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. |
Different types of Credit insurance cover under ECGC.
| ECIE | SHORT-TERM TURNOVER BASED | SHORT-TERM EXPOSURE BASED | MEDIUM & LONG TERM BASED |
|---|---|---|---|
| 1. | Shipments comprehensive risk policy -SCR | Buyer exposure policy -BEP | Construction works policy- CWP |
| 2. | Small exporters policy- SEP | IT enabled services policy single customer – SITES | Specific policy for supply contract |
| 3. | Specific shipment policy- SSP | SME | Specific shipment policy – SSP |
| 4. | Services policy -SRC | Software 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 | ———————– | ———————– |
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.