What is Credit Insurance? How is it Beneficial to Exporters?

Subscribe to GoodReturns
For Quick Alerts
For Daily Alerts

    Insurance is a sum which compensates an insured business or company for the loss directly caused by the failure of its customer to pay all or part of its debt within the waiting period.

    This may arise due to a buyer risk, while it can be foreign government problem, which can be beyond the insured's control. Any delay in payments due to political turmoil can hamper the growth of the company.

    What is Credit Insurance? How is it Beneficial to Exporters?

    Let us understand better with example, a fast growing clothing company was jolted when their largest customer, a retail giant, declared insolvency. The unexpected failure caused crores of rupees in receivable losses nationwide. In such cases, credit insurance can help the company depending on the amount and valuation they have insured.

    ECGC (Export Credit Guarantee Corporation) is permitted to sell all kinds of credit policies, which is owned by Govt. of India.

    There are two types of coverage offered based on commercial risk and political risk

    Commercial Risk, which covers the following points:

    1) Non-payment due to buyer insolvency

    2) Delay in payment (Protracted Default)

    3) Non-acceptance of goods

    4) Contract Repudiation

    Political Risks - only for exports

    1) Inconvertibility

    2) Contract Frustration due to war, civil war, rebellion etc.

    3) Contract Cancellation by Govt. of Insured Buyer

    4) Export/ Import restrictions

    5) Shipment Diversion

    How credit insurance is beneficial to exporters?

    1) Credit insurance covers, exporters against credit risk losses in export of goods & services.

    2) It also covers to banks to protect them against risks of non payment by exporters both under Short term and Medium and LT

    3) To protect Indian Entrepreneurs investing in Overseas Ventures (Equity/Loans) against expropriation risks

    4) It protects exporters in respect of their exchange losses under Medium and LT exports

    5) It protect against trade credit risk losses

    6) Releases bad debt provisions


    7) It can be used as hedges against financial misfortune.

    8) It improves the cash flow, improves financial health

    9) Safer business expansion

    10) Protecting the Company balance sheet

    What it does not cover?

    Credit Insurance does not cover any loans, leasing, guarantees, any disputes, and any risk on private person.


    Read more about: credit insurance credit risk
    Story first published: Monday, December 15, 2014, 10:18 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more