EXPORT FINANCE AND SERVICES - PowerPoint PPT Presentation

export finance and services n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
EXPORT FINANCE AND SERVICES PowerPoint Presentation
Download Presentation
EXPORT FINANCE AND SERVICES

play fullscreen
1 / 42
EXPORT FINANCE AND SERVICES
296 Views
Download Presentation
thanh
Download Presentation

EXPORT FINANCE AND SERVICES

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. EXPORT FINANCE AND SERVICES

  2. EXPORT-IMPORT BANK OF INDIA • Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. • Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the country’s foreign trade and investment with the overall economic growth. • Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. • Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalisation efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment. • Exim Bank of India has been the prime mover in encouraging project exports from India. The Bank provides Indian project exporters with a comprehensive range of services to enhance the prospect of their securing export contracts, particularly those funded by Multilateral Funding Agencies like the World Bank, Asian Development Bank, African Development Bank and European Bank for Reconstruction and Development.

  3. The Bank extends lines of credit to overseas financial institutions, foreign governments and their agencies, enabling them to finance imports of goods and services from India on deferred credit terms. Exim Bank’s lines of Credit obviate credit risks for Indian exporters and are of particular relevance to SME exporters. • The Bank’s Overseas Investment Finance programme offers a variety of facilities for Indian investments and acquisitions overseas. The facilities include loan to Indian companies for equity participation in overseas ventures, direct equity participation by Exim Bank in the overseas venture and non-funded facilities such as letters of credit and guarantees to facilitate local borrowings by the overseas venture. • The Bank provides financial assistance by way of term loans in Indian rupees/foreign currencies for setting up new production facility, expansion / modernization / upgradation of existing facilities and for acquisition of production equipment/technology. Such facilities particularly help export oriented Small and Medium Enterprises for creation of export capabilities and enhancement of international competitiveness. • Under its Export Marketing Finance programme, Exim Bank supports Small and Medium Enterprises in their export marketing efforts including financing the soft expenditure relating to implementation of strategic and systematic export market development plans. • The Bank has launched the Rural Initiatives Programme with the objective of linking Indian rural industry to the global market. The programme is intended to benefit rural poor through creation of export capability in rural enterprises.

  4. In order to assist the Small and Medium Enterprises, the Bank has put in place the Export Marketing Services (EMS) Programme. Through EMS, the Bank seeks to establish, on best efforts basis, SME sector products in overseas markets, starting from identification of prospective business partners to facilitating placement of final orders. The service is provided on success fee basis. • Exim Bank supplements its financing programmes with a wide range of value-added information, advisory and support services, which enable exporters to evaluate international risks, exploit export opportunities and improve competitiveness, thereby helping them in their globalisation efforts. • Exim Bank Head office is located in Mumbai. It has a network of 16 offices in India & Overseas. • OBJECTIVES • For providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade. • Shall act on business principles with due regard to public interest.

  5. FUNCTIONS • The Bank's functions are segmented into several operating groups including: • Corporate Banking Group which handles a vairety of financing programmes for Export Oriented Units (EOUs), Importers, and overseas investment by Indian companies. • Project Finance / Trade Finance Group handles the entire range of export credit services such as supplier's credit, pre-shipment credit, buyer's credit, finance for export of projects & consultancy services, guarantees, forfaiting etc. • Lines of Credit Group Lines of Credit (LOC) is a financing mechanism that provides a safe mode of non-recourse financing option to Indian exporters, especially to SMEs, and serves as an effective market entry tool. • Agri Business Group, to spearhead the initiative to promote and support Agri-exports. The Group handles projects and export transactions in the agricultural sector for financing. • Small and Medium Enterprises Group to the specific financing requirements of export oriented SMEs. The group handles credit proposals from SMEs under various lending programmes of the Bank. • Export Services Group offers variety of advisory and value-added information services aimed at investment promotion. • Fee based Export Marketing Services Bank offers assistance to Indian companies, to enable them establish their products in overseas markets. • Besides these, the Support Services groups, which include: Research & Planning, Corporate Finance, Loan Recovery, Internal Audit, Management Information Services, Information Technology, Legal, Human Resources Management and Corporate Affairs.

