CHAPTER 15

CREDIT INSURANCE
POLICIES AND ECGC

By: Dr. Ram Singh

Professor & Head (MDPs)
Indian Institute of Foreign Trade
New Delhi
Letus learn and
master
fundamentals first
NATURE OF RISKS IN FOREIGN TRADE-4CS

Company’s Product
Risk

Carriage Risk
Nature of Risks
in Foreign
Trade
Credit Risks

Currency Fluctuation
Risks
CREDIT RISKS: DEMYSTIFYING
BoPs Crisis

Sanctions

Country Risks

Expropriation

Nature of Credit
War/Rebellion
Risks

Protracted Default

Customer/Importer
Risks

Insolvency
 CUSTOMER RISKS: ORIGINS
PAYMENT TERMS
Exporter Risk Importer Risk

High  Open Account LOW

 Documentary Collections

 Time Drafts (D/A)

 Sight Drafts (D/P)
 Letters of Credit

 Cash in Advance

LOW High
 RISKS COVERED BY ECGC-
COMMERCIAL/PAYMENT FROM CUSTOMER

Insolvency

Protracted
Buyers Risks Default

Contract
Risks Covered Repudiation
by ECGC

Insolvency of
the Bank
Bank Risks
Protracted
Default
 RISKS COVERED (CONT.)

Inconvertibility

Contract
Frustration

Contract
Political Risks
Cancellation

Import Restriction

Shipment Diversion
 RISKS NOT COVERED
Commercial / quality disputes

Buyer’s failure to obtain

necessary import authorization
before shipment

Insolvency/default of any agent of

Risks not covered by ECGC exporter or collecting bank

Risks covered by General Insurers

Exchange rate fluctuation

Letus start
now…
ECGC
 INTRODUCTION TO ECGC

 Government of India has established the Export

Credit Guarantee Corporation of India Limited in
the year 1957 for the purpose of strengthening
and boosting the export promotion efforts by
covering the risk of exporting on credit.

 ECGC, being essentially an export promotion

organization for covering the credit risk so as to
increase the exports from the country, functions
under the administrative control of the Ministry
of Commerce & Industry, Department of
Commerce, and Government of India.
 ECGC-THE JOURNEY SO FOR

Incorporated as ERIC(1957), 50 Years of committed service and

Established on 30th July 1957
converted to EC&GC(1964) and 5th Largest Credit insurer of the
and mandated to promote exports
finally known as ECGC(1983) world

Managed by Board of Directors, Authorized Capital Rs.1000 crore, Registered office MUMBAI, 5
under Ministry of Commerce, GOI Paid-up Capital of Rs.900 crore. ROs, 52 Branches

Member of BERNE union (Intl

WAN connectivity,
Registered with IRDA during Sep
2002
Largest data base of buyers and
also maintains list of buyers with
adverse experience
Union of Credit Investment Alliance with Coface(France),
Insurers) 53 members from 42 D&B
Countries
Accredited with “iAAA” by ICRA,
associate of Moody’s Investors
Branches are ISO 9001:2000
Service, indicating highest claim
certified
paying ability & best prospects of
meeting PH’s obligation
GOI instilled confidence in ECGC
Tie-up with NSIC (National
by establishing NEIA (National
Small Industries Corporation) to
Export Insurance Account) with a
offer our products to a number
corpus of Rs.2000 Cr to be
SMEs spread over India.
operated by ECGC

Full-fledged 'factoring’ scheme Domestic credit risk insurance is

launched. on the agenda
 MAIN FUNCTIONS OF ECGC
 ECGC provides a wide range of credit risk insurance
covers and products to exporters so as to enable them
against the losses in export of goods and services in
international transactions.

 ECGC helps the exporters in financing their trade

transactions by offering guarantees to commercial banks
and financial institutions particularly in cases where
exporter has risky payment options and are having
problems in pre-shipment and post shipment finances for
export transactions.

