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How Export Credit Guarantee Corporation is a boon for Indian Exporters?

calendar15 Jul, 2021
timeReading Time: 4 Minutes
How Export Credit Guarantee Corporation is a boon for Indian Exporters

Export Credit Guarantee Corporation is a government-driven institution that incentivizes export activities by providing credit insurance covers to the exporters. Since its establishment, ECGC has rolled out multiple export credit risk insurance products for Indian exporters. This institution was established for averting potential issues of Indian exporters by mitigating the risks linked with the payment coming from other countries. The insurance coverage of ECGC also enables the exporters to access various credits options available at banks and other financial avenues. ECGC is the 5th largest credit insurance corporation in the world that deals with exportation activities. Export Credit Guarantee Corporation of India renders a slew of protection benefits against the payment risk for the exporter. Owing to this protection, financial institutions are now offering larger credit to exporters. ECGC also facilitates credit rating and shares info on various nations and risks linked with executing business with/in those nations.

Services offered by the Export Credit Guarantee Corporation

  • It facilitates a slew of credit risk insurance covers to the exporters against the loss related to the exportation of their goods and services
  • It offers Export Credit Insurance covers to different financial avenues, including banks for empowering exporters to pinpoint better services from them.
  • It renders Overseas Investment Insurance the Indian establishments investing in Joint Ventures (JVs) abroad by way of equity or loan.

How does ECGC strengthening Indian Exporters?

Export Credit Guarantee Corporation facilitates the insurance coverage to the exporter against the risk of non-payment. It enables the exporters in many ways which include:

  • Providing end-to-end support for export-related activities.
  • Making details available related to various nations with their credit ratings.
  • Empowering banks and related avenues facilitates easy finance to the exporters.
  • Enabling Indian exporters to effectively counter the bad debts.
  • Providing detail regarding the creditworthiness of the overseas buyer.
  • ECGC also insures credit risks of the exporter against both commercial and political conditions and assures guaranteed to the exporters.

So the next time when you plan to ship your product abroad with basic documentation like IEC and packing list, do not forget to protect your cargo with the ECGC scheme.

Export Credit Guarantee Corporation facilitates many types of insurance products which are classified into the following groups:

  • Standard policies that insures exporters against foreign credit risks
  • Construction works and services policies
  • Financial Guarantees

Special policies facilitate the following types of guarantees to the Indian exporters:

types of guarantees to the Indian exporters

Export Credit Guarantee Corporation of India has already proven its worth in the exporting landscape. It pays around 80-90% of loss triggered by the bad debt or non-payment of the importers. The remaining 10-20% of the loss is supposed to be addressed by the exporters.

However, it doesn’t ensure the protection against the risks mentioned below:

i. Exchange loss incurred by the fluctuating exchange rates

ii. Importer failing to avail import authorization or exchange

iii. A default occurred on the part of exporters or his agent

iv. Any loss incurred owing to dispute in quality

v. Risk which is apparent in the nature of goods

Read our article:IEC Registration for Small Business: All you Need to Know

How ECGC Supporting Micro Exporters in India?

Export Credit Guarantee Corporation has a lucrative scheme to incentivize micro exporters in India. The scheme was introduced by the name of Micro Exporter Policy (MEP). Exporters generating less than Rs 1 crores of annual export revenue are eligible to access this scheme. The policy term offered under this scheme remains valid for one year. Furthermore, the processing charge has been capped at Rs 1000 which seems reasonable considering the amount of financial risk it covers.

Salient Features of Micro Exporters Policy

  • Policy Term: 1 year
  • Maximum loss limit: INR 15 lakh
  • Processing Fee: INR 1000
  • Premium: INR 25000
  • Defense Percentage: 90%
  • Single loss limit: INR 5 lakh
  • Waiting Period: 2 months from due date
  • Report of Overdue: 60 days from due date

Risk Covered to foreign Buyers:

  • Insolvency of the buyer.
  • Failure to address payment by the buyer within the given timeframe, which is essentially up to 2 months from the due date.
  • Non-acceptance of goods subjected to specific conditions.

Risk of the financial institute opening the letter of credit (LC)

  • The bankruptcy of the financial institute[1] opening the letter of credit
  • Failure of the financial institute opening the letter of credit to address the payment within the given timeframe, which is generally two months from the due date.

Political risk

  • Government approves to the buyer’s nation or any other government measure that may hinder or defer payment transfers made by the buyer.
  • War or civil commotion in the buyer’s nation. New import limitation or revocation of legit import licenses.
  • Hassles encountered by the exporter’s shipment outside India such as re-routing or diversion incurring more expenses in terms of freight or insurance charges which are unrecoverable.
  • Any cause of damage occurring beyond Indian Territory for which protection is rendered by the insurer and which is beyond the control of both buyer and the exporter.

An Overview on Small Exporter Policy offered by ECGC

The Small Exporter Policy is essentially a standardized policy under which marginal improvements have been done to incentivize small exporters to avail and operate the policy.  It is available to exporters whose annual turnover does not exceed Rs.500 lakhs.

Salient Features of the Small Exporters Policy:

Policy Term

12 months

Minimum Premium

Rs.5,000/- The no claim bonus rate facilitated per year is 5% of the premium rate

Waiting Period for Claims

2 months

Declaration of Overdue Payments

Small exporters must furnish payment declarations on a monthly basis which are overdue for a timeframe surpassing 60 days.

Shipment Announcement

Shipment ought to be declared monthly

Conclusion

Payment defaults are quite prominent in the international trading of goods and services. Even with the best trading practices, you are not entirely isolated from these mishaps. And that’s where Export Credit Guarantee Corporation comes into the picture. It not only protects your shipment from possible payment default but also enables you identity the importer’s genuineness through the credit rating.

Read our article:A Complete Guide on Documents Required For IEC Registration

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