Improving the Role of Eximbanks/ECAs in the OIC Member States
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ANNEXES:
Annex A: Glossary of Terms Commonly Used In Export Credit
This glossary is not intended as a general dictionary of economic and commercial terms. Rather, it
has been prepared from the standpoint of an ECA, and so the terms are defined and explained
primarily in a practical way and with reference to how they are used by, in, and between ECA.
(Source: Malcolm Stephens, “The Changing Role of Export Credit Agencies”, IMF Publication, 1999)
Advance
payment bond,
advance
payment
guarantee
A bond or guarantee issued, usually by a bank, on behalf of an exporter or export
contractor in favor of an importer or buyer, to protect the latter against the risk
that, having made a down payment or deposit or progress payments on a
contract, the exporter may not meet the terms of the contract. If this happens,
the bond or guarantee may then be called (i.e., payment required) by the
importer. These bonds are usually conditional in the sense that they cannot be
called unless the exporter is, or can be shown to be, in breach of the contract.
The terms and conditions vary from bond to bond and from country to country.
Some export credit agencies will consider issuing such bonds themselves, and
others will provide insurance against their unfair calling for political reasons.
Berne Union The International Union of Credit and Investment Insurers. Established in 1934,
this organization now has the largest export credit agencies and investment
insurers among its members. Institutions, not their governments, are members.
The Union works for the acceptance of sound principles of export credit and
investment insurance and the exchange of information and experience. It also
has adopted a series of agreements and understandings by which members
undertake to abide by certain maximum credit terms and terms for goods. The
secretariat is in London, and members hold two general meetings each year as
well as specialist seminars and workshops.
Bid bond A bond or guarantee, normally issued by a bank on behalf of an exporter in favor
of a buyer that provides that if an exporter submits a bid or tender and is
awarded the contract, but then fails to conform or to comply with the terms of its
tender, the bond may be called. A bid bond gives the buyer some financial
assurance that bidders will comply with the terms of their bids. In theory, the
calling of the bond should compensate the buyer for the costs of the aborted
tender and of retendering and re-awarding the contract. A few export credit
agencies are prepared to issue such bonds, which are normally conditional;
others will insure the risk of their unfair calling for political reasons. Sometimes
also called tender bonds, bid bonds do not normally have the format of demand
bonds, which are largely unconditional and so rather dangerous.