  6. SERVICES • Exim Bank plays four-pronged role with regard to India's foreign trade: those of a coordintator, a source of finance, consultant and promoter. • The services of EXIM Bank are as follows: • EXPORT CREDITS • Exim Bank offers the following Export Credit facilities, which can be availed of by Indian companies, commercial banks and overseas entities. • For Indian Companies executing contracts overseas • Pre-shipment credit: Exim Bank's Pre-shipment Credit facility, in Indian Rupees and foreign currency, provides access to finance at the manufacturing stage - enabling exporters to purchase raw materials and other inputs. • Supplier's Credit: This facility enables Indian exporters to extend term credit to importers (overseas) of eligible goods at the post-shipment stage. • For Project ExportersIndian project exporters incur Rupee expenditure while executing overseas project export contracts i.e. costs of mobilisation/acquisition of materials, personnel and equipment etc. Exim Bank's facility helps them meet these expenses. For Exporters of Consultancy and Technological ServicesExim Bank offers a special credit facility to Indian exporters of consultancy and technology services, so that they can, in turn, extend term credit to overseas importers.

  7. Guarantee FacilitiesIndian companies can avail of these to furnish requisite guarantees to facilitate execution of export contracts and import transactions. • OVERSEAS INVESTMENT FINANCE • Finance for Indian Company's equity participation in the overseas Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) • Direct Finance (Term & Working Capital) to the overseas JV / WOS • Finance (for equity/debt component) for acquisition of overseas businesses / companies including leveraged buy-outs including structured financing options • Direct Equity by Exim Bank in the overseas JV/ WOS of an Indian Company • Example: Manufacturing facility of 'Advanta Semillas', Argentina, a company producing hybrid seeds of sunflower, corn, sorghum etc. Mumbai based United Phosphorus, with support from Exim Bank, has acquired Advanta which has similar facilities in Australia and Thailand, in addtion to Argentina.

  8. FINANCE FOR EXPORT ORIENTED UNITS • Term Finance (For Exporting Companies) • Project Finance • Equipment Finance • Import of Technology & Related Services • Domestic Acquisitions of businesses/companies/brands • Export Product Development/ Research & Development • General Corporate Finance • Working Capital Finance (For Exporting Companies) • Funded • Working Capital Term Loans [< 2 years] • Long Term Working Capital [upto 5 years] • Export Bills Discounting • Export Packing Credit • Cash Flow financing • Non-Funded • Letter of Credit Limits • Guarantee Limits • Working Capital Finance (For Non- Exporting Companies) • Bulk Import of Raw Material • Term Finance (For Non- Exporting Companies) • Import of Equipment

  9. Export Finance • Pre-shipment Credit • Post Shipment Credit • Buyers' Credit • Suppliers' Credit [including deferred payment credit] • Bills Discounting • Export Receivables Financing • Warehousing Finance • Export Lines of Credit (Non-recourse finance) • Equity Participation (In Indian Exporting Companies) • To part finance project expenditure(Project, inter alia, includes new project/ expansion/ acquisition of business/company/ brands/research & development) • Exim Financing is available in Indian Rupees and in Foreign Currency • Term finance, except for long term working capital, is available for periods up to 10 years [in select cases 15 year finance can also be made available] • Interest: Fixed & Floating options [Benchmarks for floating rates - LIBOR/G-Sec/MIBOR]

