Mumbai, Jan 2 (KNN) Export Credit Guarantee Corporation (ECGC) wants to launch insurance products like cover for factoring companies for the exporters in the SME sector.
 
The public sector firm has sought for the approval from Insurance Regulatory and Development Authority (IRDA) to launch the specialized products, ECGC chairman and MD N Shankar told The Indian Express in an interview.
 
Factoring is a service that covers the financing and collection of account receivables in domestic and international trade.
 
A factoring company is a bank or financial intermediary that advances most of the invoiced amount to an exporter immediately after a shipment and the balance upon receipt of funds from the importer.
 
Shankar said that ECGC has seen steady rise in demands for credit insurance from both public sector and private banks for their export business as they are realising the benefits of such covers.
 
“Banks save on provisioning and capital by mitigating their risks on export segment by taking ECGC covers,” he said.
 
The government has been pushing for measures to boost exports from the SME sector.
 
Recently, in order to help small exporters, the commerce ministry in November had asked its export credit insurance arm to draw up a mechanism for these firms to be paid a significant part of their shipment dues while they await payments from their overseas buyers.
 
Typically, exporters ship their products after taking insurance from the state owned ECGC and wait for the money to arrive.
 
ECGC guarantees payment if the importers end up not paying their credit dues. But until then, the exporters, especially the small ones, are pressed for working capital.
 
A committee headed by executive director at the Reserve Bank of India (RBI), G Padmanabhan, set up by the central bank was the first to propose a process called “factoring” to provide capital to small exporters in the meantime.
 
According to the committee report submitted in May, ECGC issues various types of policies to the exporter, but these policies are not assigned or endorsed to any third party. Due to non-assignment, the Factoring Company does not have any control over the policy.
 
In view of this, the Committee recommended that ECGC should design a policy for Factoring companies for post-shipment financing.
 
The report further said that with the availability of ECGC cover to the Factoring Company, Exporter will also be benefited as both the facilities, such as financing and credit protection, will be made available under one single roof.
 
The industry associations have also been calling for proactive participation by the ECGC for providing such covers to small exporter due to the both - the market knowledge and information about the importers. (KNN Bureau)