Improving the Role of Eximbanks/ECAs in the OIC Member States
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agencies to cover each other's goods and services.
Guarantee Most commonly, a type of facility or policy issued by an export credit agency. For
example, an insurance policy issued to an exporter in respect of short-term
export credits might be called a short-term guarantee, and a policy issued to a
bank in respect of a medium-term loan to finance a project might be called a
buyer credit guarantee. The term can also refer to the facilities issued by banks
to overseas buyers in respect of contract performance (e.g., performance
guarantees). See also advance payment bond, bid bond. In addition, many export
credit agencies will stipulate a repayment guarantee as underwriting security:
for example, a credit limit might be issued on an overseas buyer subject to a
payment guarantee being obtained from a bank or from a parent company.
Export credit agencies almost never issue unconditional guarantees.
Guarantor The provider of a guarantee of repayment. This can be a government, a bank, a
parent company, or an individual. The guarantee will be in respect of repayment
of a debt obligation under a contract or loan agreement.
Insurance The main business of export credit agencies. These agencies issue insurance
policies of various kinds in respect of a range of risks against payment of a
premium. For export credit insurance the risks embrace both political and
commercial causes of loss, which may arise in the precredit period (before
shipment), or during the credit period (after shipment). Policies may be issued
to exporters (supplier credit) or to banks engaged in financing trade (buyer
credit). For investment insurance the risks are restricted to political risks. In
both export credit and investment insurance, the insurance is against specified
risks or classes of risk and is therefore conditional, although individual policies
may be loosely referred to as guarantees.
Investment
insurance
Insurance issued to an investor against loss in another country due to
confiscation, expropriation, or nationalization by the host government; to war or
civil war; or to inability to convert profits or dividends into other currencies or
to transfer them out of the country. Unlike export credit insurance, investment
insurance covers only these political risks (and not commercial risks), and for
this reason it is sometimes misleadingly referred to as political risk insurance. In
fact, most export credit agencies issue the bulk of their political risk insurance
under their export credit policies. Some export credit agencies offer both
investment insurance and export credit insurance. Some only offer export credit
insurance, but three Berne Union members C&L of Germany, the Overseas
Private Investment Corporation of the United States, and the Multilateral
Investment Guarantee Agency (an affiliate of the World Bank Group) provide
only investment insurance. Traditionally, such insurance could be applied only
to equity investments and covered three types of risk, namely, confiscation,
expropriation, or nationalization without compensation; loss due to war or civil
war; and inability to convert profits and dividends into other currencies and
transfer them abroad. Investment insurance can now, however, be obtained for
loans into projects, and some insurers will look at extended political risks such
as the breach of host government undertakings in project financings (sometimes
treated as creeping expropriation).
Letter of credit A document issued by a bank guaranteeing payment on behalf of one of its
clients when all the conditions stated in the letter have been met. This is a very
important mechanism of world trade, including for export credit agencies both