Export Credit Agency - ECA

What is an 'Export Credit Agency - ECA'

An export credit agency (ECA) is a financial institution that offers financing to domestic companies for international export operations and other activities. ECAs offer loans and insurance to such companies to help remove the risk of uncertainty of exporting to other countries and underwrite political risks and commercial risks of overseas investments, thus encouraging exportation and international trade. There is not a mold for a typical export credit agency; some operate from government departments, and others operate as private companies.

BREAKING DOWN 'Export Credit Agency - ECA'

ECAs act as intermediaries between a nation’s government and an exporter in order to provide some type of financing. Financing can take one or more forms, depending upon the exporter’s needs and the mandates that have been given to the ECA. An ECA may provide credit insurance; financial guarantees, which are referred to as pure cover; or both.

As an example, in the United States, the official ECA is the Export-Import Bank of the United States (EXIM), an independent executive branch agency.

ECA Financing by the Numbers

As of 2016, ECAs underwrite or finance more than $400 billion of international exporting and business transactions. Upwards of $50 billion of this sum is used financing projects in developing countries and emerging markets. ECAs also provide some $14 billion of insurance for things such as new foreign direct investments, regional development banks, the World Bank, and multilateral and bilateral aid.

The massive amount of transactions performed by ECAs resulted from claims against various developing countries and emerging markets. After totaling these claims, ECAs hold more than 25% of the $2.2 trillion debt of these countries.

ECA Offerings and Impact

When ECAs offer financial services, a premium is charged. Interest from clients is sometimes an alternative to the premium or may be charged in conjunction with the premium.

Most ECAs offer insurance, as well as other services, for both medium terms (anywhere from two to five years) and long terms (five to 10 years). The Organization for Economic Cooperation and Development (OECD) has argued that ECAs operating in the public sector have a relatively small contribution to underwriting aggregate financing in trade around the world. However, the organization has conceded that ECAs support of international trade is a major and ever-increasing factor of importance to the space in regard to individual transactions made and for projects being undertaken in developing countries. For such countries, the availability of funding, as provided by ECAs, is decidedly vital in allowing projects to be completed and the resulting exports to be fully realized.

Thus, ECAs play a major role in world trade, exerting an influential leveraging causatum. By offering export credit guarantees, the risk of private lending is lowered, and for this reason, ECAs are growing into leading players in the finance of international projects and exportation. ECAs, such as EXIM, help to fill the funding gap left by the inability or unwillingness of private sector lenders. In this way, ECAs help all products/services compete on a global scale.