ECGC is designed to guard exporters from the consequences of the payment risks, both political and commercial, which enables the exporters to expand their overseas business without fear of loss. ECGC covers losses that may be incurred in extending loans by the banks and other financial intermediaries to exporters. The major forms of Guarantees offered by ECGC to the exporters are as under.
Packing Credit Guarantee:
The credit facilities extended to exporters at pre-shipment stage qualifies for Packing Credit Guarantee. This policy covers against losses that may be incurred in extending packing credit advances due to protracted default or insolvency of the exporter-client. The financer bank will be entitled to claim 66- 2/3 % of its loss from the corporation in the event of an exporter failing to discharge his liabilities to the bank. Premium payable is 12 paise per Rs.100 p.m., on the highest amount outstanding on any day during the month.
Post shipment Export Credit Guarantee (Export Credit Insurance – Individual Post shipment
(ECIB – INPS):
Banks and financial institutions who are authorized dealer in foreign exchange are eligible for export credit insurance from ECGC. The authorized dealers who extend post-shipment finance to exporters by way of purchase, negotiation or discount of export bills after the shipment are qualified for claim under the above policy. The policy covers non-realization of export bills and protracted default or insolvency of the exporter-client. The policy covers post-shipment credit valid for a period of 12 months. The percentage of loss covered under this guarantee is 75%. Premium payable is 0.09% on the highest amount outstanding on any day during the month.
Export Performance Guarantee:
During execution of projects exporters are required to furnish bonds assuring due performance of the contract. Exporters also required furnishing a bank guarantee to the foreign parties at various stages starting from bidding, Advance Payment, Due Performance to releasing retention money etc. Whenever a foreign bank extends credit in foreign currency abroad, Indian exporters have to furnish a bank guarantee to foreign bank for the amount of borrowings. Banks which issues such guarantees can obtain ECGC cover for each Bank Guarantees issued at various stages of the contract against losses that it may suffer due to insolvency and/ or protracted default of the borrower. The ECGC Guarantee protects banks to the extent of 75% or 90% of the loss suffered by bank on account of such guarantees. The period of cover is as per period of Bank Guarantee. Premium rate is 0.70% p.a. for 75% covers and 0.84% p.a. for 90% covers
Export Finance (Overseas Lending) Guarantee:
Whenever a bank provides a foreign currency loan to a contractor for overseas projects, it will apply for Export Finance (Overseas Lending) Guarantee from ECGC. The percentage of loss covered under this guarantee is 75% to 90%. The premium payable is 0.90% per annum for 75% cover and 1.08% per annum for 90% cover. Premium is payable in Indian Rupees. Claims under the Guarantee will also be paid in Indian Rupees.
Shipments Comprehensive Risks Policy – (SCR):
An Exporter who has annual export turnover of Rs.500 crore or more is eligible for Shipments Comprehensive Risks Policy (known as standard Policy or Standard Whole-turnover Policy) of ECGC.This Policy covers all types of shipment risks viz. Commercial Risk/Buyer Risk, Political Risk, L/C Opening Bank Risk. However, the policy permits exclusion of Exports to Associates, Shipments backed by Letters of Credit. The policy is valid for a period of 12 months. The percentage of loss covered under this guarantee is 90%. Minimum Premium payable is Rs. 10,000/- which shall be adjusted towards premiums falling due on the shipments effected under the policy and same is non-refundable.
Important Obligations of the Exporter:
Under SCR, it is obligatory on the part of exporter to have to valid credit limit on buyers and banks from ECGC. Premium shall be paid before the commencement of risks. The exporter has to maintain premium in advance based on turnover projection at all the times during the period of policy. Monthly declaration of shipment should be submitted by 15th of subsequent month. He should inform (Notify)/Declaration of payments for bills that have remained unpaid beyond 30 days from its due date of payment, by the 15th of the subsequent month. Insurance claim from ECGC shall be within 360 days from the due date of the export bill or 540 days from expiry date of the Policy Cover whichever is earlier. The protracted default shall be persuaded including initiation of legal action. Once the claim is settled, the recovery made thereafter shall be proportionately shared with ECGC.
Small exporters’ policy (SEP):
The Small Exporter’s Policy is basically the improved version of Standard Policy, with certain improvements in terms of cover. Small exporters’ policies are issued to the exporters whose anticipated turnover is below Rs.500 Crore for one year. The Maximum Liability under the SEP shall be fixed as per laid down guidelines, but shall not exceed Rs. 2 crores. The nature of commercial risks and political risks cover is similar to that of the Shipment Comprehensive Risk (SCR) or Standard policy. The Small Exporter’s Policy is valid for a period of 12 months. The Premium payable will be determined on the basis of projected exports on an annual basis subject to a minimum premium of Rs. 5000/- for the policy period. No claim bonus in the premium rate is granted every year at the rate of 5%.
Facilities provided by ECGC to small exporters:
A small exporter is allowed convert a D/P bill into DA bill, without prior approval of ECGC provided that he has already obtained suitable credit limit on the buyer on D/A terms. Further, a small exporter may, without the prior approval of ECGC 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. Even in the case of credit limit obtained only for DP bills may be converted to DA bills where the value of this bill is not more than Rs.3 lacs. However, only one claim can be considered during the policy period on account of losses arising from such conversions. In case of non-acceptance of goods by a buyer, the exporter sells the goods to an alternate buyer without obtaining prior approval of ECGC even when the loss exceeds 25% of the gross invoice value, ECGC may consider payment of claims up to an amount considered reasonable, provided that ECGC is satisfied that the exporter did his best under the circumstances to minimize the loss. In all other respects, the Small Exporter’s Policy has the same features as the Standard Policy.
Important Obligations of the Small Exporter:
Shipments need to be declared monthly. 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 the case of exporters holding the Standard Policy. The normal waiting period of 4 months under the Standard Policy has been halved in the case of claims arising under the Small Exporter’s Policy.
Micro Exporters Policy (MEP):
All exporters including Traders, Manufacturers and Service providers, whose export turnover is up to Rs.100 Lakh for one year, irrespective of MSME Certificate, are eligible for the Micro Exporters Policy.
These policies are valid for a period of 12 months. Exporter who apply for this policy has to pay processing fee of Rs.1000/- and minimum premium of Rs.25000/-. Percentage of cover is 90%.The maximum loss limit is Rs.15 lac and single loss limit is Rs.5 lac. The exporters are also required to submit monthly declarations of all payments remaining overdue by more than 60 days from the due date. Waiting period is 2 months from the due date or extended Due date.
Non-inclusion of risks:
ECGC doesn’t cover the risks mentioned below:
1. Exchange loss due to fluctuations in exchange rates
2. Failure on the part of the buyer abroad to obtain the import authorization or exchange
3. A default of the exporter or his agent
4. Any loss which arises due to dispute in quality
5. Risk which is inherent in the nature of goods