Export credit and Guarantee Corporation:

The ECGC a Government of India undertaking has been established for minimizing the risk

element in export business and to facilitate the flow of finance from the banks to exporters. In

addition to the normal risk policies, the corporation assists the exporters through special schemes

such as packing credit guarantee, post shipment credit guarantee and export production finance

guarantee. To suit varying needs of exporters, the corporation provides different types of cover

which may be divided into the following three broad groups:

a) Standard polices

b) Financial guarantees

c) Special policies

Under its policies intended o protect the exporters against overseas credit risks, ECGC bears the

main risks and pays the exporter 90% of his loss on account of commercial risks and Political

risks.

ROLE OF EXPORT CREDIT GUARANTEE CORPORATION (ECGC)

The risk element in export business is greater than the risk involved in domestic trade because the

two parties of the export contract (exporter and importer) belong to different countries. In the

context of growing competition no exporter can manage without selling goods on credit. Giving

credit poses two problems to an exporter:

- He should have enough money to offer credit to his overseas buyers and

- He should be prepared to take the credit risks.

Exporting on credit is not without risk. The overseas buyer may default; he may go bankrupt;

there may be earthquake or typhoon, a war in his country, which may wreck his fortunes. The

ECGC, a Government of India undertaking, covers the exports against these risks. The ECGC

also provides guarantees to the financing banks to enable them to provide adequate finance to the

exporters.

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COVERS ISSUED BY ECGC:

The covers issued by ECGC may be divided broadly into four groups as follows:

Standard policies issued to exporters to protect them against the risk of not receiving

payments while trading with overseas buyers on short term credit.

Specific policies designed to protect Indian Firms against the risk of not receiving

payments in respect of

- Export on deferred payment terms

- Services rendered to foreign parties and

- Construction work-undertaken abroad.

Financial guarantees issued to banks against risks involved in providing credit to

exporters; and

Special schemes viz: Transfer Guarantee, Insurance cover for buyer's credit, Line of

credit, Joint ventures and overseas investment.

A. RISKS COVERED UNDER STANDARD POLICIES:

Under its policies to protect the exporters against overseas credit risks, ECGC bears the main

brunt of the risks and pays the exporter 90 per cent of his loss on account of commercial and

political risks.

Commercial Risk:

a. The insolvency of the buyer

b. The buyer's protracted default to pay

c. In some special circumstances specified in the policy, buyer's failure to accept the

goods, when non-acceptance is not due to the exporter's actions.

Political Risk:

a. Restriction on remittance in the buyer's country or any government action which may

block or payment to the exporter;

b. War, revolution or civil disturbances in the buyer's country

c. Cancellation of export license or imposition of new export licensing restrictions in India

(under contracts policy)

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d. New import licensing restrictions or cancellation of a valid import license in the buyer's

country:

e. Additional handling transport or insurance charges due to interruption or diversion of

voyage which cannot be recovered from the buyer: and

f. Any other cause of loss occurring outside India, not normally insured by commercial

insurers. And beyond the control of both the exporter and the buyer.

RISKS NOT COVERED

ECGC, however, does not cover risks of loss due to:

a. Commercial disputes, including quality disputes raised by the buyer unless the exporter

obtains a decree from a competent court of law in buyer's country in his favour.

b. Causes inherent in the nature of goods:

c. Buyer's failure to obtain import or exchange authorization from the appropriate authority:

d. Insolvency or default of any agent of the exporter or of the collecting banks: .e.g. Loss or

damage to goods which can be covered by general insurers:

e. Flucturations in exchange rates (except under Exchange Fluctuation Risk over

Schemes)and

f. Failure of the exporter to fulfill the term of contract or negligence on his part.

