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what are the types of Pre-shipment finance in exports?

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types of pre-shipment finance in exports

In view of the importance of export credit in maintaining the pace of export growth in India, RBI has initiated several measures to ensure timely flow of credit to the export sector. These measures, include rationalization of export credit interest rates, special financial package for exporters, different types of Pre-shipment Finance credits and flexibility of repayment of pre-shipment credit Etc;

The advances given by commercial banks for export financing are in the form of:

Pre-shipment finance – advance extended by banks before shipment of goods.

Post-shipment finance – advance extended by banks after shipment of goods.

What is Pre-shipment finance for exports?

Pre-Shipment Finance is an advance extended by banks to an exporter for the purpose of buying, manufacturing, processing, packing, and shipping goods to overseas buyer. It is also known as packing credit facility,

Any exporter, having a firm export order placed with him by his foreign buyer or an irrevocable letter of credit opened in his favor, can approach a bank for availing of packing credit.

An advance taken by an exporter is required to be liquidated within 180 days from the date of its commencement by negotiation of export bills or receipt of export proceeds in an approved manner. Thus, packing credit is essentially a short-term advance.

Normally, banks insist upon their customers to lodge with them irrevocable letters of credit opened in favor of the customers by the overseas buyers. The letter of credit and firm sale contracts not only serve as evidence of a definite arrangement for realization of the export proceeds but also indicate the amount of finance required by the exporter

The types of pre-shipment finance/packing credit include:

Types of Packing Credit
1Clean packing credit
2Packing credit against hypothecation of goods
3Packing credit against pledge of goods:
4E.C.G.C. guarantee
5Forward Exchange Contract
Pre-shipment finance for exports

1. Clean packing credit:

This is an advance made available to an exporter only on production of a firm export order or a letter of credit without exercising any charge or control over raw material or finished goods.

It is a clean type of export advance. Each proposal is weighed according to particular requirements of the trade and credit worthiness of the exporter.

A suitable margin has to be maintained. Also, Export Credit Guarantee Corporation (ECGC) cover should be obtained by the bank.

It covers production costs, including purchase of raw materials, labor, transportation, as well as packing costs of the goods for export.

httpublic-sector-undertakingsps://commerce.gov.in/about-us//export-credit-guarantee-corporation-of-india-limited

2. Packing credit against pledge of goods:

types of Pre-shipment finance- Packing credit against pledge of goods

A packing credit loan (pledge) is a type of pre-shipment finance provided to businesses to cover the costs of production and packing of goods being exported.

Export finance is made available on certain terms and conditions where the exportable finished goods are pledged to the banks with approved clearing agents who will ship the same from time to time as required by the exporter.

The possession of the goods so pledged lies with the bank and is kept under its lock and key.

A pledge is a legal agreement in which a borrower gives the lender the right to seize and sell certain assets if the borrower fails to repay the loan.

In the case of a packing credit loan (pledge), the goods being produced or exported are used as collateral for the loan.

3. Packing Credit Loan (Hypothecation):

types of Pre-shipment finance- Packing Credit Loan (Hypothecation)

• Export finance is made available on certain terms and conditions where the exporter has pledge able interest and the goods are hypothecated to the bank as security with stipulated margin.

• At the time of utilizing the advance, the exporter is required to submit, along with the firm export order or letter of credit relative stock statements and thereafter continue submitting them every fortnight and/or whenever there is any movement in stocks.

• Hypothecation occurs when an asset is pledged as collateral to secure a loan.

• The owner of the asset does not give up title, possession, or ownership rights, such as income generated by the asset.

• However, the lender can seize the asset if the terms of the agreement are not met. Hypothecation is different from a mortgage, lien, or assignment.

The loan is typically extended by a bank or financial institution and secured by a hypothecation agreement, which is a legal document that allows the lender to seize the goods being financed if the borrower defaults on the loan.

4. E.C.G.C. guarantee:

types of Pre-shipment finance -ECGC

Any loan given to an exporter for the manufacture, processing, purchasing, or packing of goods meant for export against a firm order qualifies for the packing credit guarantee issued by Export Credit Guarantee Corporation of India.


