Guaranteed to succeed

Venkatachari Jagannathan
11 June 2003

Chennai: The entry of private general insurers has opened up a niche market segment, hitherto a monopoly of Export Credit Guarantee Corporation of India (ECGC).

ECGC, the 46-year-old company, till a year ago the sole provider of what is called credit guarantee insurance for trade receivables and trade credit insurance to India's exporters, now finds two more players fighting for a share in this Rs 400-crore market.

In 2002, India's leading non-life insurer New India and private company Tata AIG General Insurance Company entered the trade receivables insurance business. The former has tied up with Gerling NCM Credit Insurance, Germany, for this product while the latter uses inputs from American International Group (AIG), one of its joint venture partners.

But what is export credit guarantee insurance? World over, export credit guarantee is employed as a tool to protect exporters from default or delayed payment by their buyers or loss due to political risks. Today, credit insurers also offer protection for domestic trade receivables and financial investments made abroad against risks like expropriation, war and restriction on remittances.

Having its roots in Europe, the business has spread to other parts of the world in the last two decades. With the emergence of the European Union (EU) it is domestic credit guarantee in Europe whereas in other countries a distinction is made between domestic and export credit guarantee.

Why is it important? A trade credit policy enables an exporter to expand business by selling more on credit, thereby reducing the overall risk of default. Bankers are also comfortable in lending to companies having such policies.