MEANING OF CREDIT RISK : Competition In foreign markets is keener than in the domestic market. Overseas customers are sought after by exporter from many countries. Competition is getting keener still due to an all round effort on the part of all countries to increase their exports. Indian exporters have to compete with exporters from other countries not only in respect of quality, price, delivery schedules, etc., but also in respect of payment terms. Their success would depend upon the ability to offer competitive terms of credit to the foreign buyer's terms of credit on par with those offered by exporters from compacting countries. Risks are inherent all credit transactions but more so, in export transaction. The fact that the buyer may not pay either due to insolvency or for any other- reason exposes the exporter to the credit risks Credit risk may arise even in cases where tile buyer's credit standing that has been thoroughly investigated. Too cautious an attitude in evaluating buyers may result in loss of hand to get business opportunities. Hence, credit risk is unavoidable especially in export business. Credit risk is greater in export transactions because reliable information about foreign buyers is difficult to obtain and hence, it is difficult to evaluate their credit worthiness. Credit risk has assumed large proportions today not only because the volume of export transactions has
Become larger but also because far-reaching political and economic changes that are sweeping the world. An outbreak of war civil war, coup or an insurrection may block or delay the payment for goods exported. Balance of Payment difficulties may lead to transfer delays. And all this is possible even when the buyer is fully in a position to pay. In addition one has to contend with the possibilities of the insolvency or protected default of the buyers. In recent years, there has been significant incense in insolvencies and business failures even in many developed countries. In such a gig risk situation export credit insurance can be of immense help to ( i ) exporters and (ii) the banks who provide finance for the export transaction.