Improving the Role of Eximbanks/ECAs in the OIC Member States
8
for the establishment of an ECA. For instance, in the case of oil-producing countries,
governments may see the value in establishing an ECA as part of a number of support
mechanisms to help develop new industries and sectors. Often, the dominant sector is
government-owned and the ECA is mandated to support new businesses, which are
usually small and medium-sized enterprises (SMEs). These SMEs need access to
financing and have information on buyers and countries. ECAs are also useful for helping
existing exporters expand into new, unfamiliar markets, where the buyers and risks are
unknown to exporters and banks.
A government may establish an ECA to support exporters including those in the SME
sector, in expanding their exports and growing their businesses. These may be intended
to provide insurance coverage against commercial and non-commercial risk including
non-payment of customers or political unrest and to improve the credit environment for
SMEs via credit and loan guarantees.
B. Filling market gaps and addressing market disruptions
Another reason to establish an ECA is to address the unmet needs of exporters or the
existence of certain “market gaps” that exist within a country’s finance system. While
ECAs cannot solve all the problems facing exporters and their banks, they can play an
important role in filling certain gaps and acting as a catalyst to the private sector.
The “market gap” is defined as the part of the market that is not served effectively by the
private sector sources of finance or risk mitigation. As a result, the range of products and
support available from a given ECA usually will depend on what other institutions are
able to provide to the market and where these market gaps occur.
Market gaps may occur because there is insufficient profit or excessive risk to attract
private sector financial institutions. Information gaps and a poor understanding of
institutional context are frequently behind these perceptions of risk. As a general rule,
government-backed ECAs take a different view of the risk/reward ratio than the private
sector. ECAs are often willing to take more risk than the private sector, since they are able
to take a longer-term perspective of the risk profile and often have a superior ability to
recover debts given their sovereign status. On the reward side, ECAs look beyond
financial return and usually are prepared to accept a lower financial return in exchange
for other public policy benefits. However, market conditions can change, so it is crucially
important that ECAs not create market gaps by crowding out the private sector banks.
Many ECAs see their role as working in partnership with private sector financial
institutions – banks, credit and political risk insurers - in order to help them take risks
that they would otherwise not be willing to take. An ECA can be an effective catalytic
financial instrument to draw in existing commercial banks to fund export transactions
and to share risks. The advantage in such a strategy is that not only does the ECA fill an
existing market gap, but it also facilitates the private sector to develop and become more
able and willing to meet the needs of the market in the future. However, some ECAs
compete head-on with the private sector.
An important distinction should be made between market gap which is defined as a
systemic and an on-going lack of the availability of financing or insurance, and market
disruption which is temporary withdrawal of support by the private banks or insurers