 ECGC also provides Overseas Investment Insurance to

Indian companies which are investing in joint ventures
abroad in the form of equity or loan thereby covering
their exposure to risks and enabling them to make foray
in international markets.
 SPECIFIC FUNCTIONS OF E.C.G.C

 ECGC helps the exporters by offering the insurance

coverage against the payment risks in changed global
economic environment when many Indian exporters are
for the first time into international trade by taking
benefits from the process of economic liberalization
 ECGC has firsthand information in export related
activities particularly in the areas of potential risk
associated with countries and mode of payment in
globally changing trade regime and offers such guidance
to exporters to help them out to avoid risk in such deals.
 ECGC, with its networks with other credit risk agencies
in the world, occasionally publish the information on
risk perception on different countries with its own credit
ratings and helps the exporters to avoid them.
 SPECIFIC FUNCTIONS OF E.C.G.C

 ECGC acts as facilitators in obtaining the export

finance from banks/financial institutions through
various guarantees to banks and financial
institutions.
 ECGC assists the exporters in recovering bad debts
from defaulters by helping them out to precede legal
and diplomatic channels.
 ECGC maintains the database of domestic and
international exporters and importers and shares
with other Credit Risk Insurance agencies and
provides information on creditworthiness of overseas
and domestic traders.
 ECGC offers wide range of product and services to
exporters including customized products to meet their
requirement and needs for export credit insurance.
 KEY OBJECTIVES OF CREDIT
INSURANCE

Protection
Protection
from the
from the
corporate
bankruptcy
insolvency

Helps exporter in dealing

Helps in
with county court and in
dealing with
administration of recovery
bad debts
order
 ROLE OF ECGC IN EXPORT
PROMOTION

Helps in expansion of sales.

Helps in protecting the exporter against bad

debts.

Helps in credit facilitation and boost his

borrowing power.

Helps in stabilizing and assuring the cash flow.

Helps in exploring and developing new markets.

 BASIC PRINCIPLES OF CREDIT
INSURANCE-1
 Utmost Good Faith: Any insurance contract is
based on utmost good faith. Hence; both exporter
and ECGC should have faith over each other as
trust is the basis of nay trade relationship. It is the
duty of exporter to disclose all material facts of
export transaction to ECGC as any misdeclaration
or misrepresentation may lead to cancellation of the
contract.
 BASIC PRINCIPLES OF CREDIT
INSURANCE-2
 The Spread of Risk: Under credit insurance
contract, an exporter is required to declare all
shipment being made except allowed exception
under various kinds of polices of ECGC. ECGC has
allowed certain exceptions in respect of transactions
made against advance payment or and Confirmed
Letter of Credit.
 BASIC PRINCIPLES OF CREDIT
INSURANCE-3
 An Exporter is a Co-Insurer: Both the parities to
contract will share the losses as per the clause of
the policy, for example an exporter has to suffer a
loss of 10% in standard policy of ECGC. ECGC
normally pays 80-90% of the losses on account of
political or commercial risks under claims. An
exporter shall be a party to bear some percentage of
losses so as to ensure due diligence by him in
protecting the interest of business at every stage.
 BASIC PRINCIPLES OF CREDIT
INSURANCE-4
 Subrogation Clause: ECGC purses the cases
where default or insolvency or any country risks has
happened and it has to pay to exporter under claim
procedure. ECGC acts in close coordination with its
counterparts and make recoveries from such
defaulting parties. When such a proceeds come into
an account of exporter; he is duty bound to share it
proportionately with ECGC, as insurance contract
underlying principles are good faith and spread of
risks.
 EXPORT CREDIT INSURANCE
FOR EXPORTER
Shipments Comprehensive Risks Policy – (SCR)
Small Exporters Policy – (SEP)
Specific Shipment Policy-(SSP)
ECIE Short
Term – Services Policy – (SRC)
Turnover Based
Export Turnover Policy – (ETP)
Exports (Specific Buyers) Policy (BWP)
Consignment Exports Policy (Stockholding Agent) – (CSA)
EXPORT Buyer Exposure Policy (SBEP)
CREDIT
INSURANCE ECIE Short IT-Enabled Services Policy-Single Customer (SITES)
FOR Term –
EXPORTER Exposure Based mall And Medium Enterprise – (SME)
Software Project Policy (SPP)
Construction Works Policy-(CWP)
Specific Policy for Supply Contract
ECIE – Medium
Specific Shipment Policy-(SSP)
& Long Term
Specific Services Policy-(SRC)
Letter of Credit confirmation Cover
 RISKS COVERAGE UNDER MICRO
EXPORTER POLICY OF ECGC

