Export credit agencies: A Study

Abstract

An export credit is an insurance, guarantee or financing arrangement which enables a foreign buyer of exported goods and/or services to defer payment over a period of time. Export credits are generally divided into short term (usually under two years), medium term (usually two to five years) and long term usually over five years. Export financing refers to financing of export transactions in any form. If a trader has to sell to a foreign customer, he would require export financing. These sales can be of both short term and long term nature. Such financing includes guarantees, loans and credit insurance. It may include working capital financing as well which may be required for financing the production. Why is export financing different from domestic financing? Export trade generally involves more risk than domestic trade. This is because such trade would require foreign currency payments which would entail a foreign exchange risk. This is not the case with domestic sales. Furthermore difficulties can be seen in disputing any sort of dispute which may rise if the importer reneges on a promise or does not accept the merchandise. Costs incurred in shipping of goods and the time delay in obtaining payment for the goods further increases the risks associated with exports. Wars, blockades and deterioration in relations between countries can further impact the export project.