Improving the Role of Eximbanks/ECAs in the OIC Member States
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2 ECA FACILITIES AND FEATURES
ECAs are mandated to help facilitate export transactions. As such, they design products targeting
certain risks and obstacles that exist in undertaking international trade. This chapter discusses
these risks and typical array of products that ECAs offer.
2.1. Risks in Export Transactions
Exporting presents a range of risks, many of which do not exist in domestic sales. These risks
exist whether goods and services are sold for cash or on credit. In other words, as soon as a
company begins to produce for export, there is a risk that events may arise which either prevents
the export of the goods or services, or prevent their import into the buying country, or a risk that
the buyer may cancel the order. There is also a range of risks which can occur after the goods
have been shipped or accepted by the buyer and which prevent the exporter from receiving
timely payment.
Thus, even though the bulk (over 90%) of world trade may take place on the basis of cash or very
short credit terms, this does not mean that exporters are not faced with risks. When exporters
ship on deferred credit terms, they are effectively financing the buyer, an entity in another
country. A single bad debt is very frequently the cause of a company becoming insolvent.
Moreover, companies must be able to access finance for both the production for export and for
any credit while they wait to be paid. In other words, it is very rare for exporters to be paid in
cash with the order.
As a basis for comparison of different export credit and export finance products and services
that are offered by ECAs, it is helpful to develop a common language or understanding of what
these facilities are meant to address.
For exports, consider the export cycle from the point at which an exporter decides to purchase
equipment to expand its operations and raw materials to meet an export order. During the
production phase, the exporter produces the goods for export then ships them abroad and then
awaits payment. During the entire export process, the exporter has financial requirements. The
diagram below illustrates the various financing and facility requirements of an export
transaction at each stage for exporters. Annex A provides a glossary of terms.