Risks Insolvency of the buyer.

covered on
Failure of the buyer to pay within 2 months
the
from the due date
overseas
buyers Buyer’s failure to accept the goods, subject to
Commercia certain conditions.
l Risks
Risks Insolvency of the L/C Opening bank
RISKS covered on
COVERAGE the L/c
opening Failure of the L/C opening bank to make the
UNDER payment within 2 months from the due date.
MICRO Bank
EXPORTER Import restriction, blockage of Trade Supply Chain, delay on
POLICY OF transfer of funds by importer
ECGC
War, civil war, revolution or civil disturbances, import
Political restrictions or cancellation of a valid import licenses
Risks Interruption or diversion of voyage outside India resulting in
payment of additional freight or insurance charges
Any other cause of loss occurring outside India not normally
insured by general insurers.
 PROCEDURE FOR MAKING A
CLAIM
 File the claim with ECGC
 Form No.501 for claims which are arising as
importer has refused to pay on accepted goods
under D/A or Open Account Method.
 Form No.502 for claims wherein there is a
non-acceptance of goods or importer refuse to
accept the documents by the buyer, and
 Form No.503 for claims which are arising on
account of delay in transfer of funds to India.
 PROCEDURE FOR MAKING A
CLAIM
 A Letter by Exporter stating the
circumstances/particulars of non-payment,
partial payment, additional expense incurred etc
 Copy of the Credit Insurance Policy availed.

 Credit insurance claim form should be routed

through the bank which is handling the export
bills of an exporter for the transaction.
 Claim must be filed within 24 months from the
due date of the concerned bills and ECGC will
not entertain any request after this period
 PROCEDURE FOR MAKING A
CLAIM
 Exporter should attached following document to
support the claim
 Certified copy of the export order
 Certified copies of invoices
 Certified copies of bills of lading
 Copies of the correspondence with the buyer
 In case of insolvency of the buyer, copy of the letter
from the official receiver / liquidator admitting the
claim.
 Further in cases of protracted default by the
importer; an exporter is required to submit (a)
protect note, (b) original of unpaid bills, (c) advice
of nonpayment received from the bank, and (d)
copy of the plaintiff if a suit has been filed.
 PROCEDURE FOR MAKING A
CLAIM
 When claims are filed for coverage of losses due
to transfer delays, exporter should submit a
certified copy of payment advice received from
the collecting banker indicating the date on
which payment was made by the buyer in local
currency. ECGC verify that there is compliance of
laid down procedure under FEMA for realization
of export proceeds. ECGC process credit
insurance claim in Indian rupee only and the
claim proceeds are routed through the bank
involved in realization of export proceeds from
abroad.
 2. SMALL EXPORTERS POLICY
 Export turnover up to Rs. 50 lakhs
Period of the Policy : 12 months
Exclusion Permitted 1. Exports to associates
2. Letter of credit
3. Consignments exports
Risk Covered : 1. Commercial Risks
2.Political Risks
3. LC Opening bank Risks
Percentage of Cover : 1 95%for commercial risks
2. 100% for Political Risks