  10. LINES OF CREDIT: CONFIRMATION OF LETTERS OF CREDIT (L/C) BY EXIM BANK UNDER THE GLOBAL TRADE FINANCE PROGRAM (GTFP) OF THE INTERNATIONAL FINANCE CORPORATION (IFC), WASHINGTON DC. • An importer of Indian goods in any of the above countries will approach a bank for opening an L/C. The L/C Issuing Bank should be on IFC’s list of pre-approved banks. Either the L/C Issuing Bank or Indian exporter may request confirmation of the L/C from Exim Bank, as per the attached Application Form. Exporters are welcome to discuss the transaction before sending a formal request for L/C confirmation to Exim Bank. • Exim Bank will convey availability or otherwise for confirmation of the L/C and, if agreed to confirm, the fee payable by the Indian exporter/ L/C Issuing Bank. L/C Issuing bank shall not, without Exim Bank’s prior written consent, amend the terms of the L/C. • Indian exporter will ship the goods covered under the contract and shall present the documents for negotiation to his bank. The Negotiating/ Paying Bank will ensure that the documents are as per the terms of the L/C and shall make payment under the L/C to the Indian exporter. The Negotiating/Paying Bank will forward the documents to the L/C Issuing Bank. Negotiating/Paying bank shall keep Exim Bank informed on each disbursement made to the Indian exporter under the L/C and each claim for payment made to the L/C Issuing bank and amount received by the Negotiating/Paying Bank from the L/C Issuing bank in settlement thereof, till retirement of the L/C. • Exim Bank can also be the negotiating bank. • In the event the L/C Issuing Bank fails to reimburse the Negotiating/Paying Bank, Exim Bank will pay the Negotiating/Paying Bank as per the terms and conditions of L/C confirmation.

  11. SME & AGRI FINANCE • Small and Medium Enterprises (SME) Finance • The importance of SME sector is well-recognized world over owing to its significant contribution in achieving various socio-economic objectives, such as employment generation, contribution to national output and exports, fostering new entrepreneurship and to provide depth to the industrial base of the economy. India has a vibrant SME sector that plays an important role in sustaining economic growth, increasing trade, generating employment and creating new entrepreneurship in India. • Indian SMEs require business advisory services to enhance their international competitiveness in a highly competitive globalising world. • The SMEs find the services of reputed national and international consultants as not cost effective and often, not adequately focused. • Recognising this knowledge gap, Exim Bank of India has been endeavouring to provide a suite of services to its SME clients. • These include providing business leads, handholding during the process of winning an export contract and thus assisting the generation of export business on success fee basis, countries/ sector information dissemination, capacity building in niche areas such as quality, safety, export marketing, etc. and financial advisory services such as loan syndication, etc. • Debt Restructuring Scheme for SMEs

  12. The SME sector can avail of a comprehensive range of products and services that Exim Bank offers. Broadly, these can be classified into three categories: • Export CreditExim Bank provides pre shipment and post shipment credit in Indian rupees and foreign currency. • Finance is extended for short term i.e. upto 6 months as also for medium/long term i.e. beyond 6 months for eligible products and projects. • Medium/long term export credit is extended by way of supplier's credits i.e. through the Indian exporter with recourse to the exporter or buyer's credits i.e. directly to the overseas buyer with no recourse to the Indian exporter. • Certain RBI guidelines apply for such medium/long term export credit. • Finance for Export Oriented Companies Exim Bank offers loans for financing Export Oriented Companies which may be categorized as under: • Project Finance • Overseas Investment Finance • Special Programmes: Export Marketing Finance, Export Product Development, Backward Linkage/ Vendor Development Programme, Finance for Research & Development

  13. Agri Finance • The globalization and post-WTO scenario offers considerable scope for exports of Indian agricultural products. • Exim Bank has a dedicated Agri Business Group to cater to the financing needs of export oriented companies dealing in agricultural products. • Financial assistance is provided by way of term loans, pre-shipment/post-shipment credit, overseas buyers' credit, bulk import finance, guarantees etc. • Term loans with varying maturities are provided for setting up processing facilities, expansion, modernization, purchase of equipment, import of equipment/technology, financing overseas joint ventures and acquisitions etc. • The Bank has strong linkages with other stakeholders in agri sector such as Ministry of Food Processing Industries, GoI, NABARD, APEDA (Agricultural & Processed Food Products Export Development Authority), Small Farmers' Agri-Business Consortium (SFAC), National Horticultural Board etc. Apart from financing, the Bank also provides a range of advisory services to agri exporters. • The Bank also publishes a number of Occasional Papers, Working Papers on export potential of various sub-sectors in agriculture and a bi-monthly publication in different languages on global scenario in agri-business and opportunities therein.

