International Trade with Exports & Imports

Why not consider ECGC coverage instead of hedging to control risks?
S. Mandgi

Export Credit Guarantee Corporation  of India provides Indian exporters and importers opportunities of protection against multiple risks. This corporation has been existing for a very long time and many Indian exporters and importers have taken advantage of the ECGC coverage. 

I remember when i was a branch manager in Mumbai i had interacted with a Medical Equipment Retailer who would import and sell in India. He was loosing heavily due to the devaluation of the rupee , he was looking for viable options of controlling and mitigating this risk. I knew about ECGC and had suggested this option to him. The next time i met him, he said he had taken it as was satisfied that the cost of premium was far lesser than the monitory loss he could have incurred.

This could be considered a more viable option instead of hedging. Some information about what ECGC is all about is as shown below but to know more you need to visit their website

What is ECGC?
Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit.
Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.

ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.

What does ECGC do?
Provides a range of credit risk insurance covers to exporters against loss in export of goods and services
Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them
Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan

How does ECGC help exporters?
Offers insurance protection to exporters against payment risks
Provides guidance in export-related activities
Makes available information on different countries with its own credit ratings
Makes it easy to obtain export finance from banks/financial institutions
Assists exporters in recovering bad debts
Provides information on credit-worthiness of overseas buyers

Need for export credit insurance
Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

Post by : The Economic Times of India

RBI has provided some benefits to Indian exporters such as :-

1.It has allowed the banks to permit Indian exporters to receive advance payment for shipment of goods which would take more then a year to manufacture subject to certain conditions like KYC etc.

2.It has increased the time limit from 6 months to 1 year for repatriation of profits for the benefit of Indian exporters.

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