Improving the Role of Eximbanks/ECAs in the OIC Member States
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to the banks, other ECAs, operating as Eximbanks, may directly provide working capital loans to
exporters. Many Eximbanks also issue letters of credit (L/Cs) on behalf of local importers.
Medium/long-term (greater than 2 years) direct financing facilities are typically provided to
local importers needing to purchase capital equipment or issued to the foreign buyer, extending
credit to purchase the exporter’s goods or services. This involves not only a contract between an
exporter and a buyer, but also a parallel loan agreement between a bank in the exporting country
and a borrower in the buying country. For OECD ECAs, medium/long-term export credit is bound
by the OECD rules (as described in section 1.4.2) that dictate minimum interest rates, premium
rates and maximum repayment terms.
In addition, financing facilities are sometimes provided for overseas investments or overseas
projects. Equity participation is also included in this category as it represents a direct
disbursement of funds, but in practice very few ECAs have such facilities.
2.2.2 Guarantee Facilities
The provision of guarantee facilities by ECAs aims to
encourage private sector participation in the above
lending activities by sharing the risks involved in
international trade and investment transactions.
Guarantees are provided to lending institutions to
extend loans to local importers, working capital to
exporters or to lend to buyers.
Working capital guarantee facilities can be issued to
banks and other financial institutions to support
working capital loans. In most instances, the
provision of working capital to exporters or working
capital facilities to financing banks would be done in
respect of a specific export transaction: the exporter
has an export contract and needs working capital in
order to meet the order, or the exporter has already
shipped goods and has an outstanding export
receivable. It is also worth noting that the ECA giving
the guarantee is in part doing so because there is a
sale to a creditworthy insurable buyer, from the ECA’s perspective. Because of this, the ECA, along
with the bank is only taking incremental performance risk of the exporter, associated with its
ability to complete the contract.
2.2.3 Insurance Facilities
Credit insurance
Credit Insurance is insurance against a range of risks that result in non-payment by the buyer. In
an export transaction, credit is extended by an exporter/supplier to the overseas
buyer/importer, and the terms of the credit are set out in the export contract. Credit insurance
protects the insured party in exchange for a premium. Sometimes, it is referred to as “accounts
receivable” insurance. It does not protect against a commercial dispute, or an exporter not
meeting the specifications of an export order and the buyer refusing to pay.
Box 1: Guarantees vs.
Insurance
ECAs rarely issue unconditional, on-
demand guarantees and so it is
important to note that the terminology
used for this kind of insurance can be
confusing. In many jurisdictions
(including Europe), these insurance
facilities are also called “guarantees”,
even though they are conditional upon
certain agreed events taking place
before a claim will be paid.