ROLE OF ECGC IN

EXPORT PROMOTION
By M Kumar, AGM (Marketing & PR), Export Credit Guarantee Corporation of
India

Many countries of the world have started adopting market-oriented economy and
the world is being integrated into a global village. The market-oriented economy
also means that there will be keen competition in all entrepreneurial activity and the
fittest will only survive. The emphasis will be on quality, price and efficient
distribution. In order to improve the quality and offer competitive prices industries
will necessarily have to give greater importance to research and development and
mass production. There will be more collaborations and technology and capital are
bound to flow to developing countries where the production costs are cheaper. With
mass production the companies cannot contend with only domestic trade and are
compelled to consider the world as a market to increase their sales. This being the
scenario, there will be greater trade among countries resulting in new entrants in
the export-import trade. Besides, quality and price, credit is going to play an
important role in clinching an export deal. Credit while becoming an instrument in
expanding export trade will increase payment risks in our export transaction.
Payments for exports are always opened to risks at the best of times. The risks have
assumed even larger proportions today, due to the political and economic changes
that are sweeping the world over. It is in such a situation the need for export credit
insurance is felt, even for credit transactions, which are normally considered as safe.

Export Credit Guarantee Corporation of India Ltd., has been providing the facility
of export credit in the country since it was set up in the year 1957. It is the oldest
export credit insurance agency in the developing world.

ECGC is a company wholly owned by the Government of India and functions under
the administrative control of the Ministry of Commerce.

The primary goal of ECGC is to support and strengthen the export promotion drive
in India by providing a range of credit risk insurance covers to exporters against
loss in export of goods and service also by offering guarantee covers to banks and
financial institutions of enable exporters to obtain better facilities from them.

ECGC basically provides two types of services. Export credit insurance policies are
issued to the exporters protecting them from credit related risks and enabling them
to expand their export trade. ECGC insures exporters against the risks of not being
paid by the overseas customers. These risks include default or insolvency of the
buyer, exchange difficulties, which may block or delay remittance and new
restrictions on imports imposed in the buyer’s country. The Corporation issues
Specific policies for exports of high value goods where payment are normally made
of deferred terms. Such exports are in the nature of export of capital goods,
constructions works, turnkey jobs or rendering services abroad.

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Guarantees to Banks
Timely and adequate credit facilities, at the pre-shipment as well as post-shipment
stage are essential for exporters to realise their full export potential.
Exporters may not however, be able to obtain such facilities from their bankers for
several reasons eg., the exporter may be relatively new to export business; the extent
of facilities needed by him may be out of proportion to the equity of the firm or the
value of the collaterals offered by the exporter may be inadequate. ECGC has
designed several schemes of Guarantees to Banks with a view to enhancing the
creditworthiness of the exporters so that they would be able to secure liberal and
adequate facilities from their bankers. The Guarantees seek to achieve this objective
by assuring the banks that in the event of an exporter failing to discharge his
liabilities to the banks and thereby making the bank incur a loss, ECGC would
make good a major portion of the bank’s loss. The bank is required to be co-insurer
to the extent of the remaining loss. Any amount recovered from the exporter
subsequent to payment of claims shall be shared between the Corporation and the
bank in the same ratio in which the loss was borne by them at the time of settlement
of claim. Recovery expenses shall be first charge on the amounts recovered.