Minimum Premium : Rs. 2,000/- adjustable

Highlights of the Policy : 1. Highest Coverage/ Compensation

2. Lowest Premium Rate
3. NCB of 5% every year
3. Discrepancy cover of LC
4. Automatic approval for resale / reshipment up to 25% of GIV
5. Increased discretionary Limit
 SMALL EXPORTERS POLICY….
 Important Obligations of the Exporters.
1. Obtaining valid credit limit on buyers
and banks
2. Quarterly declaration of shipments and
payments of premium
3. Declaration of payments overdue by
more than 30 days
4. Filing of claim within 24 months
5. Sharing of Recovery
 3. SPECIFIC SHIPMENT POLICY-
SHORT TERM

For Exporters who are Occasional in International

Trade.
Period of Policy :Valid for shipments made from the date of the
issue of the Policy upto last date.
Risk Covered : 1. Commercial Risks
2.Political Risks
3. LC Opening bank Risks

Percentage of Cover : 80%

Highlights of the Policy : 1. Selection for insurance cover.

2. Other exports not to be declared.
3. ADD On Marine Insurance Cover
4. Premium rate reduced proportionally on higher
share of loss to exporter.
 SPECIFIC SHIPMENTS POLICY
 Important Obligations of
the Exporter
1. Upfront Premium Payments
2. Statement of Shipments
made
3. Payment Advice slip
4. Statement of Overdue
5. Filing of Claim within 12
months from due date
6. Sharing of Recovery
 4. EXPORTERS ( SPECIFIC BUYERS)
POLICY
 For Specific buyers with high degree of risk
Period of Policy : 12 Months
Risk Covered : 1. Commercial Risks
2.Political Risks
3.Insolvency of default of LC Opening bank Risks

Percentage of Cover : 80%

Highlights of the Policy : 1. Selective buyers can be insured.

2. Option to Exclude LC Exports
3. Premium rate can be reduced proportionately.
 EXPORTERS SPECIFIC BUYERS POLICY
 Important Obligations of the
Exporter
1. Deposit Premium on quarterly in
advance
2. Submission of shipments declarations
quarterly.
3. Declaration of Payments overdue for
more than 30 days.
4. Filing of claim within 12 months from
due date
5. Sharing of Recovery
 5. EXPORTERS TURNOVER POLICY

 Turnover Policy is good for large exporters as turnover policy is for the benefit of large
exporters who contribute not less than Rs. 10 Lakhs per annum towards premium.

Period of Policy : 12 Months

Risk Covered : 1. Commercial Risks
2.Political Risks
3.LC Opening bank Risks

Percentage of Cover : 90%

Highlights of the Policy : 1. Simplified procedure for payments of premium

2. 10 % of projected premium is waived when exports increase
beyond
projection.
3. Increased discretionary limit.
 …….EXPORTS TURNOVER POLICY
 Important Obligations of the Exporter
1. Premium will be payable in four equal
quarterly installments in advance.
2. Submission of quarterly statements of
shipments
3. Declaration of Overdue payments
4. Filing of Claim within 24 months from due
date
5. Sharing of Recovery
 6. BUYERS EXPOSURE POLICY
 Is to insure the exporters having large no. of shipments with simplified procedure
and rationalized premium.
Period of Policy : 12 Months
Risk Covered : 1. Buyers Risks
2.Political Risks
3.LC Opening bank Risks

Percentage of Cover : 90% for standard policy holders and 80% for others.

Highlights of the Policy : 1. 5 % discount in premium if paid in advance.

