risks.
Government guarantee and insurance programs are used by commercial banks to
reduce the risk associated with loans to exporters. Lenders concerned with an
exporter's ability to perform under the terms of sale, and with an exporter's
ability to be paid, often use government programs to reduce the risks that would
otherwise prevent them from providing financing. In other cases, lenders to a
foreign buyer of goods and services are reluctant to provide the financing
without support from a Government agency.
In overview, the Export-Import Bank of India is the government's largest and
most comprehensive trade finance agency, offering numerous programs to
address a broad range of needs and small and medium-sized, as well as large,
exporters. Credit insurance protects against default on exports sold under short-
term credit. Other guarantee and loan programs extend medium- and long-term
credit for durable goods.
Pre-export Financing
The Working Capital Guarantee Program enables lenders to provide financing
an exporter needs to purchase or produce a product for export, as well as finance
short-term accounts receivable. If the exporter defaults on a loan guaranteed
under this program, Ex-Im Bank reimburses the lender for the guaranteed
portion - generally, 90 percent of the loan - thereby reducing the lender's overall
risk. The Working Capital Guarantee Program can be used either to support
ongoing export sales or to meet a temporary cash flow demand arising from a
single export transaction.
The loan principal can be up to 100 percent of the value of the collateral put up
by the exporter, a relatively generous percentage. Eligible collateral includes
foreign receivables, exportable inventory purchased with the proceeds of the
loan, and goods in production. The term of the guaranteed line of credit is
generally one year, but a longer period of renewals may be arranged.
Post-export Financing
ECGC (Export Credit Guarantee Corporation of India) offers commercial and
political risk insurance. Under the majority of policies, the insurance protects
short-term credit extended for the sale of consumer goods, raw materials,
commodities, spare parts, and other items normally sold on terms of up to 180
days. If the buyer fails to pay, ECGC reimburses the exporter in accordance with
the terms of the policy. Coverage is also available for some bulk commodities
sold on 360-day terms and for capital and quasi-capital goods sold on terms of
up to five years. ECGC insurance is the largest
Government Programme
supporting short-term export credit.
ECGC policies for exporters include the Small Business Policy, Single-Buyer
Policy, and Multi-Buyer Policy. Another policy, the Umbrella Policy enables an
administrator to handle most administrative duties for a group of exporters. With
prior written approval, an exporter can assign the rights to any proceeds to a
lender as collateral for financing.