B. SPECIFIC POLICIES

Contracts for export of capital goods or projects for construction works and for rendering services

abroad are insured by ECGC on case to case basis under specific policies. Special mention may

be made of the services policy to protect Indian firms against payment for their services policy to

protect Indian firms against payment for their services policy o protect Indian firms against

payment for their services and the construction works policy to cover all payments that fall due to

a contractor under a composite contract for execution of services as well as supply of material.

C. SMALL EXPORTER'S POLICY

The small exporter's policy is basically the Standard Policy, incorporating certain improvements

in terms of cover, in order to encourage small exporters to obtain and operate the policy. It will be

issued to exporters whose anticipated export turnover for the next 12months does not exceed

Rs.25 lakes. The premium payable for a small exporter's policy is less than the standard policy.

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D. FINANCIAL GUARANTEE TO BANKS

Timely and adequate credit facilities, at the pre-shipment as well as post-shipment stage. Are

essential for exporters to realize their full export potential. Exporters my not, however, be able to

obtain such facilities from their bankers for several reasons. The Export Credit Guarantee

Corporation, (ECGC) has designed a scheme of Guarantees to Banks with a view to enhancing

the credit worthiness of the exporter so that they would be able to secure better and large facilities

from their bankers.

To meet the varying needs of exporters. The Corporation has evolved the following types of

Guarantees;

1. Packing Credit Guarantee:

2. Export Production Finance Guarantee;

3. Post-shipment Export Credit Guarantee:

4. Export Finance Guarantee

5. Export Performance Guarantee:

6. Export Finance (Overseas lending ) Guarantee

1. PACKING CREDIT GUARANTEE

Any loan given to an exporter for the manufacture processing, purchasing or packing of goods

meant for export against a firm order or letter of credit qualifies for packing Credit Guarantee.

The Guarantee is issued for a period of 12 months against a proposal made for the purpose and

covers all the advances that may be made by the banks during the period to a given exporter

within an approved limit.

To banks, which undertake to obtain cover for packing credit advances, granted to all its

customers on an all India basis.

2. EXPORT PRODUCTION FINANCE GUARANTEE

The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage

to the full extent of cost of production when it exceeds the FOB value of the contract/order, the

difference representing incentives receivable. The extent of cover and the premium rate are the

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same as packing Credit Guarantee. Banks having WTPCG are eligible for concessionary

premium rate and higher percentage cover.

3. POST -SHIPMENT EXPORT CREDIT GUARANTEE

Post-shipment finance given to exporters by banks through purchase, negotiations or discount of

export bills or advances against such bills qualifies for the Guarantee. It is necessary however,

that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit

risks.

The Premium rate for this Guarantee is 7 paise per Rs. 100/-per month The percentage of loss

covered under the individual post-shipment Guarantee is 75%

4. EXPORT FINANCE GUARANTEE

This guarantee covers post-shipment advance granted by banks to exporters against export

incentives receivable in the form of duty drawback, etc. The Premium rate for this Guarantee is

7paise per Rs. 100 per month and the cover is 75 percent. Banks having WTPSG are eligible for

concessional rate of premium and higher percentage of cover.

5. EXPORT PERFORMANCE GUARANTEE

Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various

stages of export business. An exporter who desires to quote for a foreign tender may have to

furnish a bank guarantee for the bid bond. If he wins the contract, he may have to furnish bank

guarantees to foreign buyers to ensure due performance or against advance payment or in lieu of

retention money or to a foreign bank in case he has to raise overseas finance for his contract.

6. EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE

If a bank financing an overseas project provides a foreign currency loan to the contractor, it can

protect itself from the risk of non-payment by the contractor by obtaining Export Finance

Guarantee. Premium rate will be 0.09% 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 in Indian

rupees.

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Export-Import Bank:

The EXIM Bank was established on January 1, 1982 for the purpose of financing, facilitating and

promoting foreign trade of India. It extends finance to exporters of capital and manufactured

goods, exporters of soft wares and consultancy services and overseas joint ventures and

construction projects abroad. The bank is the principal financial institution in India for

coordinating the work of institutions engaged in financing export and import trade. The EXIM

bank concentrates mainly on medium and long term credit for export of goods and services on

deferred payment terms.

