Export credit agencies (ECAs) provide government financing to facilitate international trade flows. ECAs can assume the commercial and political risks of international buyers for suppliers that are based in the home ECA country. Therefore, financing costs offered by ECAs tend to be very low, and tenors very long. By assuming payment risk, ECAs stimulate exports and employment in their countries. ECAs are particularly effective at financing exports to countries where commercial financing is limited in its availability and tenor.
The amount financed by an ECA largely depends on the amount of exports from the ECA country. ECAs also typically finance some costs incurred in the importing country, and, to a limited extent, exports from other countries to the importing country. Each ECA has its own policies regarding financeability of different types of cost, and these are generally known as eligibility rules.
What products do ECAs typically offer?
ECAs typically offer buyer and supplier credits. Buyer credits are financings to importers of goods and services from the ECA country, and supplier credits are financings to the exporters themselves.
Financings offered by ECAs can take the form of:
- Direct loans: Loans funded directly by ECAs.
- Loan insurance or guarantees: Commercial bank loans insured or guaranteed by ECAs.
- Interest rate equalizations: ECA compensates a bank for the difference between the market and ECA rates.
Furthermore, ECAs provide many different additional products and services which vary from ECA to ECA, including, in some cases, project finance, bonding services, factoring, and financing of equity.
Our Agency Finance Handbook summarizes the products and key policies of ECAs around the world.The 2024 edition of the handbook is currently under development and will be published in 4Q23. If you would like a copy of the 2022 edition, please contact us directly.
What regulations govern the operation of ECAs?
In order to maintain a level playing field, the OECD has historically been the primary governing body, issuing guidelines by which most ECAs abide. These guidelines define many aspects of the ECA market, such as basic eligibility criteria, consistent pricing basis and tenors for ECA financings, and definition of compliance requirements.
Not all ECAs comply with OECD guidelines, and even among those that do, there is significant variability in terms of eligibility rules, product offering, application requirements, disbursement processes, and other policies.
How to apply for an ECA financing?
Financing application processes vary across ECAs. However, borrowers can expect a formal application and approval process that reviews at least the following aspects of each financing:
- Creditworthiness of the borrower.
- Technical feasibility of the financed goods and services.
- Environmental and socioeconomic impacts of the financing.
What are the fees incurred by ECA borrowers?
ECA financings typically carry the following costs:
- Risk premium: A flat fee that depends on the creditworthiness of the borrower and the tenor of the financing.
- Commitment fee: A regular fee charged on the undisbursed amount.
- Interest rate on financed amount, and which can be fixed or variable.
- Cost of consultants hired by ECAs to perform due diligence during the application process.
How is disbursing an ECA financing different than disbursing a commercial loan?
In addition to the typical compliance requirements associated with the disbursement of commercial loans, ECA financings carry a multitude of additional compliance requirements.
Disbursing ECA financings obligates users to demonstrate that the disbursement is applied to eligible goods and services. Therefore, the borrower and the exporter must supply formal certifications to the ECAs inclusive of underlying finance and procurement documentation, such as invoices and bills of lading. Successful disbursement of ECA loans require diligence and close integration between the borrower's procurement, finance, and, in some cases, logistics departments.
How to navigate the ECA application and disbursement process?
CC Solutions leads borrowers and exporters throughout the entire ECA financing process, from the initial application through to the final disbursement. The sooner customers engage us, the greater our ability to help maximize eligible content and streamline the disbursement process.