What Is an Export Credit Agency (ECA)?
An export credit agency is an institution that offers to finance domestic companies' international export operations and other activities. ECAs provide loans and insurance to companies to help eliminate the uncertainty of exporting to other countries.
ECAs also underwrite the political risks and commercial risks of overseas investments. They encourage export activities and international trade. There's no set model for a typical export credit agency. Some operate from government departments, while others operate as private companies.
Understanding Export Credit Agencies
ECAs act as intermediaries between a nation’s government and an exporter to provide financing. Financing can take one of several forms depending upon the exporter’s needs and the mandates that have been given to the ECA.
An ECA might provide credit insurance, financial guarantees, or both. Financial guarantees are sometimes referred to as a pure cover.
- Export credit agencies offer loans and insurance to companies to help eliminate the uncertainty of exporting to other countries.
- Some ECAs operate from government departments, while others operate as private companies.
- ECAs are becoming leading players in international project financing and exports.
ECA Financing by the Numbers
ECAs currently underwrite or finance about $430 billion of international exporting and business transactions. Upward of $55 billion of this sum was used to fund projects in developing countries and emerging markets. ECAs also provided some $14 billion in insurance for new foreign direct investments, regional development banks, the World Bank, and multilateral and bilateral aid.
The massive number of transactions performed by ECAs results from claims against various developing countries and emerging markets. ECAs hold more than 25 percent of the $2.2 trillion in these countries' debts after totaling these claims.
ECA Offerings and Impact
ECAs charge premiums when they offer financial services. Interest from clients is sometimes an alternative to the premium, or the ECA might charge it 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, which are five to 10 years.
The Organisation 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 ECA support of international trade is an increasingly important factor in individual transactions and for projects being undertaken in developing countries. The availability of the funding that ECAs provide is vital for project completion and the full realization of the resulting exports in these countries.
ECAs play a major role in world trade. The export credit guarantees they offer lower the risk of private lending. ECAs are therefore becoming leading players in international project financing and exports. ECAs such as Ex-Im Bank help fill the funding gap that private-sector lenders create with their inability or unwillingness to provide financing. They help all products and services compete on a global scale.
Real-World Examples of Credit Export Agencies
The official ECA in the United States is the Export-Import Bank of the United States, an independent executive-branch agency.
UK Export Finance is the official export credit agency of the United Kingdom. Its role is to help British companies win export contracts by providing attractive financing terms to their buyers, fulfill contracts by supporting working capital loans, and get paid by insuring against buyer default.
The OECD offers a list of other ECAs including Nippon Export and Investment in Japan, Banco National de Comercio Exterior in Mexico, and Export Development Canada.