Export credit agency (ECA)

Export credit agency (ECA)

An export credit agency is a finance institution which offers finance to domestic companies for international export operations and other trade related activities. ECAs provide companies with loans and insurance to help them in eliminating the uncertainty involved while exporting to other countries.

ECAs also cover the political as well as commercial risks involved in overseas investments. They encourage and support export activities and international trade when other finance providers fails to provide funding. There's no specific model for an export credit agency. Some export trade agencies operate from government departments, whereas others operate as private companies.

ECAs act as an intermediary amongst a nation’s government and an exporter for providing finance. Financing can take place in more than one form depending upon the exporter’s requirements.

An ECA may provide credit insurance, financial guarantees, or both depending upon the business needs. Sometimes financial guarantees are also referred to as a pure cover.

Key points

• ECA’s offer loans and insurance for companies in terms to help in eliminating the uncertainty involved while exporting to other countries.
• Some ECAs operate from government departments, whereas others operate as private companies.
• ECAs have become leading players in international project financing and exports.

Export credit agencies can be considered as

• One of the biggest sources of finance for high risk projects
• Almost lack in transparency
• Promotes corrupt practices
• Adds as a crushing debt for developing nations
• Increasing the chances to avail finance even if there are high risks involved against projects.

Three main functions of ECAs

1. ECA’s help trading businesses to cope up with credit competition.
2. They provide financing to overseas importers when private when other financial institutions and service providers cannot finance for export sales, as high risks are involved.
3. They assume risks beyond the limits of private lenders. This is precisely their most important function. They provide finance for projects which involves high risks.

ECAs do not compete with other trade finance institutions or private banks. In fact, they help the domestic lenders in competing more effectively in international trade. In most countries, businesses and traders can access ECAs through the country’s banking institutions.

What support can export credit agencies provide?

Each export credit agency is given specific guidelines by the Government outlining what support they are able to provide. This includes:

• direct Loans
• guarantees and bonds
• insurance products, which includes credit insurance along with political risk insurance
• Project and buyer finance.

Core features

Each export credit agency is given specific guidelines by the Government outlining what support they are able to provide. This includes:

1. ECAs enables seller to provide buyer with commercial credit while not being on the seller’s own balance sheet.
2. Commercial credit risk involved in dealing with buyer along with country risk is transferred to the ECA.
3. Crucial aim of ECA is to encourage country’s export industry.