CREDIT INSURANCE POLICIES AND EXPORT

CREDIT GUARANTEE CORPORTATION (ECGC)

- DR. CHARU GROVER

charu@[Link]
OBJECTIVES

 Official Export Credit Agencies

 Export Credit Guarantee Corporation of India (ECGC) and how does it help
exporters
 Need of Credit Insurance
 Credit Insurance Policies of ECGC for Exporters
 Export-Import Bank of the United States (EXIM)
 Case Study- Los Kitos Produce – EXIM Insurance Policy
OFFICIAL EXPORT CREDIT AGENCIES

 Australia - Export Finance Australia

 Canada - Export Development Canada (EDC)
 Germany - Euler Hermes Aktiengesellschaft
 Switzerland - Swiss Export Risk Insurance (SERV)
 Japan - Nippon Export and Investment Insurance (NEXI)
 United States - Export-Import Bank of the United States (EXIM Bank)
 India – Export Credit Guarantee Corporation (ECGC)
 EXPORT CREDIT GUARANTEE CORPORATION
OF INDIA (ECGC)
 Established by GOI under Ministry of Commerce and Industry in 1957 for
boosting export promotion by covering risks of exporting on credit.
 Fifth largest credit insurer of the world in terms of coverage of national exports
 Functions of ECGC-
 Provides a range of credit risk insurance covers to exporters against loss in
export of goods and services
 Offers Export Credit Insurance covers to banks and financial institutions to
enable exporters to obtain better facilities from them
 Provides Overseas Investment Insurance to Indian companies investing in joint
ventures abroad in the form of equity or loan
Reference: [Link]
HOW DOES ECGC HELP EXPORTERS

ECGC offers insurance protection to exporters against payment risks.

 Provides guidance in export-related activities.
 Makes available information on different countries with it’s own credit ratings.
 Makes it easy to obtain export finance from banks/financial institutions.
 Assists exporters in recovering bad debts.
 Provides information on credit-worthiness of overseas buyers.
NEED FOR CREDIT INSURANCE

ECGC policies protect exporters from commercial and political risks and provide
competitive edge to exporter
 Helps in expansion of sales
 Helps in protecting exporter against bad debts
 Helps in credit facilitation
 Helps in stabilizing cash flow
 Helps in exploring new markets
 EXPORT CREDIT INSURANCE FOR EXPORTERS

 Short Term (Turnover based)

 Shipments Comprehensive Risks Policy (SCR)
 Small Exporters Policy (SEP)
 Specific Shipment Policy (SSP)
 Export Turnover Policy (ETP)
 Services Policy
 EXPORT CREDIT INSURANCE FOR EXPORTERS

 Short Term (Exposure based)

 Buyer Exposure Policy
 IT-Enabled Service Policy – Single Customer (SITES)
 Micro Exporter Policy
 Medium-Long Term
 Construction Works Policy (CWP)
 Specific Shipment Policy
 Specific Services Policy
SHORT TERM (TURNOVER BASED)
 SHIPMENTS COMPREHENSIVE RISKS POLICY
(SCR) OR STANDARD POLICY

 Eligibility: An exporter whose annual export turnover is more than Rs. 500 lakhs
 Period of Policy: 12 Months
 Exclusions Permitted:
 Exports to Associates
 Shipments backed by Letters of Credit
 Risks Covered: Commercial Risk: - Buyer Risk; L/C Opening Bank Risk; Political Risk
 Percentage of Cover: 90%
 Minimum Premium: Rs. 10,000/ adjustable
SHIPMENTS COMPREHENSIVE RISKS POLICY
(SCR) OR STANDARD POLICY

Obligations of the Exporter

 Obtaining valid credit limit on buyers and banks from ECGC
 Premium is payable in advance
 Submission of monthly declaration of shipments by 15th of the subsequent month
 Notify unpaid bills beyond 30 days from its due date of payment
 Filing of claim within 360 days from the due date of thee export bill or 540 days
from expiry date of policy cover, whichever is earlier
 Initiating recovery and sharing of recovery
SHIPMENTS COMPREHENSIVE RISKS POLICY
(SCR) OR STANDARD POLICY

