ECGC: Empowering Exports

ECGC, a premier Export Credit Agency (ECA) of Government of India (GOI) established in 1957, provides credit insurance covers to exporters against non-payment risks by the overseas buyers due to Commercial and Political reasons. It also provides insurance covers to banks against risks in export credit lending to the exporter borrowers. ECGC endeavors to support Indian Export Industry with its experience, expertise and underlying commitment to progress and advance of India’s exports.  ECGC promotes both Short Term (ST) exports (i.e. export realization within one year) and Medium and Long Term (MLT) exports (i.e. export realization extending over a period of more than one year).

In all, there are 19 insurance products for exporters, 11 insurance Products for banks and 12 insurance products for Medium and Long-term Exporters/Banks.   Further, ECGC also provides Customized Covers to meet specific requests of exporters.  It has also introduced Factoring facility to MSME Sector and cover in foreign currency to Special Economic Zone Exporters. 

Risks Covered

Broadly, under policies the commercial risks covered are insolvency of the buyer, protracted default by the buyer to pay for the goods and the failure of the buyer to accept goods subject to certain conditions. The coverage also includes default and insolvency of overseas banks that open L/C as well as losses arising on account of non payment due to discrepancies which do not materially alter the terms, subject to certain conditions.

The political risks covered are imposition of restriction on remittances by the Government in the buyer’s country or any Government action which may block or delay payment to the exporter, war, revolution or civil disturbance in the buyer’s country, new import licensing restrictions or cancellation of a valid import license in the buyer’s country after dispatch of goods by the exporter, cancellation of export license or imposition of new export licensing restrictions in India after the effective date of contract (under Contracts Policy) and payment of additional handling, transport or insurance charges occasioned by interruption or diversion of voyage which cannot be recovered from the buyer.

Some of the major policies for Short Tem Covers are as follows:

Shipments (Comprehensive Risks) Policy: For Exporters whose anticipated annual export turnover is more than Rs.500 lakhs will be eligible for this Policy. This is a Standard Whole-turnover Policy wherein all shipments are required to be covered under the Policy.

Exports (Turnover) Policy: Turnover Policy is for the benefit of large exporters who contribute not less than Rs.20 lakhs per annum towards premium. The policy envisages projection of the export turnover of the policyholder for a year and the initial determination of the premium payable on that basis, subject to adjustment at the end of the year based on actual. This is a Standard Whole turnover Policy wherein all shipments are required to be covered under the Policy.

Single Buyer Exposure Policy: This policy is provided to insure exporters having a large number of shipments to a particular buyer with simplified procedure and rationalized premium. An exporter can choose to obtain exposure based cover on a selected buyer. The cover would be against commercial and political risks. The option to exclude L/C shipment is available.

Multi-Buyer Exposure Policy: This policy is suitable for exporters who export to a large number of buyers and the number of shipments made by them is quite high. If the transaction is on L/C terms, failure of the L/C Opening Bank in respect of exports against L/C will also be covered.

Small Exporters Policy: An exporter whose anticipated annual export turnover for a period of one year does not exceed Rs.500 lakhs is eligible for this Policy. This is a Standard Whole turnover declaration based Policy wherein all shipments are required to be covered under the Policy.

ECGC’s Export Factoring Facility:

Under this policy, ECGC will enter into an agreement with the exporter to purchase the export receivables without recourse and assume credit risks on the overseas buyer. If the buyer defaults, the payment for undisputed liability will be made by ECGC.  This is designed for exporters who fall under the category of MSME as per MSMED Act 2006 and have minimum three years experience in exports with good track record.

FAQs on ECGC Factoring Service

QUESTION: What are the advantages of export factoring when compared to other measures to protect or provide finances for exporters such as letter of credit, purchase order financing and export credit insurance?

* Export Non Recourse Factoring service usually involves taking over the complete management of the business’ accounts receivable, including administration, confirmation,  collection of invoices, and maintaining records of all transactions between the seller and the buyer. This is usually coupled with a seamless, confidential service, The advantages of Non Recourse Export factoring are :

* Immediate cash-flow access to upto 85% percent of the value of debtor invoices.

* Working capital for growth without requirements for a strong balance sheet or substantial net worth.

* A good interface with the Exporter and, as a result, a seamless transaction for the buyer.

* Outsourced debtor administration and associated cost savings.

* The ability to increase sales by offering credit which the business may have been unable to fund otherwise.

* The ability to take advantage of creditor discount terms, improve credit rating by being able to pay creditors promptly and an enhanced ability to capitalize on larger orders as required.

* The option to free up property from being tied as security.

QUESTION: How can an exporter apply for export factoring? What is the required documentation and usually, how long does it take for approvals? What is the criteria? Are there any restrictions with regards to the type of goods?

