Export Credit Agency - Explained
What is an Export Credit Agency?
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Table of ContentsWhat is an Export Credit Agency?How Does an Export Credit Agency Work?ECA Financing by the NumbersECA Offerings and ImpactReal World Examples of Credit Export Agencies
What is an Export Credit Agency?
Firms that deal with exports of goods to foreign countries benefit tremendously from an Export Credit Agency (ECA). An ECA offers government-backed financing to domestic firms that engage in international exports.
How Does an Export Credit Agency Work?
As a quasi-government organization, an ECA has the mandate of the government to provide specific services to domestic companies that are into exports. In the United States, ECAs are regarded as investment insurance agencies because they offer government-backed loans and insurance to these domestic firms. ECAs serve intermediary roles between domestic firms that are exporters and the federal government. Though ECAs are run as private agencies, these credit agencies facilitate international trade and foster export operations. A Little More on What are Export Credit Agencies ECAs Not all export credit agencies operate as private agencies, some are set up as arms of government departments. Generally, ECAs provide financing and hedge uncertainties and risks involved in exports of goods and international trade, they do so by providing insurance to exporters. There are many ways ECAs provide financing to exporters, these include loans. This financing is also executed based on the different needs of the exporters and the mandate they have received from the government. While some domestic exporters receive both financing and credit insurance from ECAs, some can get either of these offerings based on their needs. Here are some quick things to note about an export credit agency.
- An export credit agency is a government-backed agency that offers financial guarantees and credit insurance to domestic firms that engage in the export of goods and international trade.
- ECAs offer government-backed loans to exporters, they serve as intermediaries between the national government and exporters.
- ECAs are set up as quasi-government agencies, given that they have the backing or mandate of the government to provide certain services.
- Most ECAs are run as private agencies but some are part of government departments.
ECA Financing by the Numbers
Export credit agencies play significant roles in international trade, they offer huge financing to domestic firms that are into exports. In the United States and many other countries of the world, ECAs have become a force to be reckoned with when it comes to international exporting business. According to the current number depicting the level of financing from ECAs, about $430 billion have been given as financing. For credit insurance or the insurance of new projects, ECAs have spent over $14 billion, alongside other figures spent in other areas relating to international trade and exporting.
ECA Offerings and Impact
The financing that ECAs provide is crucial to many businesses, including exporters, aside from this, credit insurance provides guarantees for domestic firms and businesses that their international investments are safe and backed by the government. The insurance offered by ECAs can be between five to 10 years depending on whether the insurance is medium-term or long-term. ECAs do not offer financial services free of charge, they charge a premium on every loan they offer and sometimes charge interest in exchange for a premium or charge both. Due to the benefits of ECAs, they are vital players in world trade, especially in exports and international investments.
Real World Examples of Credit Export Agencies
Export Credit Agencies can be found in many countries of the world, although, they are given different names, they serve a similar function which is to provide government-backed financing and credit insurance to domestic firms that function as exporters. According to a list of ECAs compiled by the Organization for Economic Cooperation and Development (OECD), the following are some of the ECAs;
- Nippon Export and Investment in Japan
- The Export-Import Bank of the United States
- Banco Nacional de Comercio Exterior en Mexico
- The United Kingdom Export Finance in the UK
- Export Development Canada of Canada