The ECGC Guarantees assure the banks, in the event of an exporter failing to discharge his liabilities to the bank, the ECGC corporation would cover a major portion of the bank’s loss.

5. Forward exchange contract:

Another requirement of packing credit facility is that if the export bill is to be drawn in a foreign currency, the exporter should enter into a forward exchange contract with the bank, thereby avoiding risk involved in a possible change in the rate of exchange.

Pre-Shipment Credit in Foreign Currency (PCFC):

In India, pre-shipment credit in foreign currency (PCFC) is a type of short-term loan that banks and financial institutions extend to cover the cost of purchasing raw materials, transportation and are often used by businesses to finance the export of goods or services to foreign countries.

The loan is typically secured by the goods or services being exported and denominated in the importing country’s currency.

What are the Documents Required for Pre-Shipment Finance?

In India, the documents required for pre-shipment finance will vary depending on the export transaction and the type of financing being used. However, some common documents that may be required include:

Export sales contractThis is the main document outlining the terms and conditions of the export transaction, including the goods being sold, the price, and the payment terms.
Proforma invoiceThis is a preliminary invoice that provides an estimate of the total cost of the goods being exported. A proforma invoice may be used to obtain financing or as a basis for the final invoice.
commercial invoicewhich is a detailed list of the goods being exported and their associated costs.
Letter of creditThis is a financial instrument issued by a bank on behalf of the buyer, which guarantees payment to the exporter once the goods have been shipped and the required documents have been presented.
Shipping documentsThese documents include the bill of lading, which is a receipt for the goods being shipped,
Insurance documentsThese documents, such as a marine insurance policy, protect against the risk of damage or loss to the goods during shipping.
Certificates of originThe certificates of origin documents are essential to show that the exported goods originate from a specific country and may be required for certain types of goods or markets.
Documents required in Pre-shipment finance

What are the Benefits of Pre-shipment finance?

Improved cash flow:

Pre-shipment finance can help businesses to improve their cash flow by providing the funds needed to purchase and transport goods or services for export.

Enhanced competitiveness:

Pre-shipment finance can enable businesses to better compete in international markets by providing the funds needed to take advantage of export opportunities.

Increased flexibility:

It can provide businesses with greater flexibility in their operations by allowing them to finance the purchase and transportation of goods or services for export as needed.

Reduced risk:

Pre-shipment finance allows businesses to reduce the risk of financial losses by providing the funds needed to purchase and transport goods or services for export.

Improved supplier relationships:

It can help businesses to strengthen their relationships with suppliers by providing the funds needed to purchase goods or services for export on time.

summary:

Pre-shipment finance allow businesses to manage their financial resources better and reduce the risk of financial difficulties. It helps businesses to manage their risks better, improve their competitiveness and profitability. and increase their chances of success in international markets.

why is phytosanitary certificate important for exports?

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Phytosanitary certificate for plant exports
Phytosanitary certificate and measures

The Phytosanitary Certificate is a key document for exports trade compliance of plants and plant products. The sanitary and phytosanitary measures taken in fomenting of planned products are crucial for the exports to get accepted by the importing country.

Two of the most popular Indian spice brands, MDH and Everest are facing global scrutiny after Hong Kong, Singapore and Nepal suspended sales of their spice blends last month.

After regular screening, a cancer-causing pesticide — ethylene oxide was found in some of the company’s products. countries including the UK, Australia, the Maldives, and the US are ramping up their testing of Indian spice products.

This highlights the need for Sanitary and Phytosanitary measures are vital to prevent the spread of pests and diseases within countries and across borders.

Why is a Phytosanitary Certificate Important?

The Phytosanitary Certificate is a vital for exports of plants and plant products.

When plants or plant products are exported without proper inspection, they can carry pests or diseases that could harm the agriculture of the importing country. This could lead to economic losses, environmental damage, and strict trade restrictions.

Therefore, having the phytosanitary certificate reduces the risk of shipment being rejected or placed under quarantine, which can be costly and time-consuming.

What is a Phytosanitary Certificate?