Highlights
 Higher percentage of cover
 Competitive premium rate
 No Claim Bonus (NCB) of 5% subject to no claim, up to a maximum of 50%
 Discrepancy covers for L/C transactions
 Automatic cover for resale/reshipment up to 25% of Gross Invoice Value
SMALL EXPORTERS POLICY (SEP) OR STANDARD
POLICY
 Eligibility: An exporter whose annual export turnover doesn’t exceed Rs.500 lakh
 Period of Policy: 12 Months
 Exclusions Permitted:
 Exports to Associates
 Shipments backed by Letters of Credit
 Risks Covered: Commercial Risk - Buyer Risk; L/C Opening Bank Risk; Political Risk
 Percentage of Cover: 90% in case of commercial risks; 100% in case of political risks
 Minimum Premium: Rs. 5,000/ adjustable
DIFFERENCE BETWEEN SCR AND SEP POLICY
[Link] Criteria Shipments Comprehensive Small Exporter Policy
Risks Policy
1 Eligibility Annual export turnover is Annual export turnover upto
more than Rs 500 lakhs Rs 500 lakhs
2. Minimum Premium Rs 10,000/ Rs 5,000/
3. Declaration of overdue Payments overdue by 30 Payments overdue by 60 days
payments days
4. Percentage of Cover 90% 90% in case of commercial
risks; 100% in case of
political risks
5. Waiting period for claims 4 Months 2 Months
6. Resale of unaccepted Can resale only upto 25% of Can resale even if losses are
goods losses of gross invoice value more than 25% of gross
invoice value
SPECIFIC SHIPMENT POLICY (SSP)

 Eligibility: Exporters who do not hold any of the Standard Policy or by

exporter having a standard policy, wherein shipments have been excluded
 Period of Policy: Valid for shipments made from the date of issue of the policy
upto last date of the policy
 Risks Covered:
 Commercial Risk - Buyer Risk; L/C Opening Bank Risk
 Political Risk
 Percentage of Cover: 80%
EXPORT TURNOVER POLICY (ETP)

 Eligibility: For large exporters, who contribute not less than Rs.20 lakhs per annum towards
premium
 Period of Policy: 12 Months
 Risks Covered: Commercial Risk - Buyer Risk; L/C Opening Bank Risk; Political Risk
 Percentage of Cover: 90%
 Obligations for exporter:
 Premium is payable in four equal quarterly installments in advance
 Submission of Monthly declaration of shipments
 Declaration of overdue payments, filing of claim within 360 days from due date
 Sharing of recovery
EXPORT TURNOVER POLICY (ETP)

 Highlights:
 Higher percentage of cover
 No claim bonus of 5% subject to no claim, upto maximum of 50%
 Turnover discount in standard premium rate subject to total discount
including NCB not less than 20% to those exporters whose net annual
premium payable exceed Rs. 20 Lac
 Automatic cover for resale/reshipment upto 25% of Gross Invoice Value
SERVICES POLICY

 Different types of Services Policy

 Specific Services Contract (Comprehensive Risks) Policy;
 Specific Services Contract (Political Risks) Policy;
 Whole-turnover Services (Comprehensive Risks) Policy; and
 Whole-turnover Services (Political Risks) Policy
 Eligibility: For services export only notified under WTO Agreement
 Period of Policy: 12/24 months as per requirement
 Risks: Commercial Risks; Political Risks
BUYERS EXPOSURE POLICY

 Eligibility: Exporters having a large number of shipments to a particular buyer with simplified
procedure
 Period of Policy: 12 Months
 Risks Covered:
 Commercial Risk - Buyer Risk; L/C Opening Bank Risk
 Political Risk
 Percentage of Cover: 90% for Standard Policyholders and 80% for others.
 Highlights:
 Separate policy per buyer; Selective buyer can be insured
 No claim bonus of 5% subject to nonclaim
IT-ENABLED SERVICES POLICY-SINGLE
CUSTOMER (SITES)
 Eligibility: Contracts for rendering service during a defined period with billing on the basis of
service rendered during a period
 Period of Policy: 12 Months
 Risks Covered: Commercial Risk - Buyer Risk; L/C Opening Bank Risk; Political Risk
 Percentage of Cover: 80%
 Highlights:
 Protection is available upto the Loss Limit approved on the buyer; Premium is payable only on the Loss
Limit approved on the buyer, irrespective of the shipments effected to the buyer.
 Separate Policy per buyer.
 No Claim Bonus (NCB) of 5% subject to no claim
MICRO EXPORTERS POLICY (MEP) –
(ERSTWHILE SME)
 Eligibility: All exporters including Traders, Manufacturers and Service providers, irrespective of MSME
Certificate, shall be eligible for the Policy subject to their export turnover up to Rs.100 Lakh.
 Period of Policy: 12 Months
 Risks Covered: Commercial Risk - Buyer Risk; L/C Opening Bank Risk; Political Risk
 Percentage of Cover: 90%
 Processing Fees : Rs.1000
 Minimum Premium : Rs 25000
 Maximum Loss Limit : Rs.15 lacs; Single Loss Limit : Rs. 5 lacs
 Report of overdue : more than 60 days from the due date
 Waiting period : 2 months from the due date or extended due date
CONSTRUCTION WORKS POLICY (CWP)