  14. FILM FINANCE • The Bank has till date sanctioned loans more than Rs 33.15 crores for film production. The first three films financed by Exim Bank have been commercially successful across India and overseas markets. Nature of Finance • Cashflow financing for film production • Cashflow financing for film distribution/exhibition in overseas markets • Term loans for fixed assets finance • Term financing for export market development • Films financed by Exim Bank • Honeymoon Travels Pvt. Ltd. • Kabul Express • Dhoom -2 • Don - The Chase Begins Again • Fanaa • Bunty Aur Babli • Salaam Namaste • Veer Zaara • The Rising • Dhoom • Hum Tum • Cheeni Kum

  15. RURAL INITIATIVES • Rural enterprises suffer from various handicaps including image, quality, capacity, packaging, delivery, etc. • NGOs and SHGs are the front for rural enterprises. • Through proper guidance and support, rural grassroot enterprises can access the global market and realize better prices for their products thereby contributing to poverty reduction. • Exim Bank's experience in working with NGOs/SHGs(Self Help Group) and rural enterprises is encouraging. • Exim Bank, leveraging its presence in both India as well as overseas, is facilitating linkage between rural grassroot enterprises and corporates and with overseas buyers and agencies with the objective of bringing the benefits of globalisation to the rural population.

  16. EXPORT SERVICES • Exim Bank offers a diverse range of information, advisory and support services, which enable exporters to evaluate international risks, exploit export opportunities and improve competitiveness.

  17. ADVISORY SERVICES • MULTILATERAL AGENCIES FUNDED PROJECTS OVERSEAS (MFPO)Information and support services to Indian companies to help improve their prospects for securing business in multilateral agencies funded projects. • Dissemination of business opportunities in funded projects • Providing detailed information on projects of interest • Information on Procurement Guidelines, Policies, Practices of Multilateral Agencies • Assistance for Registration with Multilateral Agencies • Advising Indian companies on preparation of Expression of Interest, Capability Profile • Bid Intervention • PROMOTING INDIAN CONSULTANCYTie-up with • International Finance Corporation, Washington D.C. • Eastern & Southern African Trade & Development Bank (PTA Bank) • African Management Services Company (AMSCO), Netherlands • Examples • Gems & Jewellery Study - Zambia • Financial Training Mission - Kenya • Cement Project - Cameroon • Software - Madagascar • Wool Knitting - Vietnam • Textile - Nigeria • Refrigeration - Ghana • Financial Training - Poland

  18. EXIM BANK AS A CONSULTANT • Feasibility study for establishment of an export credit and guarantee facility for Gulf Cooperation Council countries. • Regional cooperation in export finance and export credit guarantees for ESCAP. • Study on promotion of international competitiveness and exports of manufactured goods for ESCAP. • Setting up the Afrexim Bank • Designing of Export Financing Programmes - Turkey • Setting up an Exim Bank in Malaysia • Designing of Export Marketing Seminars for SMEs in Vietnam • Export Development Project: Ukraine • Enterprise Support Fund: Armenia • Establishing an Export Credit Guarantee Company in Zimbabwe • Advisory services to Industrial Development Corporation of South Africa for international finance products • Study on Projecting Mauritius as an Investment Hub for Indian Firms • Blue Print for setting up of an Exim Bank in Zimbabwe

  19. EXPORT MARKETING SERVICES • The Bank provides assistance to Indian companies, to enable them establish their products in overseas markets through its Export Marketing Services, starting from identification of prospective business partners to facilitating placement of final orders. • The Export Marketing service leverages the Bank’s high international standing, in-depth knowledge and understanding of the international markets and well established institutional linkages, coupled with its physical presence, to support Indian companies in their overseas marketing efforts on a success fee basis. • Service offered across sectors • Marine Products • Textiles - yarns, fabrics, apparels. • Food Processing - Ready to Serve, spices and condiments • Office Stationery • Ayurveda medicines/cosmetics. • Others

  20. JOINT VENTURES • GPCL • Global Procurement Consultants Limited (GPCL) is a successful consultancy company, promoted by Exim Bank, in 1996, in partnership with leading private and public sector consultancy firms in India. GPCL provides procurement related services particularly related to multilateral agencies such as World Bank, Asian Development Bank (ADB) and African Development Bank (Afdb)

  21. EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. • 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. • Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. • It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. • ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. • The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.

