Other unforeseen incidents like new import restrictions or cancellation of a valid import license in the buyer's country; interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer; and any other cause of loss occurring outside India not normally insured by general insurers.

Hence, in order to ensure safe and successful overseas expansion plans it is necessary to provide a comprehensive insurance cover against all such risks faced by an entrepreneur. Such a insurance facility seeks to create a favourable climate in which investors including exporters can get timely and liberal credit facilities from banks at home.

Accordingly, Export Credit Guarantee Corporation of India Limited (ECGC) was established by the Government of India under the administrative control of the Ministry of Commerce & Industry in order to strengthen the export promotion drive by covering the risk of exporting on credit. It provides a range of credit risk insurance covers to exporters against loss in export of goods and services as well as offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them. Its objectives are to provide insurance cover to:- (i) exporters against political and commercial risks; (ii) exporters against the risk of exchange rate fluctuations; (iii) banks against export credit and guarantees extended by them; (iv) Indian investors abroad against political risks.

The insurance cover issued by it may be broadly divided into the following four groups:-

• Standard policies or SCR issued to exporters to protect them against payment risks involved in exports on short-term credit, i.e. credit not exceeding 180 days. It is also known as shipments (comprehensive risks)policy. It is issued to exporters whose anticipated export turnover for the next 12 months is more than Rs.50 lacs. It covers both commercial and political risks from the date of shipment. However,the policy does not cover losses due to the following risks:-
  
  

  • Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer's country in his favor.
  
  
  
  • Causes inherent in the nature of the goods.
  
  
  
  • Buyer's failure to obtain necessary import or exchange authorization from authorities in his country.
  
  
  
  • Insolvency or default of any agent of the exporter or of the collecting bank.
  
  
  
  • Loss or damage to goods which can be covered by general insurers.
  
  
  
  • Exchange rate fluctuation.
  
  
  
  • Failure or negligence on the part of the exporter to fulfill the terms of the export contract.

  • Specific policies designed to protect Indian firms against payment of risks involved in exports on deffered terms of payment, services rendered to foreign parties construction works and turnkey projects undertaken abroad.
    
    
    • Specific Shipment Policy-Short Term(SSP-ST):- It provides cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit not exceeding 180 days. Exporters can take cover under these policies for either a shipment or a few shipments to a buyer under a contract. These policies can be availed of by:-(i) exporters who do not hold SCR Policy and(ii) by exporters having SCR Policy, in respect of shipments permitted to be excluded from the preview of the SCR Policy.
    
    
    
    • Construction Works Policy:- It is designed to provide cover to an Indian contractor who executes a civil construction job abroad. The distinguishing features of a construction contract are that:- (i) the contractor keeps raising bills periodically throughout the contract period for the value of work done between one billing period and another; (ii) to be eligible for payment, the bills have to be certified by a consultant or supervisor engaged by the employer for the purpose.
    
    
    
    • Specific Policy for Supply Contract:- Contracts for export of capital goods or turnkey projects or construction works or rendering services abroad involve medium/long-term credits. Such transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies.
      

  • Financial guarantees issued to banks in India to protect them from risks of loss involved in their extending financial support to exporters at the pre-shipment as well as post-shipment stages.
    
    
  • Packing Credit Guarantee:- Timely and adequate credit facilities at the pre-shipment stage are essential for exporters to realize their full export potential. The Packing Credit Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers. The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss.
  
  
  
  • 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 f.o.b. value of the contract/order, the differences representing incentive/duty drawback receivable
  
  
  
  • Post-Shipment Export Credit Guarantee:- If the exporter intends to continue the credit facilities till the value of shipment is realised from the foreign buyer, he has to avail of post-shipment credit. It provides protection to banks against non-realisation of export proceeds and the resultant failure of the exporter to repay the advances availed.
  
  
  
  • Export Finance Guarantee:- This guarantee covers post-shipment advances granted by banks to exporters against export incentives receivable in the form of cash assistance, duty drawback, etc.
  
  
  
  • Export Performance Guarantee:- An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee in the form of a 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. Further, for obtaining import licenses for raw materials or capital goods, exporters may have to execute an undertaking to export goods of a specified value within a stipulated time, duly supported by bank guarantee.
  
  
  
  • 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 (Overseas Lending) Guarantee.
    

  • Special schemes:-
    
    
  • Exchange Fluctuation Risk Cover:- It is intended to provide a measure of protection to exporters of capital goods, civil engineering contractors and consultants who have often to receive payments over a period of years for their exports, construction works or services. Under it cover is available for payments scheduled over a period of 12 months or more, upto a maximum of 15 years.
    
    
  • Transfer Guarantee:- When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honour the drafts drawn by the beneficiary of the Letter of Credit without any recourse to him provided such drafts are drawn strictly in accordance with the terms of the Letter of Credit. The confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to the exporter. The Transfer Guarantee seeks to safeguard banks in India against losses arising out of such risks.
  
  
  
  • Overseas Investment Guarantee:- Export Credit Guarantee Corporation of India Limited has evolved a scheme known as the 'Overseas Investment Guarantee' or 'Overseas Investment Insurance' scheme in order to provide protection for Indian investments abroad. It provides insurance cover for the investments made by Indian corporates in Government of India approved joint ventures (JVs) or their wholly owned subsidiaries (WOSs) abroad either in the form of equity or loan.

  • The period of insurance cover will not normally exceed 15 years in case of projects involving long construction period. However,the cover can be extended for a period of 15 years from the date of completion of the project subject to a maximum of 20 years from the date of commencement of investment. The amount insured therein shall be reduced progressively in the last five years of the insurance period.

  The criteria for coverage under overseas investment insurance are:-

  • Any investment made by way of equity capital or untied loan for the purpose of setting up or expansion of overseas projects will be eligible for cover under investment insurance.
  
  
  
  • The cover would be available for the investments which emanates from India and benefit of dividend or interest therefrom accrues to India.
    
    
  • Such investments should not be in any way conflict with the policy of both India's Government and the overseas Government.
  
  
  
  • For investment in any country to qualify for investment insurance, there should preferably be a bilateral agreement between India and the host country for promotion and protection of Indian investment. In case there is no such agreement, the Corporation may consider providing cover if it is satisfied that the existing laws of the host country adequately safeguard Indian investment.
  
  
  
  • The risks of war,expropriation and restriction on remittances are also covered under the scheme. As the investor would be having a hand in the management of the joint venture,no cover for commercial risks would be provided under the scheme.
    

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