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Export Credit Guarantee

Corporation

Submitted to Aparna Jain mam

Class: SYBMS

DIV: B

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NAMES ROLLNO

HEENA SHAIKH 100

SNEHAL THORAT 119

RACHANA RANE 81

PRIYA SHARMA 102

NEETA WALODRA 127

NEHA SHETYE 106

SHRUTI SAWANT 93

VIRALI SHAH 99

DINESH PANDEY 132

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Acknowledgement:

We the students of SYBMS (B), withRollNo: 119, 100, 81, 102, 127, 106, 99, 93,138glad to present the hard copy of our

project on Export Credit GuaranteeCorporation. We are thankful to youproviding us with such an interesting

Topic and we had a great time in

collecting all relevant matter of this

project.

Youresincerely,

SYBMS (B)

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Introduction

Export Guarantee Corporation of India (ECGC) Thegovernment of India set up the Export Risks InsuranceCorporation (ERIC) in July 1957 in order to provide exportcredit insurance support to Indian exporters. To bring theIndian identity into sharper focus, the corporations name

was once again changed to the present Export CreditGuarantee Corporation of India Limited in 1983. ECGC is acompany wholly owned by the government of India. Beingessentially an export promotion organization, it functionsunder the administrative control of the Ministry ofCommerce, Government of India. It is managed by a Board ofDirectors comprising representatives of the Government,RBI, Banking, and Insurance and exporting community

The ECGC with its headquarters in Bombay and severalregional offices is the only institution providing insurance

cover to Indian exporters against the risk of non-realizationof export payments due to occurrence of the commercial and

political risks involved in exports on credit terms and byoffering guarantees to commercial banks against losses thatthe bank may suffer in granting advances to exports, inconnection with their export transactions.

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Definitions ofECGC :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 insurancesupport to Indian exporters and is controlled by the Ministryof 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 formof equity or loan

LOGO

Description

This is a logo for Export Credit Guarantee Corporation ofIndia.

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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 fromthe consequences of the payment risks, both political and

commercial, and to enable them to expand their overseas

business without fear of loss.

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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 againstlending risks of exporters

Assessment of buyers for the purpose ofunderwriting

Preparation of country reports International experience to enhance Indian

capabilities

An ISO organization excelling in credit insuranceservices

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VISION To excel in providing credit insurance and trade-related

services.

MISSION To support the Indian Export Industry by providing cost-

effective insurance and trade-related services to meet the

growing needs of the Indian export market through the

optimal utilization of available resources

Quality PolicyTo 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 fullemployee 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 Rs 900 Cr Reserves Rs 913.42 Cr IRDA registered Insurance company classified under General Insurance-Specialized

Institution

Data for 2007-08 Premium Income Rs 668.36 Cr Claims paid Rs 419.74 Cr Recoveries Rs 161.50 Cr No. of Policies in force 12533 No. of shipments covered 364848 No. of buyers covered 46799 No. of countries covered 193 No. of banks holding covers 65 No. of bank branches covered 3709 No. of exporters financed by banks 20568

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Statistics

Particulars Initial Years (1957-60) 2007-08

Premium Rs 43,109 (1957-58) Rs 668.36 crores

Claims Rs 4.51 lacs (1960) Rs 419.74 crores

Recoveries Rs 2.00 lacs (1960) Rs 161.50 crores

Value ofshipmentscovered

Rs 1.30 crores(1957 -58) Rs 52766.57 crores

Policies inForce 146 no. (1957-58) 12533 no.

No. of bankscovered underGuarantees3 no. (1960) 65

No. of bankbranches 3 no. 3709 no.Paid up Capital Rs 50.00 lacs 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/embargoAny other cause attributable to importing country

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Policies Issuedby ECGC:The covers issued by ECGC can be divided broadly into fourgroups:

1.STANDARD POLICIES issued to exporters to protectthem against payment risks involved in exports on short-term credit.

2.SPECIFIC POLICIESdesigned to protect Indian firmsagainst payment risk involved in (I) exports on deferredterms of payment (ii) service rendered to foreign parties,and (iii) construction works and turnkey projectsundertaken abroad.

3.FINANCIAL GUARANTEES issued to banks in Indiato protect them from risk of loss involved in theirextending financial support to exporters at pre-shipment

and post-shipment stages; and4.SPECIAL SCHEMES such as Transfer Guarantee meant

to protect banks which add confirmation to letters ofcredit opened by foreign banks, Insurance cover forBuyers credit, etc.

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(A) STANDARD POLICIES:ECGC has designed 4 types of standard policies to providecover for shipments made on short term credit:

1.Shipments (comprehensive risks) Policy to cover bothpolitical and commercial risks from the date of shipment

2.Shipments (political risks) Policyto cover only politicalrisks from the date of shipment

3.

Contracts (comprehensive risks) Policy to cover bothcommercial and political risk from the date of contract4.Contracts (Political risks) Policyto cover only political

risks from the date of contract

RISKS COVERED UNDER THE STANDARD POLICIES:

1. Comm ercial 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 governmentaction which may block or delay payment to exporter.

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War, revolution or civil disturbances in the buyerscountry. Cancellation of a valid import license or new

import licensing restrictions in the buyers countryafterthe date of shipment or contract, as applicable.

Cancellation of export license or imposition of new exportlicensing restrictions in India after the date of contract(under contract policy).

Payment of additional handling, transport or insurancecharges occasioned by interruption or diversion of voyagethat cannot be recovered from the buyer.

Any other cause of loss occurring outside India, notnormally insured by commercial insurers and beyond thecontrol of the exporter and / or buyer.