  22. ECGC • 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 • ECGC helps the exporters in the following manner: • 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

  23. Need for export credit insurance • Payments for exports are open to risks even at the best of times. • The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. • An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. • Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. • In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. • The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. • Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

  24. PRODUCTS AND SERVICES • Credit Insurance Policies • SCR or Standard Policy: • Shipments (Comprehensive Risks) Policy, commonly known as the Standard Policy, is the one ideally suited to 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 anticipated export turnover for the next 12 months is more than Rs.50 lacs. • Risks covered under the Standard Policy • Under the Standard Policy, ECGC covers, from the date of shipment, the following risks: • a. Commercial Risks • Insolvency of the buyer. • Failure of the buyer to make the payment due within a specified period, normally four months from the due date. • Buyer's failure to accept the goods, subject to certain conditions.

  25. b. Political Risks • Imposition of restriction by the Government of the buyer's country or any Government action, which may block or delay the transfer of payment made by the buyer. • War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions or cancellation of a valid import license in the buyer's country. • Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which can not be recovered from the buyer. • Any other cause of loss occurring outside India not normally insured by general insurers, and beyond the control of both the exporter and the buyer. • 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.

  26. 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, in respect of shipments permitted to be excluded from the preview of the SCR Policy. • Export (Specific Buyers) Policy • Buyerwise Policies - Short Term (BP-ST) provide cover to Indian exporters against commercial and political risks involved in export of goods on short-term credit to a particular buyer. • All shipments to the buyer in respect of whom the policy is issued will have to be covered (with a provision to permit exclusion of shipments under LC). These policies can be availed of by (i) exporters who do not hold SCR Policy and   (ii) by exporters having SCR Policy, In case all the shipments to the buyer in question have been permitted to be excluded from the purview of the SCR Policy.

  27. 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. • Buyer Exposure Policies • Presently, in the policies offered to exporters premium is charged on the export turnover, though the Corporation’s exposure on each buyer is controlled through a system of approval of credit limits on the buyer for covering commercial risks. • While this suits the small and medium exporters, many large exporters having large number of shipments have been complaining about the volume of returns to be filed under the policy necessitating the deployment of their resources for this purpose and also resulting in possible unintentional omissions or commissions in such reporting, which have an impact on the settlement of claims. • There has been a demand for simplification of the procedures as well as for rationalization of the premium structure. • Considering the requirements of such exporters, the Corporation has decided to introduce policies on which premium would be charged on the basis of the expected level of exposure. • Two types of exposure policies – one for covering the risks on a specified buyer and another for covering the risks on all buyers- are offered. • Two types of Exposure policies are offered, viz, Exposure (Single Buyer) Policy – for covering the risks on a specified buyer and Exposure (Multi Buyer) Policy – for covering the risks on all buyers.

  28. Consignment Exports Policy • Economic liberalization and gradual removal of international barriers for trade and commerce are opening up various new avenues of export opportunities to Indian exporters of quality goods. • One of the methods being increasingly adopted by Indian exporters is consignment exports where the goods are shipped and held in stock overseas ready for sale to overseas ready for sale to overseas buyers, as and when orders are received. • To protect the Indian Exporters from possible losses when selling goods to ultimate buyers, it was decided to introduce Consignment Policy Cover. • There are two policies available for covering consignment export viz; Consignment Exports (Stock-holding Agent) Consignment Exports (Global Entity Policy) • Service Policy • Where Indian companies conclude contracts with foreign principals for providing them with technical or professional services, payments due under the contracts are open to risks similar to those under supply contracts. • In order to give a measure of protection to such exporters of services, ECGC has introduced the Services Policy.

