods meant for export against a firm order of L/C qualifies for this guarantee.

Packing Credit Guarantee: Any loan given to exporter

Pre-shipment advances given by banks to firms who enters contracts for export of services or for construction works abroad to meet preliminary expenses are also eligible for cover under this guarantee. ECGC pays two thirds of the loss.

(ii) Export Production Finance Guarantee: this is


guarantee enables banks to provide finance at pre-shipment stage to the full extent of the of the domestic cost of production and subject to certain guidelines. The guarantee under this scheme covers some specified products such a textiles, woolen carpets, ready-made garments, etc and the loss covered is two third.

(iii) Export Finance Guarantee: this guarantee


over post-shipment advances granted by banks to exporters against export incentives receivable such as DBK. In case, the exporter

Does not repay the loan, then the banks suffer loss? The loss insured is up to three fourths or 75%.

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(iv) Post-Shipment Export Credit Guarantee: post shipment finance given to exporters by

the banks purchase or discounting of export bills qualifies for this guarantee. Before extending such guarantee, the ECGC makes sure that the exporter has obtained Shipment or Contract Risk Policy. The loss covered under this guarantee is 75%.

(v) Export Performance Guarantee: exporters


are often called upon to execute bid bonds supported by a bank guarantee and it the contract is secured by the exporter than he has to furnish a bank guarantee to foreign parties to ensure due performance or against advance payment or in lieu of or retention money. An export proposition may be frustrated if the exporters bank is unwilling to issue the guarantee. This guarantee protects the bank against 75% of the losses that it may suffer on account of guarantee given by it on behalf of exporters.

(vi) Export Finance (Overseas Lending) Guarantee: if a bank financing overseas projects provides
a foreign currency loan to the contractor, it can protect itself from risk of non-payment by the con tractor by obtaining this guarantee. The loss covered under this policy is to extent of three fourths (75%).

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(D) SPECIAL SCHEMES


A part from providing policies (Standards and Specific) and guarantees, ECGC provides special schemes. These schemes are provided o the banks and to the exporters. The schemes are:
1. Transfer Guarantee: the transfer guarantee is

2. Insurance Cover

provided to safeguard banks in India against losses arising out of risk of confirmation of L/C. the risks can be either political or commercial or both. Loss due to political risks is covered up to 90 % and that due to commercial risks up to 75%.

Lines of Credit: Financial Institutions in India have

for Buyers Credit and

started direct lending to buyers or financial institutions in developing countries for importing machinery and equipment from India. This sort of financing facilitates immediate payment to exporters and frees them from the problem of credit management. ECGC has evolved this scheme to protect financial institutions in India which extent export credit to overseas buyers or institutions.
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3. Overseas Investment Insurance: with the increasing exports of capital goods and turnkey projects from India, the involvement of exporters in capital anticipation in overseas projects has assumed importance. ECGC has evolved this scheme to provide protection for such investment. Normally the insurance cover is for 15 years.

ECGC: Backbone of Indian project exports


M. Sarsidharan, Deputy General Manager, Export Credit Guarantee Corporation of India Ltd, discusses the various existing project export services extended by ECGC to project exporters and Indian firms investing abroad. Export of capital goods on deferred payment terms and execution of turnkey projects, construction works contracts as also rendering of services abroad are collectively referred to as project exports. As these transactions are not of repetitive nature and they involve medium/long term credit, ECGC's insurance cover for such transactions is provided on a case-by-case basis under specific policies. Normally these contracts are of very high value and involve longer credit periods. The country/political risks involved in such
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transactions are unpredictable in view of long credit period involved. Although in most cases the overseas buyers are government or semi-government organisations, there is a need for ECGC cover to safeguard the payment risks. In many cases these contracts are funded by international financial institutions and payments are secured under L/C or bank guarantee. There are cases where even government or central bank guarantees are available safeguarding payments. However, the elements of political risk such as war, civil disturbances, exchange transfer delay etc., are existent in all these cases despite having payment security. To protect such exporters, ECGC has the following types of covers.

Supply contracts and turnkey projects: For


covering supply contracts and turnkey projects, specific contract/shipments policy can be taken. This policy can be for covering only political risks or for covering comprehensive risks i.e. both commercial and political risks.

Construction contract: For covering construction


contract, a Construction Works policy can be obtained. This policy can be for either political risk alone or for comprehensive risk. The Comprehensive Risks Policy
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provides protection against commercial risks such as insolvency of buyer, protracted default, non-acceptance of goods shipped in addition to covering political risk of war, civil war, exchange transfer delay etc. The political risk policy, on the other hand, provides protection against the Political Risks Policy. Under the various export credit insurance policies, ECGC generally covers loss up to 90%.

Services Contract: For covering services contract, which


involves only technical and/or professional services, a Services Policy can be obtained. This also can be either for political or comprehensive risks. In addition to the policy covers, which are issued to exporters, ECGC also extends its guarantee support to banks in India against both funded and non-funded facilities extended to project exporters. The types of guarantees issued by Indian banks are:

1] Funded:
* Packing Credit * Post Shipment * Overdraft * Rupee Loan

Non-Funded
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* Bid Bond * Advance payment * Performance guarantee * Retention Money guarantee * Overseas Lending Finance guarantee ECGC's counter-guarantee can be obtained by banks in India to protect them against any loss that they may sustain owing to invocation of the above guarantees. * Risk covered: Insolvency of the exporter/protracted default of the exporter * Percentage of loss: 75 per cent to 90 per cent covered * Rate of premium: 0.80 paise per Rs 100 p.a. & 0.95 paise per Rs 100 p.a. As per RBI's recent directive, no pre-bid approval from authorised dealer, Exim Bank or Working Group is required to be taken by project exporters. Only post-award approval is required to be taken. However, it would be in the interest of project exporters to obtain 'in-principle' clearance from their bankers and ECGC assuring them of support in the event of their securing the contracts.

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ECGC's approval of project exports and services contracts is based on the following aspects:
(i) The capacity of the project exporter to carry out large value contracts - technical, professional and managerial, and their past experience in the line of business. (ii) Country to which the exports are to be made - stability of political set-up/government, soundness of economy, payment records, relations with IMF, World Bank and other international FIs and donor countries. (iii) Overseas contract/project - value, type of project, whether cleared by local authorities, profitability. (iv) Buyer/employer - private/government. (v) Payment terms and security, rate of interest for deferred receivables. (vi) ECGC's underwriting policy on the country and its experience, whether any transfer delay experienced. (vii) Berne union experience - whether the credit period offered is in line with Berne union understanding. (viii) Reinsurance back-up available or not.
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(ix) Whether need for covering the contract under National Export Insurance Account set-up by Government of India

New initiatives
ECGC has since revised its premium structure providing substantial reduction in the rates both for short term as well as for medium and long-term contracts. This will go a long way in providing cost-effective credit insurance support to project exporters, which in turn will enable them to compete effectively for international tenders. Installment facility in payment of premium that too without charging interest is another welcome step being initiated. In order to increase project exports and to encourage project exporters, the Government of India has initiated various steps. Institutions like ECGC and Exim Bank are being strengthened to provide adequate support to project exporters. A national export insurance account is being mooted to facilitate credit insurance support on government account. The government is also considering increasing the
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capital base of ECGC so as to enhance its underwriting capacity.

SWOT Analysis of ECGC


Strengths:

Expertise Staff A near Monopoly position Location Vast information database Wide Coverage

Weaknesses:

Infrastructure Requirements Low customer service orientation Lack of Training Lack of Advertisement

Opportunities:
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Building of Brand image through advertisement Active participation in export activities Performance recognition

Threats:

Substitute products New entrants

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