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an unreliable and irregular level/source of premium income which makes it very hard for an ECA
to keep any kind of infrastructure in place.
5.6. What Makes an ECA Ineffective?
There are some features that can be crippling to ECAs. ECAs, as government/quasi-government
institutions, may be unduly influenced by political interference. Even national government policy
or directives which translate into ECA being pressured to support specific exports in certain
sectors and taking unjustified risks can result in an ECA unable to function effectively. In general,
governance that is too public sector focused and lacking inputs from private sector players
contributes to the ineffectiveness of an ECA.
Therefore, an important factor, if not the most important, that leads to the success or failure of an
ECA, is having the right governance structure and business model. Cases in point where the
wrong structure led to the ineffectiveness and ultimate failure of the ECA are the Bangladesh and
Pakistani cases. In the former case, housing the ECA within an entity having other priorities and
a risk averse attitude rendered it ineffective, while in the latter case, creating an institution
which was not focused on exporters, but on guaranteeing banks, led to its failure and ultimate
demise.
Whether through government interference or general policy and operational mismanagement,
ECAs may make unsound decisions that lead to running unsustainable deficits or result in
crowding out the private sector. The latter includes subsidizing exports or interfering in markets
where commercial banks and private insurers have the capacity to provide commercial solutions
such as assuming credit risks or direct lending to exporters.
In the absence of detailed market knowledge and customer feedback, ECAs run the risk of
offering products that are not suitable to the needs of exporters and do not contribute to export
growth and development.
Finally, the inability or reluctance of the shareholders to provide the necessary financial backing
when needed is a critical factor in the success or failure of an ECA.
5.7. Common Challenges and Common Success Factors
The discussion in the previous section highlighted specific characteristics of ECAs that positively
or negatively affect the effectiveness of ECAs. This section provides a general overview of
common exogenous and endogenous obstacles that ECAs may encounter and the common
success factors that should be kept in mind.
Some of the main common strategic challenges that ECAs face are:
1. the need to balance operating within the “market gap” while and also promoting the
involvement of the private banks or non-bank financial institutions to finance and
support trade
2. the need to maintain a flexible organizational structure so as to be able to step into or
out of a particular market segment while maintaining the expertise and keeping current
with modern banking practices