  29. Software Project Policy • The Services Policies of the Corporation which have been in existence for some time were offered to provide protection of exporters of services including software and related services. • However it was found that the general services policy does not meet with the exact requirements of software exporters. • It was therefore decided to introduce a new credit insurance cover to meet the needs of the software exporters, namely, software projects policy, where the payments will be received in foreign exchange. • The general services policies will continue to be offered for the export of services other than software and related services. • IT-enabled Services (Specific Customer) Policy • IT-enabled Services (Specific Customer) Policy is issued to cover the following commercial and political risks involved in rendering IT-enabled services to a particular customer:

  30. Commercial risks : • Insolvency of the customer. • Failure of the customer to make the payment due within a specified period, normally four months from the due date. • Buyer's failure to accept the services rendered (subject to certain conditions). • Bank risks : • Bankruptcy of L/c opening bank. • Failure of L/c opening bank to make the payment due within a specified period, normally within four months from the due date (Non-payment due to discrepancies in the document will not be covered). • Political risks : • Imposition of restrictions by the Government of the customer’s country or any Government action which may block or delay the transfer of payment made by the customer; • War, civil war, revolution or civil disturbances in the customer’s country; • New import restrictions or cancellation of a valid import license by authorities in the customer’s country; • Cancellation by the Govt. of India a legally valid and binding contract between the exporter and the customer.

  31. Construction Works Policy • Construction Works Policy is designed to provide cover to an Indian contractor who executes a civil construction job abroad. • The distinguishing features of a construction contract are that • (a) the contractor keeps raising bills periodically throughout the contract period for the value of work done between one billing period and another; • (b) to be eligible for payment, the bills have to be certified by a consultant or supervisor engaged by the employer for the purpose and • (c) that, unlike bills of exchange raised by suppliers of goods, the bills raised by the contractor do not represent conclusive evidence of debt but are subject to payment in terms of the contract which may provide, among other things, for penalties or adjustments on various counts. • The scope for disputes is very large. Besides, the contract value itself may only be an estimate of the work to be done, since the contract may provide for cost escalation, variation contracts, additional contracts, etc. • It is, therefore, important that the contractor ensures that the contract is well drafted to provide clarity of the obligations of the two parties and for resolution of disputes that may arise in the course of execution of the contract. • Contractors are well advised to use the Standard Conditions of Contract (International) prepared by the Federation International Des Ingenieurs Conseils (FIDIC) jointly with the Federation International du Batiment et des Travaux Publics (FIBTP).

  32. Specific Policy for Supply Contract • The Standard Policy is a whole turnover policy designed to provide a continuing insurance for the regular flow of an exporter's shipments for which credit period does not exceed 180 days. • Contracts for export of capital goods or turnkey projects or construction works or rendering services abroad are not of a repetitive nature and they involve medium/long-term credits. • Such transactions are, therefore, insured by ECGC on a case-to-case basis under specific policies. • Insurance Cover for Buyer's Credit And Line of Credit • Buyer's Credit is a credit extended by a bank in India to an overseas buyer enabling the buyer to pay for machinery and equipment that he may be importing from India for a specific project. • A Line of Credit is a credit extended by a bank in India to an overseas bank, institution or government for the purpose of facilitating import of a variety of listed goods from India into the overseas country. • A number of importers in the overseas country may be importing the goods under one Line of Credit. • ECGC has evolved schemes to protect the lending banks from certain risks of non-payment.

  33. These covers take the form of an agreement between the lending bank and ECGC and are issued on a case to case basis. • Credit terms and the length of the credit period should be in conformity with what is appropriate for the export of the relevant items. • There should be adequate security for the repayments to be made by the borrower. • Cover can be granted either for political risks or for comprehensive risks. • Political risks covered under the scheme are: • The occurrence of war between the country of the overseas party and India. • The occurrence of war, hostilities, civil war, revolution, rebellion, insurrection or other disturbances in the country of overseas party. • The operation of law or of an order, decree or regulation having the force of law which in circumstances outside the control of the lender and/or the overseas party, prevents, restricts or controls, the transfer of the sums due to the lender by the overseas party under the Financial Agreement. • If ECGC agrees to provide comprehensive risks cover, the risk of protracted default of the borrower to pay the amounts due under the loan agreement and insolvency of the borrower, where applicable, will be covered in addition to the political risks mentioned above. • The premium rates applicable to comprehensive risk cover will naturally be higher than that for political risks cover. • Normally ECGC covers up to 85% of the loss. • The premium rates depends on the country to which exports are made and the period of repayment.

