Page 108 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 5: Methods of Financing Exporters and Business Risk Management

Banks also could help ECGC to collect factoring charges on each of the factored invoices. ECGC Notes
covers every facet of the exporter’s risks. It is the only corporation that is committed to taking
your exports higher.

Task What is factoring and write a note on characteristics and different types of factoring.

5.5 Types of Risk and Insurance

International transactions are full of risks of various types. The exporter faces a number of risks
when he ships the goods to a foreign importer in another country. It is better to know about the
risks in advance that the exporter is able to take appropriate insurance cover for different pitfalls.
Risk means uncertainty concerning occurrence of a loss. This means that the exporter, while
shipping goods, is in a state of uncertainty about various happenings that could result in loss.
There is a possibility of something going wrong somewhere that could spell loss. Exports usually
involve a certain size, that is, even a very small order will normally carry a reasonable value. This
value faces possibilities of damage/loss. The exporter needs to have a comprehensive understanding
of different types of such possibilities, in order to enable him to take preventive measures.
Let us discuss various risk and insurances polices under ECGC.

Export Credit Guarantee Corporation (ECGC)

Export Credit Guarantee Corporation of India Limited was set up in the year 1957 by the
Government of India to strengthen exports by covering the payment risk in exports. The basic
purpose of ECGC is to provide credit risk insurance to Indian exporters in a manner that helps
them export free from the fear of loss, resulting from non-payment either due to credit or
political reasons. Credit risk insurance provides protection to exporters who ship their goods
on credit to their foreign buyers, thus running the risk of non-payment.
ECGC functions as an export promotion organisation under the administrative control of the
Ministry of Commerce, Government of India. The fifth largest credit insurer in the world, they
provide a range of credit risk insurance covers to exporters and bankers against payment losses
involved in export trade.

ECGC provides:
(i) A range of credit risk insurance covers to exporters against loss in export of goods and
services.

(ii) Guarantees to banks and financial institutions to enable exporters obtain better facilities
from them.
(iii) Special schemes like Overseas Investment Insurance to Indian companies investing in
joint ventures abroad in the form of equity.
Exporters in India can make use of the services provided by ECGC in various ways. They can
make use of the ECGC cover to offer more competitive payment terms to their foreign buyers.
ECGC cover helps them borrow working capital from commercial banks at special rates for
their export transactions. ECGC also provides a credit check on foreign buyers. ECGC has tied
up with Dun & Bradstreet Corporation and together they have launched a website called
www.indianexportregister.com. This supports Indian exporters in global markets and aids
international buyers in sourcing products from credible Indian exporters. It contains a
comprehensive list of Indian exporters and is being used extensively by overseas buyers.

LOVELY PROFESSIONAL UNIVERSITY 103