Institutions Providing Finance and Credit Facility for Foreign Trade

Contents

Institutions Providing Finance and Credit Facility for Foreign Trade

Foreign institutions / organisations provide finance and credit facility for foreign trade:

Export-Import Bank of India (EXIM Bank)
Export Credit Guarantee Corporation Ltd. (ECGC)
Various discount houses,
Industrial Development Bank of India (IDBI),
Various commercial banks,
Private export financing companies,
International Development Union,
International Finance Corporation,
Asian Development Bank,
World Bank,
Reserve Bank of India (RBI),
State Trading Corporation etc.

ECGC and Export Credit Risk Insurance

An exporter faces the risk of exchange rate fluctuations. An overseas investor runs certain political risks. The ECGC has schemes to cover risks.

Export Risks Insurance Corporation (ERIC) was setup in 1957 by the Government of India. In 1964 it was transformed into Export Credit and Guarantee Corporation Limited (ECGC). It was renamed as Export edit Guarantee Corporation of India Limited (ECGC) in 1983. The ECGC is a wholly owned government company. The ECGC functions under the administrative control of the Ministry of Commerce.

Insurance Covers by ECGC – The covers issued by ECGC can be divided broadly into four groups:

1. Standard policies issued to exporters.

2. Specific policies designed to protect Indian firms against payment risks.

3. Special schemes, e.g. Transfer Guarantee Letters of Credit, Insurance Cover for Buyer’s Credit, Line of Credit, Overseas Investment Insurance and Exchange Fluctuation Risk Insurance etc.

Standard Policies – These schemes are as under:

1. Shipments (Political Risks) Policy.

2. Contracts (Political Risks) Policy.

3. Shipment (Comprehensive Risks) Policy.

4. Contracts Comprehensive Risks) Policy.

Risks Covered by Standard Policies – The risks covered under the standard policies are:

(a) Commercial Risk:

(i) Insolvency of the buyer, (ii) Buyer’s failure to accept goods, (iii) Buyer’s protracted default to pay

(b) Political Risks:

(i) War, revolution or civil disturbances (ii) Imposition of restrictions on remittances by the government (iii) Cancellation of export licence (iv) New import licensing role of E.C.G.C.

Role of ECGC

ECGC plays significant role in promoting India’s exports such

It provides bank guarantee to avail credit to exporters.
ECGC facilitates export credit insurance to exporters.
It plays such roles which are assigned by the government for export promotion.
It provides export credit insurance. This type of insurance facility is not provided by the commercial insurance organisations.
It guarantees at a minimum rate.
It bears various risks through insurance policies.

In order to provide export credit insurance support to Indian exporters, the Government of India set up the Export Risks Insurance Corporation (E.R.I.C.) in July, 1957. It was transformed into Export Credit and Guarantee Corporation Limited (E.C.G.C.) in 1964. To bring the Indian identity into sharper focus, the corporation’s name was once again changed to the present Export Credit Guarantee Corporation of India Limited in 1983. ECGC is a company wholly owned by the Government of India. It functions under the administrative control of the ministry of commerce and is managed by a board of directors representing government, banking, insurance, trade, industry etc.

Suggestions for making its Activities more effective

In this case following suggestions can be given :

1. Filling the Vacancies: Vacancy should be filled immediately for the post of chief executive managers so that corporation can do work effectively.

2. Advertising and Publicity: Corporation should advertise and publicity of own policies so that small exporter can take benefits of such schemes.

3. Cover All Type of Risks: Corporation should cover all type of risks so that exporters can take advantages. Generally corporation does not provide insurance against risk of changes in exchange rate and quality of goods.

4. Reduction in Rate of Premium: Corporation change high rate of premium in comparison of rate of premium of other developed country. So corporation should reduce own rate of premium on policies.

5. Soon Settlement Corporation: often makes delay in clearance of claim and payment which discourages exporters to take its facilities so corporation should settled speedly claim and payment so that a lot of exporters can add with ECGC.

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