ECGC will enter into an agreement with the exporters to purchase the export receivables, without recourse and assume credit risks on the overseas buyer. If the buyer defaults, the payments for undisputed liability will be made by ECGC.Interested exporters may fill in the application form with the requisite documents and fee and submit to ECGC.The Current Factoring scheme is basically intended for manufacturing sector. Some of the requisite documents include:

Company/Firm Documents:

    Copy of Import Export Code Number of the Company allotted by DGFT.

    Copy of Registration Certificate.

    KYC documents

Financial Documents:

Business Information

    Business and Management Profile

    Previous dealings with the customer

    Present contracts/ orders

Once the requisite documents and fee are submitted, client assessment and buyer assessment are done by ECGC and/ or appointed Credit rating agencies.

Some commodities which are not amenable to factoring are excluded. 

QUESTION: There are some who say export factoring is more advantageous for established exporters compared to smaller or first time exporters as factoring institutions usually prefer regular, larger orders. Comments.

ECGC’s Factoring scheme is intended to benefit the exporters falling under manufacturer category.

QUESTION: Many say the documentation process for factoring is tedious, complicated and have some legal lacunae, and that intimidates many MSME players from availing of this instrument. But exports from MSMEs contribute to a large share of India’s exports. Is ECGC doing anything to reach out and provide their services to MSMEs?

ECGC’s Factoring scheme is intended to benefit the exporters falling under Micro, Small & Medium Enterprises (MSME), as defined in MSMED Act 2006.The documentation process is simple, transparent and MSME friendly.

QUESTION: Globally, factoring is considered a favourable way for exporters and importers to conduct trade. In India, while its popularity is growing it still has not caught up with the traditional measures. What has been restricting its growth?

Probably the adverse results faced by many Factoring companies have prompted them to be restrictive in doing business.

QUESTION: Many organisations providing export factoring are struggling. The lack of awareness is considered one of the main issues. What is ECGC doing in this regard?

ECGC markets its schemes through its wide network of Branch Offices. ECGC’s documentation process is simple and easy to understand. Moreover the Exporter is educated on the nuances of ECGC’s factoring scheme. All the queries of Exporters are addressed to their fullest satisfaction. Transparency and clarity is maintained throughout.

QUESTION: Could you tell us more about the costs involved in the process. We understand that factoring more expensive than a bank loan. Why should an exporter go for factoring? Is factoring only for specific circumstances?

The costs include:

1)    Finance (Interest) Cost

2)    Buyer & Exporter Assessment Costs

3)    Credit protection charges and

4)    Processing fees

5)    Other costs at actuals

ECGC has kept the Financing costs at a minimal level to suit the manufacturing sector.

QUESTION: In case of non-payment by the importer, what challenges does an exporter face and how can it offset these risks?

Exporter faces Buyer’s Insolvency, Protracted default & Country Risks.He can offset these risks by availing Non-recourse Factoring scheme of ECGC.

QUESTION: Can ECGC offer its services to Indian exporters irrespective of the exporting destination?Are there specific destination countries for which you do not this service?

At present ECGC offers Factoring in A1,A2 and B1rated countries as per it’s rating scale.

QUESTION: What is the usual time frame for an exporter to receive his money?

It will depend on the usance period of the Bill. The popular payment terms are usance period of 60 days, 90 days, 120 days etc.

QUESTION: What are the advantages of availing services from ECGC Factoring Services?

The primary advantage is that the Exporter can focus on his core business without being bothered about the collection of receivables. Other advantages include:

* Immediate cash-flow access to upto 85% percent of the value of debtor invoices.

* Working capital for growth without requirements for a strong balance sheet or substantial net worth.

* A good interface with the Exporter and, as a result, a seamless transaction for the buyer.

* Outsourced debtor administration and associated cost savings.

* The ability to increase sales by offering credit which the business may have been unable to fund otherwise.

* The ability to take advantage of creditor discount terms, improve credit rating by being able to pay creditors promptly and an enhanced ability to capitalize on larger orders as required.

* The option to free up property from being tied as security.

QUESTION: In case of non-compliance by the importer, won’t the onus of paying the interest rate come onto the exporter? Wouldn’t this be a disadvantage?

No. Once the bill is factored, The Onus of collection is on ECGC.

QUESTION: What are the differences between recourse factoring and without (non)-recourse factoring? What do most exporters opt for? What is the margin differential for the two products?

In Recourse factoring, the Exporter is obliged to pay the factor in case of Non-payment by the Buyer. In Non-Recourse factoring, the Factor assumes the risk of Non-Payment by the buyer and there is no recourse to the exporter to recover the due amount.

Email id: marketing@ecgc.in

Website: www.ecgc.in

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