Export credits is providing pre-shipment and post-shipment credit either in Indian rupees or in foreign currency to an exporter. The credit is given for short term i.e. upto 6 months, medium/ long term which extends more than 6 months according to the eligibility of the products and projects. Usually medium/long term export credit is given after inspecting the supplier's credits.
To promote the export promotion drive, the Government of India established Export Credit Guarantee Corporation of India Limited (ECGC) in 1957 to cover the risk of exporting on credit. This organisation offers a range of services to exporters. They are as mentioned below:
- It provides credit risk insurance covers to the exporters against there loss in export of goods and services.
- It offers guarantees to the banks and financial institutions in order to enable the exporters to obtain better facilities from them.
- It provides Overseas Investment Insurance to the Indian companies investing in joint ventures abroad as equity of loan.
Export Credit Insurance
Export credit insurance protects the exporter from the consequences of the payment risks due to the far-reaching political and economic changes. Outbreak of war or civil war might block or delay the payment for goods already exported. Coup or an insurrection in the importing country may also bring the same result. Export credit insurance is obtained from the ECGC with the following issued covers:
- Standard policies to protect the exporter against the risk of not receiving the payment while trading with overseas buyers on short-term credit.
- Specific policies which is designed to protect the exporter against the risk of not receiving the payment in respect of:
- Exports on deferred payment terms
- Services rendered to the foreign parties
- Construction work which also includes the turnkey projects undertaken abroad.
The policies are one of the following:
- Whole Turnover Policies in the form of 'Open Cover' in respect of shipments made during 24 months period DP, DA and open delivery terms. Shipment details has to be declared on monthly basis.
- Specific policies for exports of capital goods on medium or long-term credit, turnkey projects, civil construction works and technical services.