Improving the Role of Eximbanks/ECAs in the OIC Member States
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2.1.4 Phase 4: Credit Period
Once the goods have been shipped, exporters face certain political and commercial risks that
their foreign buyer will not pay. Political risks include cancellation of an import/export license,
war/civil war, inability to transfer or convert proceeds into hard currency. Commercial risks are
the risks of the buyer repudiating the contract after the goods have been shipped, insolvency or
protracted default of the buyer.
2.2. Export Credit and Export Finance Products
There are a variety of ways in which ECAs can satisfy the needs of exporters in a trade
transaction. Financing can be extended directly by the ECAs themselves or indirectly through
insurance or guarantees issued to commercial banks. Exporters can be provided with export
credit facilities or importers in other countries can be provided with direct loans, in order to
facilitate payment to local exporters.
To address an exporters needs throughout this Export Chain, the main facilities, schemes and
services offered by ECAs can be grouped into five broad categories:
i. Financing Facilities;
ii. Guarantee Facilities;
iii. Insurance Facilities;
iv. Bonding Facilities;
v. Advisory and Other Services.
The first three categories refer to the risks relating to trade transactions as defined in Figure 3.
2.2.1 Financing Facilities
Financing facilities are short-, medium-, and long-term loans provided directly by an ECA to an
agent (such as an exporter, importer or bank) involved in a trade transaction. They mainly take
the form of direct loans to overseas buyers for the purchase of exports from a local company, or
loans to local companies for importation of equipment for production or for working capital to
produce the goods relating to a specific export order.
Short-term financing (credit that is extended usually for less than 180 days but can be up to two
years) can be to finance working capital expenditures of exporters. Working capital is the
financing required by an exporter to start or to continue to operate and to produce goods and
services to be exported. The lack of working capital can prevent exporters from entering into
viable export contracts simply because they cannot access the capital needed to carry out the
production of the goods and/or services to be exported. As a general rule, it is very difficult for
an exporter to ask their buyers to pay cash in advance, as this will normally make them
uncompetitive with competitor exporters in other countries. As a result, the exporter frequently
needs access to short-term financing.
Working capital facilities can therefore be an important part of the product offerings of the ECA.
While some ECAs are involved in the provision of working capital by offering guarantee facilities