What is ECGC Scheme? Meaning, Benefits, and Features

As an exporter, you know the entire business can be rewarding but risky. Exports involve various factors, including producing and selling quality goods to an international clientele. The process as a whole means dealing with multiple factors, such as getting orders from global customers, arranging finance, ensuring on-time production, meeting quality standards, transporting goods, shipping and documentation, invoicing, and collecting payments.

Any disruption in the process, external and internal, can have a domino effect on the export process. Keeping this in mind, the Government of India offers many export promotion schemes and encourages banks and financial institutions to provide trade finance solutions.

The Export Credit Guarantee Corporation (ECGC), or the Export Guarantee Corporation of India, is one such initiative. ECGC Ltd. was started in July 1957. ECGC aimed to encourage exporters by covering the risk associated with exports on credit.

What does the ECGC do?

ECGC plays an essential role in supporting international trade. It offers services that help reduce risks and enhance exporters' competitiveness.

The ECGC scheme provides credit risk insurance coverage to Indian exporters against potential losses due to non-payment by buyers

Banks and financial institutions can also avail of export credit insurance from ECGC. This, in turn, enables exporters to get better financial terms from them

It provides overseas investment insurance to Indian businesses who want to invest in joint ventures abroad, either as equity or loans

How can exporters benefit from ECGC?

Insurance protection: As an exporter, insurance protection is available for exports. This ensures

The ECGC scheme provides insurance protection to Indian exporters against payment risks. When you export to a global customer, it is usually on credit. Once the importer receives the consignment, they will pay the amount against the invoice on the due date. The risk factor (for non-payment) could occur due to various factors, like natural calamities, war, political changes, changes in international trade policies, bankruptcy, etc.

When non-payment occurs, it can disrupt the exporter’s liquidity and business continuity. ECGC Scheme ensures exporters recover up to 80%-90% of their losses, safeguarding their financial stability.

Better financing options: When exporters seek finance, financial institutions or banks often assess risks by evaluating paperwork, the importer's credibility, and geopolitical risks.

When ECGC offers insurance coverage to the exporter, the risk factor is reduced, and financial institutions can offer favorable terms to the exporter. This, in turn, reduces their overall repayment burden and helps them provide competitive rates in an international market.

Export-related data insights: The ECGC scheme is deeply involved in the export sector, so it has access to data that can help exporters make the right decisions. For instance, it can guide exporters on which countries pose a higher non-payment risk, allowing them to structure their credit terms better.

They can even provide historical data to help exporters spot trends and occurrences in the international market and make better decisions. Another area this helps with is when a business enters a joint venture. Having the correct data enables better decision-making and negotiation.

Insurance to banks: The ECGC scheme also provides insurance coverage to financial institutions and banks that offer export credit. When these institutions have coverage, they are protected against the risk of non-payment from exporters. As we stated earlier, it makes availing Trade finance easier for exporters.

• Also Read: How to avail duty drawback scheme for business

What types of insurance covers does ECGC offer?

Here are some of the main types of insurance the ECGC scheme offers:

• Standard insurance policies to protect Indian exporters against credit risks overseas

• Insurance that covers construction work and services

• Financial guarantees as required to facilitate trade

Some special policies for exporters include the following:

• Guarantee for export financing

• Guarantee for packing credit

• Post-shipment export credit guarantee

• Export performance guarantee

• Transfer guarantee

ECGC also offers policies as required, aimed at specific business requirements:

• Standard policies for regular exporters

• Specific shipment policies for one of the transactions

• Buyer-specific policies aimed at high-volume importers

• The consignment policies for exports under the consignment arrangement

What risks does the ECGC scheme not cover?

Export Credit Guarantee Corporation (ECGC) Scheme does not cover certain aspects, which include the following:

• Loss due to fluctuations in exchange rates

• Buyer’s failure to obtain import-related permissions

• Defaults by the exporters or their agents

• Quality dispute-related losses

• Inherent risk that is part of goods’ nature

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