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Export Guarantee Corporation Of

India (ECGC)The government of India set up the Export Risks InsuranceCorporation (ERIC) in July 1957 in order to provide exportcredit insurance support to Indian exporters. To bring the

Indian identity into sharper focus, the corporations name wasonce again changed to the present Export Credit GuaranteeCorporation of India Limited in 1983. ECGC is a companywholly owned by the government of India.

Being essentially an export promotion organization, it

functions under the administrative control of the Ministry ofCommerce, Government of India. It is managed by a Board ofDirectors comprising representatives of the Government,RBI, Banking, Insurance and exporting community.

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Role Of ECGC of India

ECGC was established in year 1957 by theGovernment of India to strengthen the exportpromotion drive by covering the risk on exporting

credit. The goal of ECGC is to provide cost-effectiveinsurance and trade related services to meet the needsand expectations of the Indian export market. Itprovides a range of credit risk insurance cover toexporters against loss in export of goods and services.ECGC also offers guarantees to banks and financialinstitutions to enable exporters to obtain betterfacilities from them.

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Services provided by ECGC to

exporters1. To provide risk cover to the exporters against the risk associated inworld market, viz., political risk and commercial risk.

2. To provide exporters information regarding credit-worthiness ofoverseas buyers.

3. Provides information on approximately 180 countries with its own credit

ratings.4. To help exporters to obtain financial assistance from commercial banks

and other financial institutions.

5. To provide other essential services which are not provided by othercommercial insurance companies.

6. To assists exporters in recovering bad debts.

7. To help exporter to develop and diversify their exports.8. ECGC has also made a foray into information services by signing an

alliance with M/s Dun & Bradsheet Corporation, the largest databasecompany in the world, to provide information on domestic as well asforeign business companies, exporters, importers banks and otherinstitutions.

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Financial Guarantees issued by

ECGC to banks In order to provide financial assistance to the

exporters through commercial banks and otherfinancial institutions, ECGC guarantees

various loans provided by these financialintermediaries to the exporters. Due to theguarantees given by the ECGC, commercialbanks can liberally lend money to theexporters. The nature of guarantees providedby the ECGC depends upon the purpose offinance.

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Main Types of Guarantees offered:1. Packing Credit Guarantee:- Any loan given by banks to an exporter at

the pre-shipment stage against a confirmed export order or L/C qualifies

for PCG. The guarantees assure the banks that in the event of an exporterfailing to discharge his liabilities to the bank, ECGC would make good amajor portion of the banks loss; bank is required to be co-insurer to theextent of the remaining loss. Features of this guarantee are:

Any loan given to an exporter for the manufacture, processing,purchasing or packing of goods meant for export against a firm order orLetter of Credit qualifies for PCG.

Pre-shipment advances given by banks to parties who enter intocontracts for export of services or for construction works abroad to meetpreliminary expenses in connection with such contracts are also eligiblefor cover under the guarantee.

The guarantee, issued for a period of 12 months based on a proposalfrom the bank, covers all the advances that may be made by the bank

during the period to an individual exporter within an approved limit. Approval of ECGC has to be obtained if the period for repayment of any

advance is to be extended beyond 360 days from the date of advance.

Whole-turnover Packing Credit Guarantee can be issued to banks whichwish to obtain cover for packing credit advances granted to all itscustomers on all India basis. Under this option, premiums are lower andhigher percentage of cover is offered.

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2. Post shipment Export Credit Guarantee: Banks extendpost-shipment finance to exporters through purchase,negotiation or discount of export bills or advances against such

bills. The post-shipment credit guarantee provides protectionto banks against non-realization of export proceeds and theresultant failure of the exporter to repay the advances availed.However, it is necessary that the exporter concerned shouldhold suitable policy of ECGC. The percentage of loss coveredunder this guarantee is 75%.

Features of this policy are:-Individual Post-Shipment credit Guarantee can also be

obtained for finance granted against L/C bills, even where anexporter does not hold an ECGC policy, provided that theexporter makes shipments solely against letters of credit.

This guarantee can also be issued on whole turnover basiswherein the percentage of cover under shall be 90% foradvances granted to exporters holding ECGC policy.Advances to non-policyholders are also covered with the

percentage of cover being 65%.

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3. Export Production Finance Guarantee:- This guaranteeenables banks to sanction advances at pre-shipment stage tothe full extent of the domestic cost of production. Here again,

the bank would be entitled to 66.67% of its loss from thecorporation.

4. Export Finance Guarantee:- This guarantee covers post-shipment advances granted by banks to exporters againstexport incentives receivable in the form of duty drawback. The

percentage of loss covered under this agreement is 75%.5. Export Finance (Overseas Lending) Guarantee:- If a bank

financing an overseas project provides a foreign currency loanto a contractor, it can protect itself from the risk of non-

payment by obtaining Export Finance (Overseas Lending)

Guarantee. The percentage of loss covered under thisguarantee is 75%.

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6. Export Performance Guarantee:- This is akin to a counter-

guarantee to protect a bank against losses that it may suffer onaccount of guarantees given by it on behalf of exporters.Exporters are often called upon to furnish a bank guarantee tothe foreign parties to ensure due performance or againstadvance payment or in lieu of retention money. The Export

Performance Guarantee protects the banks against 75% of thelosses. In the case of bid bonds relating to exports onmedium/long term credit, overseas projects and projects inIndia financed by international financial institutions as well assupplies to such projects, guarantee is granted on payment on25% of the prescribed premium. The balance of 75% becomes

payable by the bankers if the exporter succeeds in the bid andgets the contract.