Improving the Role of Eximbanks/ECAs in the OIC Member States
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Buyer For export credit agencies this can be a very important and rather technical area.
Risks on buyers (e.g., default and insolvency) are commercial risks that export
credit agencies normally insure. Buyers are normally divided into categories.
Private buyers have to be underwritten on the basis of their own financial
strength and track record (or guarantees or security must be sought). Public
buyers may not have private shareholders but can nevertheless be sued and
made bankrupt. They therefore must be underwritten individually in their own
name. Sovereign buyers are those able to commit the full faith and credit of their
governments and cannot be made bankrupt or insolvent. Most export credit
agencies are now much more cautious about accepting buyers as sovereign
buyers, for which they sometimes give lower premium rates and wider forms of
cover.
Buyer credit An arrangement in which an exporter enters into a contract with a buyer, which
is financed by means of a loan agreement between a bank in the exporter's
country and a bank in the buyer's country. Such arrangements are most
frequently used to finance capital goods or projects on a medium- or long-term
basis. The export credit agency in the exporting country typically provides its
facilities to the lending bank. The exporter can draw on the loan as the work is
done and accepted (these disbursements are called loan drawings or progress
payments). Interest on the loan is payable during the drawdown period, but
repayments on principal do not normally begin until the project is completed
and the loan fully drawn. Some export credit agencies are also willing to provide
a separate facility to the exporter against risks that could arise during the
construction period and where the exporter could face losses on costs incurred,
but that cannot not, for various reasons, be drawn from the loan. A line of credit
is a variation of the buyer credit technique. In another variation, the importer or
buyer pays the exporter directly but can then be reimbursed from the buyer
credit loan (a reimbursement credit). An important feature of buyer credits is
that the borrower must repay all drawings from the buyer credit loan,
irrespective of what may have happened on the contract or project being
financed. Thus, any failure on the part of the exporter to meet the terms of the
contract does not provide grounds for defaulting on the loan; rather, the
exporter must be pursued by the legal remedies provided for in the contract.
Claim A request for payment by an insured party that believes it has suffered a loss
covered by the policy. When an export credit agency has issued cover to an
exporter or bank, and appropriate premiums have been paid, if the insured
exporter or bank then does not receive payments or repayments covered under
the policy, it will submit a claim to the export credit agency. The claim is then
examined against the insured causes of loss set out in the policy, and if
ascertainment of loss is possible (i.e., if the claim is valid), the export credit
agency will pay the exporter or bank, after the appropriate a claims waiting
period. The export credit agency and the exporter or bank will then cooperate to
try to obtain recoveries from the buyer or borrower or its government. Until
recovery is made, the claim is regarded as an unrecovered claim, and if all or part
of it is eventually written off, it is classified as a loss. In some countries, claims
are also referred to as indemnities, and the payment of claims as
indemnification.