A Phytosanitary Certificate is a document that confirms that plants or plant products being exported have been inspected and are free from pests and disease-carrying organisms;

This certificate is issued by the National Plant Protection Organization (NPPO) of the exporting country, and is sent to the importing country.

The certificate ensures that the plants or plant products meet the health standards required by the importing country to protect Member’s territory from damage arising from the entry, establishment or spread of pests.

Products Covered Under a Phytosanitary Certificate

The exporter needs to obtain the Phytosanitary Certificate for exporting the following types of products:

  • A phytosanitary Certificate is an important document to export regulated articles such as plants, seeds, bulks, and tubers
  • For exporting seeds for propagation, fruits and vegetables, cut flowers and branches, grain, and growing medium.
  • The phytosanitary certificate is also needed for certain plant products that have been processed and have a potential for introducing regulated pests (For example, cotton or wood).
  • PSC is needed to export contaminated articles such as empty shipping containers, vehicles, or other organisms.

Types of Phytosanitary Certificates

There are two main types of Phytosanitary Certificates:

Phytosanitary Certificate for Export purposes: 

This is the standard certificate issued when plants/ plant products are being exported from one country to another.

It confirms that the products have been inspected and found to be free from pests and diseases.

The NPPO of the country of origin issues a Phytosanitary certificate for export.

A Phytosanitary certificate for export declares that the consignment meets the country’s Phytosanitary requirements.

Phytosanitary certificate for re-export purposes

This certificate is issued when plants or plant products that were imported into a country are being re-exported to another country.

It ensures that the products are still free from pests and diseases and have not undergone any treatments not recognized by the importing country.

A Phytosanitary Certificate for re-export will be issued by the NPPO of the re-exporting countries where the commodity was not grown or processed to change its nature in that country and only where an original phytosanitary certificate for export is available.

Prescribed Authority:

The prescribed authority for issuing the Phytosanitary Certificate for Export is the Plant Quarantine Information System, Department of Agriculture, Co-operation and Farmer Welfare, Government of India.

Validity Details:

To ensure the Phytosanitary integrity and physical integrity of consignment, the validity of PSC before export is limited to a maximum period of 7 days for perishable consignments and 30 days for non-perishable consignments. It should be ensured that the goods will be shipped immediately after certification.

Time Limit to Apply:

The applicant needs to apply at least 2-3 days before the actual date of the shipment of the consignment. In the case of the export of seed consignments, such applications need to be filed 8-10 days before the actual date of shipment.

Note: Export of perishable commodities such as cut flowers, fresh fruits, and vegetables, the above conditions may not apply.

what documents required phytosanitary certificate in India for Export ?

Obtaining a phytosanitary certificate in India involves a few essential documents. To simplify the process, ensure the following papers ready:

  • Importing Country’s Permit: This permit from the destination country gives you the green light to export your goods or commodities.
  • Wildlife Clearance Certificate: If your items fall under the Convention on International Trade in Endangered Species of Wild Flora and Fauna, you’ll need this certificate.
  • Letter of Credit: A document showing your commitment to payment is crucial for smooth international transactions.
  • Shipping Bill or Bill of Lading : Depending on the mode of shipping, provide the relevant bill, be it air, sea, or land transport.
  • Packing List: A detailed list of your shipment’s contents is handy for proper identification.
  • Export License: An authorization proving you’re allowed to export your products.
  • Fumigation Certificate: This confirms your goods have undergone fumigation to prevent pests.
  • Purchase Order: Your customer’s order details, ensuring everything is aligned.
  • Fees and Charges: Be prepared to cover export inspection fees and fumigation costs.
  • Invoice Copy: A copy of your invoice is a key part of any trade.

Benefits of Phytosanitary Certificates:

  • Global Access for trade:
    With these certificates, your fruits and veggies can travel to countries that demand healthy plant produce.
  • customs clearance:
    Customs clearance becomes easy. Certificates speed up the process, minimizing delays at the border.
  • Importer Confidence:
    Importers trust certified products. Certificates show the goods are top-notch and ready to enter the market.
  • Eco-Friendly export produce:
    Adhering to health standards, makes the export produce eco-friendly for a greener planet.
  • Rejection Defense:
    Certificates lower the risk of rejection. Export produce is less likely to be turned away due to health concerns.
  • Regulation Friendly:
    Certificates simplify navigating international rules. Phytosanitary certificates are like a safety net for the product. From smooth entry into new markets to ensuring safe and healthy deliveries, they partner in successful fruit and veggie exports.

