ECGC

The export risk insurance was changed into ECGC with effect from 15th January, 1964. It is
wholly owned by the government of India. This was established for minimizing the risk element
in export business and to facilitate the flow of finance from banks and other institutions to
exporters.

Its head offices are Kolkata, Chennai, Delhi and Mumbai. It works on no profit no loss basis.

Functions o the Corporation

1. By issuing suitable policies, it ensures exporters against the attendant risks of export
operations.
2. It provides financial guarantees to banks and exporters for exports against deferred credit
payment terms.
3. Any other activity assigned to it by the Govt . of India from time to time.

Insurance Policies issued by ECGC

1. Standard Policies
Standard policies are issued by the ECGC to exporters to protect the, against the risks of
internal trading especially those relating to losses on exports on deferred terms of
payments. Three types of standard policies:
a. Shipment (Political Risk) Policy
This type of policy covers the risks caused by any political reason like:
• Restriction on the remittance in the buyers country or any govt. action which
may block or delay payment to exporter.
• War, revolution or civil disturbances in the buyers country.
• New import licensing restrictions or cancellations of a valid import license is
the buyers country.
• Any other cause of loss securing outside India, not normally insured by
commercial insurers and beyond the control of the exporters and the importer.
b. Shipment (Comprehensive Risks) Policy
This type of policy covers both the political and commercial risks involved in an
export transaction. Some of the risks are as follows:
• Insolvency of the buyer
• Buyers protracted default to pay within 4 months of the due date for goods
accepted by him
• Buyers failure to accept the goods, where such non acceptance is not due to
exporters certain condition specified in the policy.
c. Contract Policy
 Contract policy covers the additional risks due to cancellation of export license or
imposition of new contract restrictions in India. The contract policy covers the risks
from the date of contract.
d. Specific or Special Policies
An exporter sometimes needs special cover for the risks of the other types connected
with the various export transactions.
a. Construction work policy: A construction contract comprises not only the supply
of the materials required but also the provisions of the services as well as the
execution of civil engineering works. The policy covers only contract which are
entered into the overseas government or contracts with other parties guaranteed
by the overseas government.
b. Policy for consignment export: this would provide cover against political risks
from the date of shipment and against commercial risks from the date of sale of
the overseas stock to the buyers in overseas market subject to the conditions of the
policy.
c. Services Policy: this policy covers the non-payment risk of Indian firms in service
contract. Such policies cover both politicial and commercial risks.
d. Manufacturing credit insurance policy: this type of policy covers risks arising out
of default or insolvency on the part of the manufacturer. The extent of coverage is
50% of the total loss to export.
e. Market development policies: offer an exporter conducts surveys of the market
besides the heavy advertising and publicity expenditure in overseas markets.

Role of Commercial Banks in Extending Credit to Exporters:

ECGC has designed a number of financial guarantees to extend credit to exporters:

1. Packing Credit Guarantee: Any loan given to exporter for manufacturing, processing or
packaging of goods meant for export against a firm order or letter of credit qualifies for
packing credit guarantee.
2. Post Shipment export credit guarantee: the commercial banks extend post shipment to
exporters by purchasing, negotiation and discounting their export bills. Against this credit
banks eligible to obtain a cover from ECGC which protects them against defaults or
insolvency.
3. Export Finance Guarantee: In order to drive to increase the export, banks credit against
export incentives receivables in the form of cash assistance to help them to carry out their
export operations.
4. Export production finance guarantee: Until the exporter receives full value from the
buyer and amount of assistance from the government, he does not get full domestic value
of his product. The assistance from the govt. in the form of cash assistance takes him, the
ECGC guarantees the loan advancing banks to the extent of percentage of loss owing to
 insolvency or default of the exporter for the loan at the FOB value at pre-shipment and
post-shipment stages.
5. Export performance guarantee: an exporter negotiating exports on deferred terms of
payment, has to arrange for bank guarantees for the following purposes.
6. Bid bond: if an Indian exporter wants to quote for a tender the foreign buyer may ask for
the bank guarantee bout the genuineness of the offer submitted by the buyer.
7. Advance payment Guarantee: the buyer may also require a bank guarantee for the
satisfactory performance of the contract awarded to the exporter.
8. Guarantee for payment of retention money: if the exporter wants back his retention
money from the buyer before the contract is duly satisfied the buyer may ask for the bank
guarantee to be furnished by the exporter.
9. For loan in foreign currency: in some cases this may be necessary for the exporter to
raise the fund in foreign currency to finance his aspirations in connection with an export
project.