 Eligibility: Indian contractor who executes a civil construction job abroad

 Period of Policy: 12 Months
 Risks Covered: Either for political or comprehensive risks
 Percentage of Cover: 85%
 Highlights:
 Premium can be paid in installments
 Cover for full insurable value
 Cover for third country exports as well
 Reduced loss coverage with proportionate reduction in premium
 Reduced premium for projects funded by Multi-lateral agencies
PRINCIPLES OF CREDIT INSURANCE

 Utmost Good Faith

 The Spread of Risk
 An exporter is a Co-insurer
 Subrogation Clause
 PROCEDURE FOR MAKING A CLAIM

1. File the claim with ECGC - Form no 501; 502; 503

2. A Letter by exporter stating the circumstances/particulars of non-payment, partial
payment, additional expenses incurred
3. Copy of credit insurance policy availed
4. Credit insurance claim form to be routed through bank which is handling the export
bills of the exporter for the transaction
5. Claim to be filled within 24 months from due date of concerned bills
6. Exporter to attach required documents – invoice, bill of lading, correspondence with
buyer, details of unpaid bills incase of default, letter of liquidation admitting the claim in
case of insolvency.
 CASE STUDY – RISKS IN EXPORT OF SILK
ITEMS

 Mr. Bala is a leading exporter of silk items from Madurai, India and this is his
family business spanning over four generations. Mr. Bala buys raw silk from
domestic market, Telangana and Assam and also imports from China.
 Mr. Bala has got an export order for supply of silk stoles from a buyer based at
Port of Rotterdam.
 Mr. Bala has suffered losses worth $1.21 million due to non-payment or part
payment by some buyer and has decided will never export unless either payment in
advance or confirmed L/C or some effective credit protection is provided.
 Mr. Bala total turnover was $125 million in 2020
 CASE STUDY – RISKS IN EXPORT OF SILK
ITEMS
Details of Export Order
1. Name of Seller: Bala Silk Products Company, Madurai, India
2. Name of Buyer: Dresden Import Company, Rotterdam, Netherlands
3. Cargo Description: Silk Items under HSN 50
4. Value of Order: 5 Million Euros
5. Port of Departure: Tuticorin, Tamil Nadu
6. Port of Destination: Rotterdam, Netherlands
7. Payment Mode: D/A 90 Days
8. Currency of Invoice: Euro
9. Date of Shipment: 30 June 2022
 CASE STUDY – RISKS IN EXPORT OF SILK
ITEMS- QUESTIONS

Q1. He consults you to avail ECGC Policy. Guide him which policy of ECGC is
suitable and Why
Q2. Explain how he can file a claim and fulfil allied procedure for availing the credit
insurance from ECGC, if the buyer doesn’t pay
 EXPORT-IMPORT BANK OF THE UNITED
STATES (EXIM)
 Eligibility for EXIM Support
 Have been in business for at least one year
 Have at least one person working in the firm full-time
 Have a positive net worth
 Export products and/or services that have more than 50% U.S. content based on all direct and indirect
costs (e.g. labor, materials, and administrative costs)
 Additional Requirements
 Goods and services must be exported from the U.S. - EXIM does not provide support for content
shipped from foreign ports.
 Exports must be non-military in nature - EXIM is prohibited from financing the export of defense
articles and services

Reference: [Link]
 EXPORT-IMPORT BANK OF THE UNITED
STATES (EXIM)
 EXIM does not provide support for:
 Imports
 Grants
 Early stage start-ups
 Crude oil
 Direct investment
 Personal loans
 Purchase of land
 CASE STUDY - LOS KITOS PRODUCE

 Opportunity: Los Kitos Produce (LKP) is a California-based

network of growers, packers, and shippers of fresh fruits and
vegetables. LKP packages the products for export and domestic
distribution using uniform labels that emphasize the source and the
quality of the produce.
 Challenge:
 Assuring their domestic supply chain that they will be paid
while exporting
 Assuring their foreign customers that LKP will deliver their
quality produce as promised
 CASE STUDY - LOS KITOS PRODUCE

 Solution: Using Multi-buyer Small Business Export Credit Insurance from

the Export-Import Bank of the United States (EXIM) --- insures against
commercial and political risks; 95% of international sales invoice covered.
 Results:
 LKP is able to compete internationally by offering the credit terms its foreign
buyers demand to complete its international sales.
 LKP currently exports to Mexico, Korea, Saudi Arabia, and Hong Kong, with
Mexico being its largest exporting partner
 MULTI-BUYER SMALL BUSINESS EXPORT
CREDIT INSURANCE
 Protects an exporter’s accounts receivable
 Increase global competitiveness by offering open account credit terms needed to
compete
 Covers both commercial and political losses at 95%
 No application fees or minimum premiums. A one-time, refundable advance
deposit of $500 is required to issue the policy.
 Premiums are paid no later than 30 days after the month of shipment
THANK YOU