What Is Export Credit Agency?
Export Credit Agency, also known as ECA, are entities that offer loans, guarantees and insurance to exporters who want to execute business in emerging markets rather than home country. Usually, they are government agencies or government-sponsored institutions that offer financing linked with the exports. Export credit agency provides financing usually when commercial banks are unable or unwilling to do so due to market conditions. However, it involves a different sort of financing than traditional commercial bank loans.
How does Export Credit Agency Work?
ECA will provide covering either by means of direct loan, guarantees or insurance. ECA works by underwriting policies and risks associated with export. In this way, they encourage international trade and more foreign currency. While some ECA’s run from government departments, there are others who operate as private organizations.
The Advantages and Disadvantages of Export Credit Agency
Advantages of ECA
Being a business owner, you can gain following benefits from ECA.
- Export Credit Agency protects companies against local and global risk of non-payment. This ensures that as a supplier of good and services, you will be paid.
- Since this agency prevents the businesses from an overseas importers default, companies that have been just starting to export may find some benefits from ECA’s policies.
- Also, the main benefit of export credit agency is to reduce financial risk to the exporter. Risk could emerge from number of commercial as well as political sources. For instance, it could be from importer’s bankruptcy, slow payment or from political protests, and war. The agency has ability to asses potential of each kind of risk and losses associated in transaction.
- Those who carry the export credit insurance, they can gain overseas working capital easily.
- ECA also includes important aspects like currency inconvertibility, changes in import/export regulations and expropriation.
Disadvantages of ECA
- Being a business owner, you might need to understand that not every time you can avail such type of financing. Know that there are certain limitations and exclusions to it. For instance, insurers will not offer policies for particular kinds of goods or services, or shipments to certain countries or corporations. In addition, it is not necessary that insurer will also cover the entire amount of shipment as well.
- There are times when exporters are seen taking benefit of their policies. They do this to get entry into international market and use certain export contracts where they are more likely to get higher rewards and more risks. Such policies are no good except leaving exporters vulnerable to default from importer. In such case, export credit agency will take action against repetitive engagement with risky importers and won't underwrite any policy further to such exporters.
Where Can I Get Export Credit Insurance?
Many private commercial risk insurance companies and Export-Import Bank of the United States provides export credit insurance policies to businesses and exporters. You can also find many reputable companies online that are into selling of commercial ECI policies.
Real-world Example of ECA
The United States’ official export credit agency is Export–Import Bank of the United States. Its aim is to help US businesses in gaining export contracts by offering funding to their buyers. They also provide working capital loan to exporters.