2. Declaration Procedure Waived
3. Exporters to approach only for default and claims
4. One policy for one buyer
 ….BUYERS EXPOSURE POLICY
 Important Obligations of the Exporters
1. Premium payable in advance
2. Option to pay the premium quarterly in advance is available.
3. Premium non refundable.
4. Obtaining approval for extension in due date beyond 180 days
5. Declaration of Over due payments
6. Filing of claim within 12 months from due date
7. Sharing of Recovery
 7. MULTI BUYERS EXPOSURE POLICY
Period of Policy : 12 Months

Risk Covered : 1. Buyers Risks

2.Political Risks
3.LC Opening bank Risks

Percentage of Cover : 80%

Highlights of the Policy : 1. Policy is best suited for exporters who make frequent
shipments.
2.Reduced Premium rates available on conditions.
3. 5 % reduction on total premium on lump sum payments.
4. No Declaration required
5. All Buyers in open countries covered on conditions
6 Projection up to aggregate loss limit and individual buyers up
to 10%.
 ….MULTI-BUYERS POLICY
 Important Obligations of the Exporters
1. Premium payable in advance
2. Option to pay the premium quarterly in advance
is available.
3. Premium non refundable.
4. Obtaining approval for extension in due date
beyond 180 days
5. Declaration of Over due payments
6. Filing of claim within 12 months from due date
7. Sharing of Recovery
 8. I.T. ENABLED SERVICES POLICY
 I.T. enabled services policy would be given in respect of contracts for rendering services during a
defined period with billing on the basis of service rendered during a period say a week months or a
quarter.
Policies to be Offered : IT enabled services specific customer policy
Risks Covered : Commercial Risks:1. Insolvency of the customer
2. Failure of the customer to make the payments
3. Buyers failure to accept the services rendered subject to certain
conditions
Bank Risks: 1. Bankruptcy of LC opening bank
2. Failure of LC opening bank to make the payments
Political Risks :1. Imposition of restrictions by the Governments of the customer country.
2. Transfer Delay
3. War Civil war revolution or civil disturbance in the customer country.
4. New import restrictions or cancellations of a valid import license.
5. Cancellation by the Govt. of India a legally valid and binding contract

Percentage of cover: 80%

 … I.T. ENABLED SERVICES POLICY
Distinct Characteristics
1.Contract for a defined period.
2. Billing pre-determined internal.
3. Loss including services rendered.
4. No physical documents for transfer.
5.Provision for correction in case of Omission or
deletion.
 …. I.T. ENABLED SERVICES POLICY
Highlights of the Policy
1. The Policy will be offered for contracts which
contain standard terms conditions as per the
norms and practices of the IT- enabled Services
export industry.
2. Right to verify documents by authorized
agency.
3. Monthly declaration indicating the services
rendered invoices raised and invoices paid to be
submitted by the exporters.
4. No separate overdue report.
 9. SOFTWARE PROJECTS POLICY
The software projects policy will provide protection to exporters of software and related services
where the payments will be received in foreign exchange.
Software Services exports covered under Software Projects Policy.
1. Supply of software products and packages, or
2. Staffing and programming services, or
3. Both off shore and on site development
Risks Covered: A. Commercial Risks- Default, Insolvency, and wrongful repudiation after
commencement of services.
B. Political Risks- 1. Transfer delay variation of exchange rate.
2. War Risk
3. Restrictions arises due to political situation in India or buyers country.
4. Refusal of Visa for employees of exporter.
5. Unjustified restraining of personnel of the exporter
6. Increase in any tax or production of a new payable by the exporter.
7. Variation in exchange rates.
Losses mentioned at 4 to 7 above will be covered maximum up to 25% of value of export
Percentage of Cover: 80%
 … SOFTWARE PROJECTS POLICY

