Obtaining Export Credit Insurance

Obtaining Export Credit Insurance :

Export credit insurance protects you from the consequences of the payment risks, both political and commercial. It enables you to expand your overseas business without fear of loss. Further, it creates a favourable climate for you under which you can hope to get timely and liberal credit facilities from the banks at home. You can obtain Export Credit Insurance from the Export Credit Guarantee Corporation.

In order to provide you Export Credit Insurance, the following covers are issued by the ECGC.

(i) Standard policies to protect you against the risk of not receiving payment while trading with overseas buyers on short-term credit

(ii) Specific policies designed to protect you against the risk of not receiving payment in respect of….

(a) exports on deferred payment terms

(b) services rendered to foreign parties

(c) construction work, including turnkey projects undertaken abroad

The policies are either :

Whole Turnover Policies in the form of Open Cover in respect of shipments made during 24 months period DP, DA & open delivery terms….You have to obtain credit limit on each one of your buyers to enable ECGC to approve a limit on the basis of credit worthiness of the buyer. Further you have to declare the details of shipments on monthly basis.

Specific Policies for exports of capital goods on medium or long-term credit, turnkey projects, civil construction works and technical services….These policies are basically similar to whole turnover policies but only apply to specific contracts.

Financial guarantees issued to banks against risk involved in providing credit or guarantee facilities to you, both at the pre-shipment or post-shipment stages

Special schemes viz. transfer guarantee issued to protect banks which add confirmation to letters of credit, Insurance cover for Buyers' Credit, Lines of Credit, Overseas Investment Insurance and Exchange Fluctuation Risk Insurance.

The other guarantees which banks can offer to you through ECGC schemes are :

Bid Bonds

Advance payments guarantee

Bank guarantee for due performance of the contract by the exporter

Bank guarantee for payment of retention money

Bank guarantee for loans in foreign currencies

Details of these schemes can be obtained from your own banker or local office of the Export Credit Guarantee Corporation.

The Shipments (Comprehensive Risks) Policy is the one ideally suited to cover risks in respect of goods exported on short-term credit.

Shipments to associates or to agents and those against letters of credit can be covered for only political risks by suitable endorsements to the Shipments (Comprehensive Risks) Policy. Premium is charged on such shipments at lower rates. Normally insurance value is calculated as 110% of invoice value.

For obtaining a policy you should apply to the nearest office of the ECGC in the prescribed Form (obtainable from ECGC). You should also confirm your acceptance of the premium rates which will be intimated to you at the time of obtaining the prescribed proposal form from the ECGC office. You should also remit Minimum Premium.

As commercial risks are not covered in the absence of a credit limit, you are advised to apply to ECGC for approval of credit limit on buyer in the prescribed Form before making shipment. Credit Limit is the limit upto which claim can be paid under the policy for losses on account of commercial risks.

If no application for Credit Limit on a buyer has been made, ECGC accepts liability for commercial risks upto a maximum of Rs. 5,00,000 for transactions on a particular buyer subject to the condition that the claims will be limited to two buyers during the currency of the policy or commercial risks up to a maximum of Rs, 3,00,000 for DA transactions and Rs, 10,00,000 for transactions provided that at least three shipments have been effected to the buyer during the preceding two years on similar payment terms and at least one of them was not less than the discretionary limit availed of by the exporter and the buyer had made payment on the due dates.

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