Improving the Role of Eximbanks/ECAs in the OIC Member States
118
Credit limit The maximum amount of credit that an export credit agency will insure on an
individual buyer. The setting of credit limits is the basic technique that export
credit agencies use to control, measure, and manage risk in issuing their short-
term facilities. Exporters apply for such limits on individual importers. When a
credit limit is approved by the underwriters, it normally includes the maximum
exposure to the buyer to which the exporter may agree, whether any security
such as a letter of credit will be required, the maximum maturity of the credit
(normally 180 days), and whether limits may be used once only or on a rollover
basis. In order to underwrite credit limits in a manner and on a time scale
acceptable to exporters, an export credit agency needs information on huge
numbers of buyers in other countries. The sheer volume of the resources (e.g.,
for information technology) required to obtain such information and keep it up-
to-date is a significant barrier to new entrants to this kind of insurance.
Credit terms The terms or main features relating to the repayment of credit, including the
length of credit, the repayment profile, the interest rate, the amount of any down
payment, and so on.
Demand bond,
demand
guarantee
A bond or a guarantee that can be called by the holder on demand at any time
and without any reason given. Both are, therefore, very dangerous from the
point of view of exporters or those on whose behalf they are issued. Demand
bonds can be issued in the form of advance payment bonds, bid bonds, or (most
frequently) performance bonds. Banks issuing these bonds normally do so either
on the basis of cash deposits lodged with them by exporters or on the basis of a
"clean" counterguarantee from the exporter that any sum paid out as a result of
the bond call can be immediately recovered from the exporter. In theory, the
bank need not tell the exporter that a bond call has been received (and paid). But
these bonds are, by the same token, cleaner and easier for buyers or importers
than bonds or sureties that require the holder or recipient of the bond to prove
default of some kind before the bond can be called. These bonds are more
common in some parts of the world than others. Historically, they are a result of
the strong position in which many buyers found themselves during the 1970s,
especially in the oil producing countries. Many export credit agencies cover the
risks of bonds being called unfairly, that is, for political reasons.
Direct lender An export credit agency (especially an eximbank) that may lend directly to
overseas buyers or borrowers and therefore does not issue buyer credit
guarantees to lending banks. Direct lending by export credit agencies is still
subject to the terms of the OECD Arrangement. Agencies that may lend directly
include the Export Finance and Insurance Company of Australia, the Export
Development Corporation of Canada, and the Export-Import Bank of the United
States.
Domestic credit
insurance
Credit insurance on transactions between sellers and buyers within the same
country.
Eximbank A type of export credit agency that normally not only issues insurance but also
lends directly. Some eximbanks also act as borrowers for import finance. There
is no single or perfect model, and an eximbank's organization, status, and
functions usually differ from country to country.
Export credit,
export credit
The main type of facility offered by an export credit agency. The term describes a
range of facilities and can mean different things in different contexts. Strictly