Distinct Characteristics:
1. Billing mostly on milestones progress report.
2. Exact due dates not possible
3. Losses may be for the work done which invoice is
not raised.
4. No physical documentation possible.
 … SOFTWARE PROJECTS POLICY
Highlights of the policy:
1. Authorized agency shall inspect books of
account.
2. Accept the documents without Bank
certification.
3. Contract for a defined period
4. Billing Pre-determined interval.
5. Loss including services rendered.
6. No Physical documents for transfer.
7. Provision for correction in case of omission or
deletion
 10. CONSIGNMENT EXPORTS POLICY
(STOCK HOLDING ENTITY)
Introduction :Economic Liberalization and gradual removal of
international barriers for trade and commerce are opening up various
new avenues of exports opportunities to Indian exporters of quality
goods. A method increasingly adopted by Indian exporters is
consignment exports where goods are shipped and held in stock
overseas ready for sale to overseas buyers , as and when orders are
received . Thus a separate credit insurance policy is introduced to
cover exclusively shipments on consignment basis taking into account
their special features , providing adequate incentives and simplifying
the procedures considerably.
Period of Policy: 12 Months
Risks covered: 1. Commercial Risks on stockholding agent and or
ultimate buyer
2. Political Risks
Percentage of Cover: 90% for standard policy holders and 80% for
others.
 …..CONSIGNMENT EXPORTS POLICY
(STOCK HOLDING ENTITY)

Highlights:
1. Cover only the consignments exports.
2. Rationalized premium for 360 days.
3. Automatic cover for ultimate buyers up to
discretionary limit.
4. Commercial risks on agents covered .
5. Extended period for realization up to 360 days.
……. CONSIGNMENT EXPORTS POLICY
(STOCK HOLDING ENTITY

Important Obligations of the exporters

1. Advance deposits of premium in advance on quarterly
or monthly basis.
2. Obtaining credit limit on ultimate buyers beyond the
discretionary limit.
3. Quarterly /monthly statement of actual exports.
4. Overdue declaration.
5. Filing of Claim.
6. Sharing of Recovery
11. CONSIGNMENT EXPORT POLICY
( GLOBAL ENTITY)

Introduction : A method adopted by Indian exporters is

consignment exports where goods are shipped to their
own branch office overseas ready for sale to overseas
buyers as and when orders are received . Thus , a separate
credit insurance policy is introduced to cover exclusively
shipments by the exporters to their branches overseas on
consignment basis taking into account their special
features , providing adequate incentives and simplifying
the procedures considerably.
Period of Policy:12 Months
Risk Covered 1. Commercial Risk on ultimate buyers .
2. Political Risks
3. Insolvency Risk on the overseas branch.
Percentage of Cover: 90% for standard Policy holders and
80% for others.
….CONSIGNMENT EXPORT POLICY
( GLOBAL ENTITY)
Highlights of Policy:
1.Cover only the consignment exports.
2. Rationalized premium for 360 days.
3. Automatic cover for ultimate buyers up to discretionary
limit.
4. Commercial risks on agents covered.
5. Extended period for realization up to 360 days.
….CONSIGNMENT EXPORT POLICY
( GLOBAL ENTITY

Important obligations of the exporters:

1. Advance deposits of premium in advance on quarterly or
monthly basis.
2. Obtaining credit limit on ultimate buyers beyond the
discretionary limit.
3. Quarterly / Monthly statement of actual exports.
4. Overdue declaration.
5. Filing of Claim
6. Sharing of Recovery
 12.SERVICES POLICY
Introduction: Services Policies offer protection to Indian firms against
payments risks involved in rendering services to foreign parties. A
Wide range of services like technical or professional services, hiring
or leasing can be covered under these policies. The exporters can opt
for Whole Turnover Services Policy or for Specific Services Policy
depending on the nature of service provided. The premium rates
applicable to Standard Policy will be applied for Whole Turnover
Services Policy and Specific Shipment Policy Premium rates will be
applied for Specific Services Policy.
Period of Policy: 12/24 months as per the requirement
Risks Covered:1. Commercial Risks on Ultimate buyers
2. Political Risks
3. LC Opening Bank Risks
Percentage of Cover: 90% or 80%
…. SERVICES POLICY
Highlights: Option to Select the Type of Cover

Important Obligation of the Exporters:

1. Advance deposits of premium in advance to cover
premium
2. Obtain credit limit on services receiver
3. Monthly statement of actual services provided
4. Overdue declaration
5. Filing of Claim
6. Sharing of Recovery
 Thank You
धनयवाद
Merci

Gracias Danke
Schon

Thank You 谢谢