Summary:

Phytosanitary certificates are essential for ensuring safe international trade of plants and plant products. By complying with regulations, and working closely with Import country authorities, exporters can contribute to maintaining the health of ecosystems while enjoying the advantages of successful exports.

Export specific buyer & Consignment export policy under ECGC

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credit risk insurance policy for exporters

Export (Specific Buyer) policy of ECGC:

The ECGC credit insurance policies protects an exporter of goods and services against the risk of non-payment by an overseas buyer. If an overseas buyer fails to make payment for the goods or services received, the ECGC insurance company will reimburse the seller or exporter. The specific buyer policy and consignment export policy are designed to cover credit risk associated with such transactions.

when is (Specific Buyer) policy needed for an exporter?

An exporter may require an insurance policy for a specific buyer or an LC opening bank which may tend to default payment.

This policy is suitable for importers located in countries within volatile, ambiguous business environment. The specific buyer policy, provides cover for shipments made to a Specific Buyer or an LC opening bank for a set of Buyers.

The exporter has to take the export specific buyers policy if he/she does not hold the standard policy or whole turnover policy. ECGC covers the credit risk through this policy in such cases.

what is the period of specific buyer policy and percentage of risk covered?

The period of this policy is 12 months and risk covered the same as that of the standard policy. Percentage of risk tower is 80%.

what are the important obligations for an exporter to obtain export specific buyer policy ?

Important obligations for exporter under specific buyer policy
Processing fee of Rs 2000 nonrefundable is payable.
The premium is payable in four equal instalments in advance before commencement of risk
Submission of monthly declaration of shipments by 15th of the subsequent month.
Submission of payment advice slip.
Notifying or declaring payments for bills that have remained unpaid beyond 30 days from its due date of payment by the 15th of the subsequent month.
Filing of claim within 360 days from the due date of export bill, or 540 days from the expiry date of the policy cover, whichever is earlier.
Initiating recovery steps, including legal action.
Sharing of recovery.

key highlights of Export Specific Buyer policy are:

  • only a selective buyer can be insured.
  • If an importer has a tendency to default and are located in countries within volatile, ambiguous business environment, one can have a standard policy and simultaneously an export specific buyer policy.
  • An exporter does not have to declare all the other export shipment under export specific buyer policy.
  • The policy offers a facility of no claim bonus of 5% subject to no claim up to a maximum of 50% as in the case of other credit insurance products of ECGC.
  • Exporter needs to take a separate policy for each buyer.

Consignment export policy (stockholding agent) of ECGC:

Consignment sales has recently emerged as a new focal area of business opportunity in foreign markets.

The consignment sale is a trade where a seller or a consignor, hands over his cargo to a buyer or consignee on the expectation of possible and emergent sale in the consignee’s market.

This consignment sale is based on payment mode of Documents against acceptance (DA) or time draft.

The consignment sale is executed without receiving the payment of the exported goods and trust between the consignor and consignee is the basis of this EXIM transaction.

The consignor is exposed to unlimited risk as the consignee or the stock holding agent may sell the cargo and does not remit export proceeds or cargo may not get sold at all.

The consignment sale as a marketing technique is increasingly adopted by Indian exporters to have an agency agreement with independent and separate entities in foreign countries.

Such business entities can be an agent, a franchise, a licensee, a consignee and an importer who receive and hold cargo stocks ready for sale to overseas buyer, as and when order are received, find buyers and sell them for a commission on such sales.

In order to address a credit risk associated with such unique, unpredictable transaction, ECGC has designed a separate credit insurance policy known as consignment export policy, which is introduced to cover the shipments made by exporters on consignment basis to their agent.

The risks covered under the policy are commercial or political risk on stockholding agent and ultimate buyers.

