What is export and agency finance?

This part of Trade Finance’s remit covers the roles of the export credit agencies (ECAs), thedevelopment banks, and the multilateral agencies. Their traditional role complements lending by commercial banks at interest by guaranteeing payments, though some ECAs have begun direct lending facilities.

These agencies have once again become of vital importance to the trade finance market. This is due to the role that they play in facilitating trade, guaranteeing transactions, promoting exports, creating jobs, and increasingly through direct lending. This was especially important during the global downturn when liquidity provided by financial institutions was depressed.

ECAs are private or governmental institutions that provide export finance, or credit insuranceand guarantees, or both. Nearly all developed countries have at least one ECA present. As the global economic crisis wore on we saw a liberalisation of these agencies’ remits. Traditionally ECAs would require a large percentage of domestically produced content to guarantee a loan or provide financing, however as the financial crisis affected jobs they took it up on themselves to reduce content limits. For example: Export Development Canada requires just 20% of content to be produced domestically, compared to UK Export Finance which requires 80%. ECAs with lower content limits have been criticised for gaining an unfair advantage.

Export Finance

Image source: www.gov.uk

Countries also have investment insurance agencies (i.e. Korea’s K-Sure and Japan’s NEXI). These agencies provide insurance for foreign direct investment.

The development banks, sometimes referred to as DFIs (development finance institutions), and the multilaterals similarly have different mandates depending on their ownership or regional remit. Most will have a form of trade facilitation programme that promotes trade through the provision of guarantees. ECAs and multilaterals are becoming a crucial part of the financing of large infrastructure projects around the world as credit from commercial banks remains scarce.