  34. Full Fledged Factoring • Features of Export factoring: ECGC offers export factoring as a specialised service to the exporters: • Facilitates the purchase of account receivables. • Makes available approved finance upto 90% on receivables approved. • 100% credit risk protection against the overseas buyers default or insolvency. • Maintenance of sales ledger of the exporter for the transactions with a specific buyer. • Constant follow up with the buyer for collection in a professional way saving time, cost and ensuring realisation of payment immediately after the due date.

  35. Guarantees to Banks • Packing Credit Guarantee • Timely and adequate credit facilities at the pre-shipment stage are essential for exporters to realize their full export potential. • Exporters may not, however, be easily able to obtain such facilities from their bankers for several reasons, e.g. the exporter may be relatively new to export business, the extent of facilities needed by him may be out of proportion to the equity of the firms or the value of collateral offered by the exporter may be inadequate. • The Packing Credit Guarantee of ECGC helps the exporter to obtain better and adequate facilities from their bankers. • The Guarantees assure the banks that, in the event of an exporter failing to discharge his liabilities to the bank, ECGC would make good a major portion of the bank's loss. • The bank is required to be co-insurer to the extent of the remaining loss.

  36. EXPORT CREDIT INSURANCE-EXPORT PRODUCTION FINANCE (ECIB-EPF) • ELIGIBILITY: Any bank or financial institution authorized to deal in foreign exchange can obtain the Export Production Finance Cover for each of its exporter clients who has been classified as a standard asset and whose CR is acceptable to ECGC. • PERIOD OF COVER: 12 months. • ELIGIBLE ADVANCES: Advances granted at pre-shipment stage over and above FOB value. • EXPORT CREDIT INSURANCE-EXPORT PRODUCTION FINANCE (ECIB-EPF)ELIGIBILITY: Any bank or financial institution authorized to deal in foreign exchange can obtain the Export Production Finance Cover for each of its exporter clients who has been classified as a standard asset and whose CR is acceptable to ECGC. • PERIOD OF COVER: 12 months. • ELIGIBLE ADVANCES: Advances granted at pre-shipment stage over and above FOB value. • PROTECTION OFFERED: Against losses that may be incurred in extending packing credit advances to the full extent of cost of production due to protracted default or insolvency of the exporter-client. • PERCENTAGE OF COVER: 66-2/3%. • PREMIUM: 12 paise per Rs.100 p.m. on the highest amount outstanding on any day during the month. • MAXIMUM LIABILITY: 66-2/3% of the Packing Credit Limit sanctioned to the account being covered.

  37. EXPORT CREDIT INSURANCE-INDIVIDUAL POST -SHIPMENT (ECIB -INPS) • ELIGIBILITY: Any bank or financial institution who is an authorized dealer in foreign exchange can obtain the Individual Post-shipment Export Credit Cover in respect of each of its exporter-clients who is holding the Standard Policy of ECGC WITHOUT any exclusion. • PERIOD OF COVER: 12 months • ELIGIBLE ADVANCES: All post-shipment advances given through purchase, negotiation or discount of export bills or advances against bills sent on collection. • PROTECTION OFFERED: Against losses that may be incurred in extending post-shipment advances due to protracted default or insolvency of the exporter-client. • PERCENTAGE OF COVER: 75% for advances against bills drawn on buyers other than associates and 60% for advances against bills drawn on associates. • PREMIUM: 6 paise per Rs. 100 p.m. payable on the highest amount outstanding on any day during the month. • MAXIMUM LIABILITY: 75% of the Post-shipment Limits of the account.