Key Highlights Of the consignment export policy are

  • the risk cover is available only for those EXIM transactions which are affected under the consignment sale.
  • The period of the policy is 12 months.
  • ECGC allows an extended PERIOD for the realization of up to 360 days.
  • The policy also has a standard clause of offering NCB of 5% subject to no claim until a maximum of 50%.
  • ECGC offers very high percentage of the cover of 90% for EXIM transaction under consignment export policy.

There is an automatic cover on ultimate buyers to discretionary limits, subject to buyers in a country placed in open cover category and not in the list of buyers on whom the ECGC corporation has adverse information referred to as Buyers specific approval list.

Important obligations for exporter under consignment export policy
Processing fee of Rs 4000 nonrefundable is payable.
The premium is payable in four equal instalments in advance before commencement of risk and sufficient deposit should be maintained in advance.
Submission of monthly declaration of shipments by 15th of the subsequent month.
Submission of payment advice slip.
Notifying or declaring payments for bills that have remained unpaid beyond 30 days from its due date of payment by the 15th of the subsequent month.
Filing of claim within 360 days from the due date of export bill, or 540 days from the expiry date of the policy cover, whichever is earlier.
Initiating recovery steps, including legal action.
Sharing of recovery.

This policy is unique in the sense that it offers coverage, even for commercial risk, on sales agents.

what is specific shipment policy of exporter’s under ECGC

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specific shipment policy under Ecgc

Exporters who don’t have regular orders and engage in export business on an occasional basis, have infrequent export orders. Consequently, the standard policy, may not be suitable or applicable to their unique circumstances. In such cases, these exporters can take advantage of the Specific Shipment Policy (SSP). T

his policy allows them to outline the specific risks associated with their shipments and, in doing so, effectively communicate their unique needs. By indicating the distinct risks to be covered, exporters can create a tailored approach to hedge their credit risks more effectively, thereby enhancing their ability to navigate the inherent uncertainties of international trade.

The period of SSP would be valid for shipments made from date of issue of the policy and up to the last date for shipment under the relevant contract.

SSP covers commercial risk, buyer risk, political risk, LC opening bank risk. Percentage of cover is 80% and SSP mandates important obligations on the exporter.

Important obligations for exporter under specific shipment policy.
Processing fee of Rs 2000 nonrefundable is payable.
Upfront premium payment in full.
Submission of monthly declaration of shipments by 15th of the subsequent month.
Submission of payment advice slip.
Notifying or declaring. payments for bills that have remained unpaid beyond 30 days from its due date of payment by the 15th of the subsequent month.
Filing of claim within 360 days from the due date of export bill, or 540 days from the expiry date of the policy cover, whichever is earlier.
Initiating recovery steps, including legal action.
Sharing of recovery.

SSP is an insurance cover that is designed for the specific needs of an export transaction.

For example, if the consignment is destined to Syria, a war clause can be taken.

If the shipment is destined to Kenya, a civil disobedience clause is required.

And if the shipment is destined to Afghanistan, a terrorism clause should be taken for such specific shipments of export order.

The export order does not have to declare all other exports, if any, it extends credit insurance cover to Merchant Trade Transactions (MTT) with prior approval by making the necessary endorsement.

What is small exporter’s policy (SEP) under ECGC insurance cover

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small exporter's policy under ECGC

Small exporter’s policy (SEP) under ECGC

India has a large number of SMEs, which also export overseas It is estimated that 35 to 40% of India’s exports come from MSMEs. In order to fulfill the requirement of these small scale exporters, a variant of the standard policy, known as small exporter’s policy-SEP has been designed by ECGC.

SEP has all features of the standard policy incorporating certain improvements in terms of cover in order to encourage small exporters to obtain and operate the policy. SEP is issued to exporters whose anticipated export turnover for the coming one year is not more than 5 CRORE.

ECGC has fixed the maximum liability under SEP, and it should not exceed Rs 2 CRORE.

The coverage of various risks under SEP is similar to that of standard policy. The period of SEP is 12 months, and the minimum premium to be paid at the time of availing policy is Rs 5000. Which shall be adjusted for the premium of the shipments. No Claim Bonus (NCB), in the premium rate, is granted every year at the rate of 5%.

