Business Risk Coverage

Risks Safe and Unsafe countries?? Competition is the keenest in safe markets while it is virtually non-existent in unsafe countries. E.g.: Afghanistan No one can foresee which countries are going to be risky. Risk assuming is voluntary

Types of Risk
1.
2. 3. 4. 5. 6.

Commercial Risk Political Risk Risks arising out of foreign laws Cargo Risks Credit Risks Foreign exchange fluctuation risks

Commercial Risks

Lack of knowledge about foreign markets Inadaptability of the export product to change to the conditions of the foreign market requirements Longer Transit time Varying situations to be handled-not anticipated before export Insolvency of the buyer Protracted default in payment Buyers failure to accept goods though there is no fault on the part of buyer

Commercial Risks-Price Realization

1.

2.
3. 4.

Changes Changes Changes Changes

in in in in

Exchange Rate Import Duties Transport Costs foreign Market Characteristics

Political Risks
1. 2. 3. 4. 5. 6. 7. 8.

Changes in party in power in concerned countries Coups, Civil wares and Rebellions War, revolution or civil disturbances New Import restrictions in buyers country or cancellation of valid import license after shipment/contract Imposition of restrictions in buyers country by Government for remittance of sales proceeds-delay exporters payment Cancellation of valid export license Capture of cargo by enemies during war Payment of additional transportation during diversions/interruptions

Legal Risks
Cargo Risks

Credit Risks: Exporters have to give credit to importers on the most competitive and favorable terms Insolvency Rate is high Money is transmitted yet not reaches exporter Balance of payments Exports have 2 issues: 1) The exporter must have sufficient funds to offer credit to the buyers abroad 2) The exporter should be prepared to take credit risks.

Export Credit Guarantee Corporation of India Limited

Export Credit Guarantee Corporation of India Limited was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit. ECGC Export Credit Guarantee Corporation of India Ltd (ECGC) is a Government of India enterprise under the administrative control of Ministry of Commerce, GOI. ECGC is one of the premier export promotion organizations setup by the Government of India for providing credit insurance and guarantee functions to the Indian exporters and the banks.

Export Credit Guarantee Corporation of India Limited

Provides a range of credit risk insurance covers to exporters against loss in export of goods and services Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan

Export Credit Guarantee Corporation of India Limited

How does ECGC help exporters? Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers

Types of Cover issued by ECGC

1. 2.

3.

Standard Policies: Issued to exporter to cover payment risks involved in exports on short-term credit basis Financial Guarantee: Issued to Bank to cover risks in extending credit at pre-shipment and post shipment Special Schemes: TO cover risks involved in confirmation to LC opened by Foreign banks Specific Policies: To cover risks involved in Exports on deferred payment contracts Services rendered to foreign parties Construction works and turnkey projects undertaken abroad

Standard Policies
1.

2. 3.

4.

Shipments Policy (Comprehensive Risk): Covers commercial and political risk from the date of shipment Shipments (Political Risk) Policy: from date of shipment Contracts (Comprehensive Risks) Policy: Covers commercial and political risk from date of contract Contracts (Political Risks) Policy: from date of contract

Shipments Policy (Comprehensive Risk Policy)

Commonly known as the Standard Policy. Cover risks in respect of goods exported on short-term credit, i.e. credit not exceeding 180 days. This policy covers both commercial and political risks from the date of shipment. It is issued to exporters whose export turnover is more than Rs.50 lacs.

Risks not Covered in Standard Policies

Quality dispute Causes inherent in the nature of goods Insolvency of an agent/collecting bank Exchange Fluctuations Losses of damages which can be covered in commercial insurer Buyers failure to obtain import permit

Specific Polices

Small Exporters Policy Specific Shipment Policy - Short Term (SSP-ST) Export Turnover Policy

Small Exporters Policy

The Small Exporter's Policy is basically the Standard Policy, incorporating certain improvements in terms of cover, in order to encourage small exporters to obtain and operate the policy. It is issued to exporters whose anticipated export turnover for the period of one year does not exceed Rs.50 lacs

Export Turnover Policy

Turnover policy is a variation of the standard policy for the benefit of large exporters who contribute not less than Rs. 10 lacs per annum towards premium.
Therefore all the exporters who will pay a premium of Rs. 10 lacs in a year are entitled to avail of it.

Specific Shipment Policy Short Term (SSP-ST)

Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit not exceeding 180 days.

Exporters can take cover under these policies for either a shipment or a few shipments to a buyer under a contract. These policies can be availed of by (i) exporters who do not hold SCR Policy and (ii) by exporters having SCR Policy,