Export credit insurance is vital to keeping the wheel of international commerce spinning at a time of slowing trade flows and risks arising from bankruptcy or non-payments.
Governments around the world seek to help exporters boost their business - export or trade credit insurance is one tool to achieving this goal. We explain the significance of these agencies.
What is export credit insurance?
An export credit insurance protects an exporter of goods and services against non-payment by a buyer outside the country where it is headquartered, as well as political risks such as war. An export credit insurance helps an exporter protect its receivables, reducing the risk of accumulating bad debts and making them competitive in exporting their goods and services.
Export credit insurance can be provided by private insurers or government organisations, including export credit agencies. For example, in the US, the Export-Import Bank of the US, an export credit agency better known as Exim Bank, provides export credit insurance to American exporters of goods and services.
What is the difference between an export credit insurance agency and an export-import bank?
An export credit insurance agency provides protection against commercial and political risks, helping exporters access international markets and bank financing. An Export Import Bank (Exim-bank) offers direct lending and financing to exporters, depending on its mandate, as a bank specialised in funding export and export related projects only. In the UAE, Etihad Credit Insurance, which was set up in February, provides trade credit insurance on a federal level.
Why is export credit insurance needed?
Exporters, particularly small and medium-sized companies, face numerous risks when exporting and protecting those assets boosts growth because it minimises the impact of loss. Governments want to boost their exports and providing exporters with insurance protection is one way to do this.
Export credit insurance also makes it easier for exporters to borrow at a lower cost in order to finance growth.
Who are the biggest providers of export credit insurance?
Amongst the government-owned Export Credit Agencies include the Chinese state owned company Sinosure; The Korea Trade Insurance Corporation; the German state owned Hermes Kreditversicherungs; SACE-Italian Export Credit Agency; Islamic Corporation for Insurance of Investments and Export Credits owned by the Islamic Development Bank; the Japanese government owned NEXI; and Export Development Canada.
Euler Hermes, Atradius, Coface, Markel, Zurich, QBE, Credendo, and Cesce are amongst the private insurers.
Government-backed export credit agencies, multi-lateral financial institutions and private credit insurers from 73 countries that make up the Berne Union, provided $2.3 trillion of payment risk protection to banks, exporters and investors in 2017, equivalent to 13 per cent of cross-border trade of goods and services.