An exporter needs to declare the shipment executed on a monthly basis to ECGC. Further, 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 case of exporters holding the standard policy.

An exporter can lodge a claim in case of non payment, 60 days after the due date of payments. ECGC can allow change in terms of payment by extending the credit, if Small exporters are confident of getting payment from overseas buyer with some delay.

Small exporter's policy -SEP

SEP is flexible to the dynamic needs of low value merchants. For example, a small exporter may without prior approval of ECGC, Convert a D/P bill into a D/A bill provided that he or she has already obtained suitable credit limit on the buyer on D/A terms.

Further, it conditioned that in cases where the value of this bill is not more than 3 lakh, a conversion of D/P bill into D/A bill is permitted, even if the credit limit on the buyer has been obtained on D/P terms only. But such claim can be considered during the policy, on account of losses arising from such conversions.

Small exporters are the most stressed and have limited knowledge and expertise in dealing with international payment realizations. Accordingly, it is allowed that a small exporter may, without the prior approval of ECGC, can 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.

In cases where the importer has refused to take ownership of the cargo and pay at sight D/P, a small exporter can sell the cargo to alternate buyer without obtaining the prior approval of ECGC, even when the loss exceeds 25% of GIV.

ECGC may consider the payment of claims up to an amount considered reasonable, provided that ECGC is satisfied that the exporter does his best under the circumstances to minimize the losses. Other conditions are the same as the standard policy of ECGC.

Shipments comprehensive risk policy of ECGC; SCR

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 Export Credit Guarantee Corporation of India (ECGC) provides Export Credit Insurance Policy in India. ECGC offers a range of turnover based credit insurance policy to exporters. Turnover policies are based on the total sales generated by an export business in a specific period. The export turnover of a firm is sometimes referred to as gross revenue or gross income. The export turnover of a firm is the key measure based on which, the ECGC covers most of the export shipments under the shipments comprehensive risk policy or standard policy.

shipments comprehensive risk

Standard policy- shipments comprehensive risk policy; SCR

The shipments comprehensive risk policy or standard policy protects an exporter of goods and services against the risk of non-payment by an overseas buyer. This means that if an overseas buyer fails to make payment for the goods or services received the insurance company will reimburse the seller. This Policy is safer alternative than Letter of credit in export transactions.

This credit insurance product is for exporters whose annual export turnover is more than 5 crores. An exporter below this export turnover is not eligible for this policy.

All export shipments of an exporter should be covered under this policy. It is also known as standard whole turnover policy and the period of policy is 12 months.

Risk covered under this policy include commercial risk, buyer risk, political risk and LC opening bank risk.

The percentage of cover is 90% under the standard policy. Any exporter is required to pay a minimum premium of 10,000 at the time of availing of this policy. And such a premium will be subsequently adjusted towards premiums falling due on shipments affected under the standard policy.

The standard policy mandates certain important obligations to an exporter:

Obtaining a valid credit limit on buyers and banks from ECGC.
Premium is payable in advance before the commencement of risks and sufficient premium deposit is also to be maintained in advanced based on the turnover projection at all times during the policy.
Submission of monthly declaration of shipments by 15th of the subsequent month.
Notifying/declaring payments for bills, that have remained unpaid beyond 30 days from its due date of payment by the 15th of the subsequent month.
Filing of claim within 360 days from the due date of the export bill, or 540 days from expiry date of the policy cover, whichever is earlier.
Initiating recovery steps, including legal action.
Sharing of recovery.

Benefits of shipments comprehensive risk policy OF ECGC:

The standard policy offers credit insurance to Indian exporters at the lowest premium and is the largest selling policy of ECGC. Certain unique features make this policy very acceptable for India’s trade community.
Standard policy is flexible and can offer a higher percentage of insurance cover from the standard limit of 90%.
The standard policy also offers discrepancy covers for L/C transaction, subject to certain conditions.
If an exporter cannot sell it in the overseas market, It provisions for automatic cover for resale or reshipment up to 25% of the gross invoice value(GIV) of the export turnover
It provides the availability of discretionary credit limits on buyers on conditions. It offers cover for merchanting trade transactions( MTTs) with approval by an endorsement.
Shipment comprehensive risk policy or the standard policy of the ECGC covers risk from date of shipment.