  38. EXPORT CREDIT INSURANCE-EXPORT FINANCE (ECIB-EF) • ELIGIBILITY: Any bank authorized to deal in foreign exchange can obtain the Export Finance Cover in respect of its exporter-client who has been classified as a standard asset and whose CR is acceptable to ECGC. • PERIOD OF COVER: 12 months. • ELIGIBLE ADVANCES: Advances against incentives such as cash assistance, duty drawback, etc., receivable at post-shipment stage. • PROTECTION OFFERED: Against losses that may be incurred in extending post-shipment advances against incentives due to protracted default or insolvency of the exporter-client. • PERCENTAGE OF COVER: 75% • PREMIUM: 6 paise per Rs.100 p.m. on the highest amount outstanding on any day during the month. • MAXIMUM LIABILITY: 75% of the post-shipment limit sanctioned to the account.

  39. EXPORT CREDIT INSURANCE-EXPORT PERFORMANCE (ECIB-EP) • ELIGIBILITY: For banks holding ECGC Whole-turnover Packing Credit Cover (ECIB-WTPC), cover under EP shall be considered for all their standard accounts irrespective of credit ratings. In respect of other banks, it shall be only for standard accounts with acceptable credit ratings. • PERIOD OF COVER: As per the period of the bank guarantee. • ELIGIBLE COVER: Bank guarantee issued in support of export obligations to EPCs, CBs, STC, MMTC or recognized Export Houses, Bid Bond, Performance Bond, Customs, Central Excise and Sales Tax Authorities, L/Cs opened for purchase/import of raw materials in respect of export transactions. • PROTECTION OFFERED: Against losses that the bank may suffer on account of bank guarantees given by it on behalf of exporters and due to protracted default or insolvency of the exporter-client • PERCENTAGE OF COVER: 75% • PREMIUM: 6.5 paise per Rs.100 p.m. on the Bank guarantee value and period. • MAXIMUM LIABILITY: 75% of the Cover value.

  40. Export Finance (Overseas Lending) Guarantee • If a bank financing an overseas project provides a foreign currency loan to the contractor, it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance (Overseas Lending) Guarantee.

  41. Special Schemes • Exchange Fluctuation Risk Cover • The Exchange Fluctuation Risk Cover is intended to provide a measure of protection to exporters of capital goods, civil engineering contractors and consultants who have often to receive payments over a period of years for their exports, construction works or services. • Where such payments are to be received in foreign currency, they are open to exchange fluctuation risk as the forward exchange market does not provide cover for such deferred payments. • Transfer Guarantee • When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honour the drafts drawn by the beneficiary of the Letter of Credit without any recourse to him provided such drafts are drawn strictly in accordance with the terms of the Letter of Credit. • The confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to the exporter. • This may happen due to the insolvency or default of the opening bank or due to certain political risks such as war, transfer delays or moratorium, which may delay or prevent the transfer of funds to the bank in India. • The Transfer Guarantee seeks to safeguard banks in India against losses arising out of such risks. Transfer Guarantee is issued, at the option of the bank to cover either political risks alone, or both political and commercial risks. • Loss due to political risks is covered upto 90% and loss due to commercial risks upto 75%.

  42. Overseas Investment Guarantee • ECGC has evolved a scheme to provide protection for Indian Investments abroad. • Any investment made by way of equity capital or untied loan for the purpose of setting up or expansion of overseas projects will be eligible for cover under investment insurance. • The investment may be either in cash or in the form of export of Indian capital goods and services. • The cover would be available for the original investment together with annual dividends or interest receivable. • The risks of war, expropriation and restriction on remittances are covered under the scheme. As the investor would be having a hand in the management of the joint venture, no cover for commercial risks would be provided under the scheme. • Main features of the Overseas Investment Insurance • For investment in any country to qualify for investment insurance, there should preferably be a bilateral agreement protecting investment of one country in the other. • ECGC may consider providing cover in the absence of any such agreement provided it is satisfied that the general laws of the country afford adequate protection to the Indian investments. • The period of insurance cover will not normally exceed 15 years in case of projects involving long construction period. • The cover can be extended for a period of 15 years from the date of completion of the project subject to a maximum of 20 years from the date of commencement of investment. • Amount insured shall be reduced progressively in the last five years of the insurance period.