ROLE OF EXIM BANK OF INDIA

Objectives:

The Export-Import Bank of India was set up[ the Government of India in 1982 as a public sector

financial institution under an Act passed in the parliament for the purpose of financing,

facilititating and promoting foreign trade of India. The board of directors manages the EXIM

BANK with representation from government financial institutions, banks and business

community.

FUNCTIONS:

Lending Programmes to Indian Exporters:

Suppliers credit: This enables the exporters to extend credit to overseas importers of

eligible Indian goods.

Finance for consultancy and technology services; This enables Indian exporters of

consultancy and technology services to extend term credit to overseas importers.

Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs

for fulfilling export contracts involving cycle time exceeding six months.

Finance for deemed exports.

Finance for EOU and EPZ Units

Software Training Institutes

Export marketing finance

Export-Product Development Finance: This Indian firms to undertake product

development, R & D for exports.

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Services Offered to Indian Exporters:

Underwriting: This enables the Indian exporters to raise finance from capital markets with

the backing of EXIM Bank's underwriting commitment.

Forfeiting: This Indian exporters to convert sale to cash on without recourse basis.

Guarantee Facility: To execute export contracts and import transactions.

Business Advisory and Technical assistance

Cooperation arrangement with African Management Services.

For Commercial Banks:

a) Refinance of Export credit

b) Bulk import finance

c) Guarantee cum Refinance supplier's credit

Other activities:

The bank helps Indian companies go global by setting up subsidiaries and joint ventures

abroad.

It provides information to potential exporters about projects abroad specially about

multilaterally agencies.

It also helps companies in preparing bids according to strict condition prescribed by the

multilateral agencies.

It also entertains proposals for various facilities under he European Community

Investment Partners like feasibility studies for setting up export units.

The bank introduced the "cluster of Excellence" programme for up gradation of quality

standards and obtaining ISO certification.

100% EXPORT-ORIENTED UNITS

The scheme of 100 EOU's were introduced in 1980 with a view to generating additional

production capacity for exports by providing an appropriate policy frame work, flexibility of

operations and incentives. In order to enable them to operate successfully in the international

market such units are allowed to import machinery, raw material, components and consumable at

free of custom duties. These units have to operate under custom bond and achieve the level of

value addition fixed by the Board of Approval. At present more than 500 units are in operation

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under the EOU scheme. Some of the modifications done to facilitate the exporting units in the

EOUs are as follows:

Simplification of customs/excise procedures

Automatic approval under certain conditions to proposal for setting up units.

Leasing of capital goods from domestic companies by EPZ\EOU has been permitted.

Encouragement of agro and electronic units by providing higher domestic access.

The following privileges are enjoyed by the Export Oriented Units:

a) An EOU unit may export all goods and services except the items prohibited by the exim

policy.

b) An EOU unit may import without payment of duty for all type of goods, including capital

goods required by it for its activities provided they are not prohibited items of imports.

c) EOU units may import/procure from Domestic Tariff Area without payment of duty.

d) Second hand capital goods may also be imported duty free without any age limit.

e) EOU unit shall be positive net foreign exchange earner.

Only project having an investment of Rs.1 crore and above in building, plant and machinery shall

be considered for establishment under EOU scheme. Application for setting up of units under

EOU scheme may be approved by the units Approvals Committee within 15 days.

The entire production of EOU units shall be exported subject to the following:

Rejects may be sold in the domestic tariff area on payment of duties on prior intimation to

the customs authorities.

Scrap/waste arising out of production process or in connection therewith may be sold in

the domestic tariff area on payment of duties within the overall ceiling of 50% FOB value

of exports.

By products may also be sold in the domestic tariff are subject to achievement of positive

net foreign exchange on payment of applicable duties within the overall entitlement.

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