The risks covers under SCR policy of ECGC:

Commercial risk, which can be on the part of the overseas buyer, insolvency of the buyer.
Buyer fails to make payment within a specified agreed due date. which is normally four months from the due date.
The buyers failure to accept the goods subjected to certain conditions
risk associated with the LC opening bank such as insolvency of the LC opening bank and failure of LC opening bank to make the payment due within a specified. normally for four months from the due date.
The standard
It also covers the political risks such as imposition of payment restrictions by the government of the buyer’s country, because of war, civil war, revolution, and civil disturbances in the buyers country.
New import restrictions or cancelation of a valid import license in the buyer’s country. Interruption or diversion of voyage outside India, resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer.
The standard policy of ECGC covers other causes of loss occurring outside India, not normally insured by general insurers and is beyond the control of both exporter and the importer.

The shipments comprehensive risk policy does not cover the following claims:

Commercial disputes, including quality disputes raised by the buyers, unless the export obtains a decree from a competent court of law in the buyers country in his or her favor.
Causes or defects 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 the collecting bank.
Loss or damage to goods which can be covered by general insurers.
Failure or negligence on the part of the exporter to fulfill the terms of the export contract.

Summary:

The shipments comprehensive risk Policy of ECGC insures the complete export turnover of the company and not any specific transaction.

Types of credit insurance cover from ECGC for export promotions

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credit insurance cover- export risks covered by ECGC

Risk is an undeniable and integral part of international trade transactions. Payments for exports in international trade are always open to risks. The quantum of risks have assumed larger proportions in today’s globalized world, due to unstable political and economic changes that create uncertainties around the world. Export credit risks can be managed by taking in credit insurance cover from ECGC.

The uncertainties faced during execution of export-import trade can be –

  • an outbreak of war or civil war
  • A coupe and insurrection may also bring the economic and political system into a halt.
  • Countries impose restrictions on transfer of payments for goods imported due to negative balance of payment.
  • Financial bankruptcy of a country due to economic breakdown.
  • Commercial insolvency of the foreign buyer.

The very purpose of export credit insurance cover is to protect exporters from such payment risks, arising out of both political and commercial reasons, and to provide them a platform to cover such risks so that they can explain their overseas with them business, says without any fear of loss.

Why credit Insurance cover is needed for exporters ?

Protection from corporate insolvency
Protection from bankruptcy
Helps in dealing with bad debts
Helps the exporter in dealing with the country court and administration of recovery order

 

what is the role of ECGC in export promotion?

Helps an expansion of sales.
Helps in protecting the exporter against bad debts.
Helps in credit facilitation and boost his borrowing power.
Helps in stabilizing and assuring the cash flow.
Helps in exploring and developing new markets.
Role of ECGC in export Promotion

 

Different types of Credit insurance cover under ECGC.

ECIESHORT-TERM TURNOVER BASEDSHORT-TERM EXPOSURE BASEDMEDIUM & LONG TERM BASED
1.Shipments comprehensive risk policy -SCRBuyer exposure policy -BEPConstruction works policy- CWP
2.Small exporters policy- SEPIT enabled services policy single customer – SITESSpecific policy for supply contract
3.Specific shipment policy- SSP SMESpecific shipment policy – SSP
4.Services policy -SRCSoftware project policy-SPP Specific services policy
5.Export turnover policy – ETP L/C confirmation cover
6.Exporter specific buyers policy -BWP———————-———————-
7.Consignment exports policy (stockholding agent; CSA———————–———————–
Export credit insurance for the exporter (ECIE) given under ECGC,GOI.

The various policies offered by ECGC help manage both political and economic uncertainties associated with realization of export proceeds from overseas markets.

In order to address the risk involved at various levels of export payment chain, ECGC has designed multi products and special services products for exporters and bankers. ECGC offers a range of turnover based credit insurance policies to exporters.

summary:

The export credit insurance is designed to protect Indian exporters from the consequences of payment risk, both political and commercial, and to enable them to expand their overseas businesses. ECGC works in close association, not only with Indian exporters, but with credit insurers of other countries and cooperates with multilateral investment guarantee agency MIGA, an arm of World Bank.