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RISKS NOT COVERED UNDERSTANDARD POLICIES:The losses due to the following risks are not covered:

1.Commercial disputes including quality disputes raisedby the buyer, unless the exporter obtains a decree from a

competent court of law in the buyers country in hisfavour, unless the exporter obtains a decree from acompetent court of law in the buyers country in his

favour2.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 ofthe collecting bank.5.loss or damage to goods which can be covered by

commerci8al insurers6.Exchange fluctuation7.Discrepancy in documents.

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(B). SPECIFIC POLICIESThe standard policy is a whole turnover policy designed to

provide a continuing insurance for the regular flow ofexporters 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 arepetitive nature. Such transactions are, therefore, insuredby ECGC on a case-to-case basis under specific policies.

Specific policies are issued in respect of Supply Contracts (ondeferred payment terms), Services Abroad and ConstructionWork Abroad.

1) Specific policy for Supply Contracts:Specific policy for Supply contracts is issued in case of exportof Capital goods sold on deferred credit. It can be of any ofthe four forms:

Specific Shipments (Comprehensive Risks) Policy tocover both commercial and political risks at the Post-shipment stage.

Specific Shipments (Political Risks) Policy to cover onlypolitical risks after shipment stage.

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Specific Contracts (Comprehensive Risks) Policy to coverpoliticaland commercial risks after contract date.

Specific Contracts (Political Risks) Policy to cover onlypolitical 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 suchservices they would be exposed to payment risks similar to

those involved in export of goods. Such risks are covered byECGC under this policy.

If the service contract is with overseas government, thenSpecific Services (political risks) Policy can be obtained and ifthe services contract is with overseas private parties thenspecific 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 policycovers 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 coversconstruction contracts both with private and foreigngovernment.

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This policy covers 85% of loss suffered on account of contractswith government agencies and 75% of loss suffered onaccount 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 lendingprogrammers of banks by issuing financial guarantees. Theguarantees protect the banks from losses on account of theirlending to exporters. Six guarantees have been evolved forthis 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 dueto non-payment by exporters on account of their insolvency ordefault. The ECGC charges a premium for its services thatmay 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 guaranteeand it is subject to change, if ECGC so desires.

(I) Packing Credit Guarantee:Any loan given to exporter

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

Pre-shipment advances given by banks to firms who enterscontracts for export of services or for construction worksabroad to meet preliminary expenses are also eligible forcover under this guarantee. ECGC pays two thirds of the

loss.

(ii) Export Production Finance Guarantee:this isguarantee enables banks to provide finance at pre-shipmentstage to the full extent of the of the domestic cost of

production and subject to certain guidelines.

The guarantee under this scheme covers some specifiedproducts such a textiles, woolen carpets, ready-madegarments, etc and the loss covered is two third.

(iii) Export Finance Guarantee : this guaranteeover post-shipment advances granted by banks to exportersagainst export incentives receivable such as DBK. In case,

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

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(iv) Post-Shipment Export CreditGuarantee:post shipment finance given to exporters bythe banks purchase or discounting of export bills qualifies forthis guarantee. Before extending such guarantee, the ECGCmakes sure that the exporter has obtained Shipment orContract Risk Policy. The loss covered under this guaranteeis 75%.

(v) Export Performance Guarantee : exportersare often called upon to execute bid bonds supported by abank guarantee and it the contract is secured by the exporterthan he has to furnish a bank guarantee to foreign parties toensure due performance or against advance payment or inlieu of or retention money. An export proposition may befrustrated if the exporters bank is unwilling to issue theguarantee.

This guarantee protects the bank against 75% of the losses

that it may suffer on account of guarantee given by it onbehalf of exporters.

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

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(D) SPECIAL SCHEMESA part from providing policies (Standards and Specific) and

guarantees, ECGC provides special schemes. These schemesare provided o the banks and to the exporters. The schemesare:

1.Transfer Guarantee: the transfer guarantee isprovided to safeguard banks in India against lossesarising out of risk of confirmation of L/C. the risks can be

either political or commercial or both. Loss due topolitical risks is covered up to 90 % and that due tocommercial risks up to 75%.

2.Insurance Cover for Buyers Credit andLines of Credit:Financial Institutions in India havestarted direct lending to buyers or financial institutionsin developing countries for importing machinery and

equipment from India. This sort of financing facilitatesimmediate payment to exporters and frees them from the

problem of credit management. ECGC has evolved thisscheme to protect financial institutions in India whichextent export credit to overseas buyers or institutions.

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3.Overseas Investment Insurance: with theincreasing exports of capital goods and turnkey projectsfrom India, the involvement of exporters in capitalanticipation in overseas projects has assumed

importance. ECGC has evolved this scheme to provideprotection for such investment. Normally the insurancecover is for 15 years.

ECGC: Backbone of Indian project exports

M. Sarsidharan, Deputy General Manager, Export CreditGuarantee 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 ona 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:Forcovering 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 constructioncontract, 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, whichinvolves only technical and/or professional services, aServices 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/protracteddefault 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 fromauthorised 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 andservices contracts is based on the followingaspects:

(i) The capacity of the project exporter to carry out largevalue contracts - technical, professional and managerial, andtheir 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 otherinternational FIs and donor countries.(iii) Overseas contract/project - value, type of project, whethercleared by local authorities, profitability.(iv) Buyer/employer - private/government.(v) Payment terms and security, rate of interest for deferredreceivables.

(vi) ECGC's underwriting policy on the country and itsexperience, whether any transfer delay experienced.(vii) Berne union experience - whether the credit periodoffered 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 NationalExport 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 inpayment 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 projectexporters. 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