ECGC Ltd. Risk Perception
ECGC Ltd. Risk Perception
Subject: Economy
Section: External sector
Concept:
ECGC Ltd. (Formerly known as Export Credit Guarantee Corporation of India Ltd.) wholly owned by the Government of India (Ministry of Commerce and Industry), was set up in 1957 as Export Risks Insurance Corporation with the objective of promoting exports from the country by providing credit risk insurance and related services for exports.
ECGC is essentially an export promotion organization, seeking to improve the competitiveness of the Indian exports by providing them with credit insurance covers.
After the introduction of insurance covers to banks during the period 1962-64, the name was changed to Export Credit & Guarantee Corporation Ltd in 1964. It was changed to ECGC Ltd in August 2014.
The Corporation has introduced various export credit insurance schemes to meet the requirements of commercial banks extending export credit. The insurance covers enable the banks to extend timely and adequate export credit facilities to the exporters. ECGC keeps its premium rates at the optimal level.
The Corporation has set before itself the following objectives:
- To encourage and facilitate globalization of India’s trade.
- To assist Indian exporters in managing their credit risks by providing timely information on worthiness of the buyers, bankers and the countries.
- To protect the Indian exporters against unforeseen losses, which may arise due to failure of the buyer, bank or problems faced by the country of the buyer by providing cost effective credit insurance covers in the form of Policy, Factoring and Investment Insurance Services comparable to similar covers available to exporters in other countries.
- To facilitate availability of adequate bank finance to the Indian exporters by providing surety insurance covers for bankers at competitive rates.
- To achieve improved performance in terms of profitability, financial and operational efficiency indicators and achieve optimum return on investment.
- To develop world class expertise in credit insurance among employees and ensure continuous innovation and achieve the highest customer satisfaction by delivering top quality service.
- To educate the customers by continuous publicity and effective marketing.
ECGC provides
- A range of insurance covers to Indian exporters against the risk of non – realization of export proceeds due to commercial or political risks
- Different types of credit insurance covers to banks and other financial institutions to enable them to extend credit facilities to exporters and
- Export Factoring facility for MSME sector which is a package of financial products consisting of working capital financing, credit risk protection, maintenance of sales ledger and collection of export receivables from the buyer located in an overseas country.
Risk Classification:
The ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services due to commercial risks, economic risks, political risks and payment risks. ECGC classifies the countries into seven categories in the ascending order of risks perceived viz:
- Insignificant Risk- A1
- Low Risk-A2
- Moderately Low Risk-B1
- Moderate Risk-B2
- Moderately High Risk-C1
- High Risk-C2
- Very High Risk-D
ECGC conducts a comprehensive review of the countries covered by it based on an internal country risk methodology. This methodology aims at evaluating the country not only on the prevalent economic and political settings, but also on the correct developments that would have an impact on the future, with an increase in horizon of 12 months, as well as forecasts based on the strength and weakness of the country in terms of its economic and political strength.
- Open cover– For a large majority of countries, the ECGC hasn’t placed any limit for covering political risks. Such countries are referred to as ‘open cover’ countries. It enables policyholders to obtain cover on a more liberalized basis.
For those countries under this category ECGC insurance cover under short term is available for political risks for all transactions irrespective of limit on individual buyer or bank. However comprehensive cover (commercial plus political risk) is available depending on ECGC’s assessment of the credit worthiness of the buyer/bank.
- Restricted Cover
- Category-I (RCC-I)- Certain countries where the political risks are very high, cover is granted on a restricted basis and revolving limits are issued in place of credit limits. The procedure for sanction of revolving limits is the same as for credit limits. A revolving credit limit caps the maximum amount that an exporter can borrow from the line of credit.
For countries in RCC-1, revolving limits are approved specifically on a case-to-case basis, normally valid for a year. However, the premium rates for the shipments insured under the insurance covers remain unchanged.
- Category-II(RCC-II)-In respect of the few remaining countries under restricted cover, which are considered as high-risk countries, specific approvals are given on the merits of each case. Normally the period of validity of the specific approval is six months.