MIGA offers protection from political risks, which are usually beyond the control of ECGC, as it cannot control the events in foreign countries which have an adverse effect on the Indian exporters. MIGA provides technical assistance in reducing litigations and prompt dispute resolution between different countries, thus helping ECGC to promote India’s exports.

Export Credit Corporation of India(ECGC)

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Export credit guarantee corporation of India (ECGC) is established by Government of India to strengthen. to strengthen and boost the export. of the country by covering the credit risk. and to promote the exports of our country. ECGC is the largest credit insurer of the world in terms of coverage of national exports. It is managed by a board of directors, Hamming Expertise in the area of insurance banking management. and comprises of representatives from GOI, RBI, banking insurance and exporting community of the nation.

ECGC has designed its policies keeping in mind the interests of various section of the exporters, such as small exporters, large scale exporters, IT services, exporters, occasional exporters. And has one of the largest range of products and services to enable the exporter to choose the best possible. It offers various policies based on risk perception, and usually the premium is less in the case of lower risk transactions and countries.

Functions of ECGC ;

     1. ECGC provides. a wide range of credit risk insurance covers and products to exporters so as to enable them against the losses in the export of goods and services in international transactions.

       2. ECGC helps the exporters in financing their trade transactions by offering guarantees to commercial banks and financial institutions, particularly in cases where exporters have risky payment options and are having problems in pre shipment and post shipment finances for export transactions.

      3. ECGC also provides overseas investment insurance to Indian companies, which are investing in joint ventures abroad in the form of equity or loan, thereby covering their exposure to rest, enable them to make a foray in the international markets.

      Specific functions of ECGC :

      ECGC

      -ECGC helps exporters by offering the insurance coverage against the payment. risks. where many Indian exporters are for the first time, pouring into international trade.

      -ECGC has first hand information in export related activities, particularly in areas of potential risk associated with countries. Modo and mode of payment in a globally challenging trade rejig and offers guidance to exporters to help them out to avoid risk in such deals.

      -ECGC with its networks. with other credit risk agencies in the world published. the information on risk perception of different countries with its own credit ratings and helps the exporters to avoid them.

      -ECGC acts as facilitators in obtaining the export finance from banks and financial institutions through various guarantees to banks and financial institutions.

      -ECGC assists exporters In recovering bad debts from defaulters by helping them out to proceed legal and diplomatic channels.

      ECGC maintains database of domestic and international exporters and importers, and shares it with other credit risk insurance agencies provides information on the creditworthiness of overseas and domestic traders.

      ECGC offers a wide range of products And services to exporters, including customized products to meet their requirement and needs for the export credit insurance.

      ECGC and its structure;

      • ECGC is established on 13 July 1957 and mandated to promote exports.
      • Managed by Board of directors and the Ministry of Commerce and industry, GOI.
      • Incorporated as export risk insurance corporation. Eric 1957 and converted to ECGC in 1964. And finally, known as ECGC in 1983
      • ECGC has authorized capital up to 1000 crores and paid up capital of 900 crores.
      • Register office Mumbai 5 regional offices and 52 branches.
      • member of Barne Union. Fifty three members from 40 to countries. are members of this international unit of credit investment insurers.
      • Alliance with COFACE, France, D & B
      • Registered with insurance regulatory and development authority during September 2002.
      • ECGC branches RISO 9001: 2001 certified.
      • ECGC has largest database of buyers and also maintains list of buyers with adverse experience.
      • GOI instilled confidence in ECGC by establishing national export insurance account with a corpus of rupees 2000 crore to be operated by ECGC.
      • Tie up with NSIC to offer our products to a number of SME's spread over India.
      • Full fledged factoring scheme launched.
      • Domestic credit risk insurance is on the agenda
      • A creditor with IAAA by investment information and credit rating agency. Associate of Modi's investors service, indicating high claim paying ability and best prospects of meeting PH' S obligation.

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