ECAs are acknowledged to be important contributors, often highly expert, to the enabling of international trade. ECAs are a key resource to gather information on countries, industries, markets of opportunities as well as challenges around the world.

The role of ECAs, and the respective services offered, help companies grow their sales volume on the international market while making sure to manage the risks it takes when entering the international market. Furthermore, ECAs provide opportunities to collaborate with market players and to facilitate growth in exports.

How export credit agencies have evolved

Since their origins in post-war Europe, export credit agencies (ECA) have evolved from relatively straightforward government agencies with mandates that were primarily driven by public policy, to entities critical to the conduct of international trade across the globe.

There are a variety of ECA models in existence to meet the evolving needs and expectations of the international business community, including the government lender of last resort model to quasi-commercial agencies and those that are partly privatized.

ECAs offer a variety of products and services and are involved in supporting the full range of trade and commercial transactions—from short-term commodity exports to long-term capital projects and project finance.

Export credit insurers have historically focused primarily on supporting deals involving companies or banks from their home markets. However, this has changed in the last decade in that export credit insurers have, within their mandate, been providing financing to foreign affiliates of home companies while also providing financing to foreign buyers of home products and services.

Indeed, it is increasingly common to see banks supporting exports from one country while seeking export credit agency support from another country.

This occurs for a variety of reasons, from competition on pricing to the availability of different solutions (and/or different pricing) at various ECAs. This trend is commonly seen in large multi-million dollar infrastructure projects led by conglomerates when any one ECA and/or bank is unable to provide the required financing.

Furthermore, by diversifying the sources of financing, these conglomerates benefit from an increase in knowledge, variety of products and services, and risk diversification.

Certain agencies may have particular experience in, or insight about, some countries or markets that allow the ECAs to provide support or insurance in those markets, while other agencies may perceive the risk in that same market as unacceptably high.

Export credit insurance and guarantees and export finance solutions are offered by public, private and hybrid agencies.

Want to learn more about risk mitigation options? Check out the FITTskills International Trade Finance online course.

What’s the difference between private and public sector export credit agencies?

The private sector export credit agencies (ECAs) have been strong in many parts of Europe, and are emerging as a viable option in Canada, the United States and elsewhere.

Most commonly, export credit guarantors and insurers from the private sector are, or are affiliated with, commercial general insurers, but have highly specialized skills in areas related to international trade.

The leading private sector providers today include Atradius of the Netherlands, Coface of France, and Euler Hermes of Germany. Major risk insurers generate annual revenues of several billion dollars.

Many public sector export credit agencies (ECAs) are governed by legislation that defines their raison d’être, the details of the mandate and the oversight framework to which the ECA is subject.

It is not uncommon for public sector agencies to be subject to periodic legislative review, as is the case with Export Development Canada and with the Export Finance and Insurance Corporation (EFIC) of Australia.

Similarly, the Export-Import Bank of the United States (Ex-Im Bank) is subject to congressional oversight in terms of its mandate, competitiveness, activities and financial support or appropriations.

In addition to ongoing reviews by national government authorities, ECAs and their activities are closely scrutinized under the increasingly rules-based trading system, and are subject to regulations set by the World Trade Organization. This is because ECAs have grown to play a major role in supporting companies resulting in a material impact on international trade.

Why export credit agencies need different models to meet the needs around them

While there are certainly recognized best practices related to the business of export credits and export insurance, there is no such thing as the ideal export credit agency (ECA) model or the ultimate ECA to which all others should aspire.

ECAs evolve very much in context, and as a direct result of the specific needs and characteristics of their primary market.

The spectrum of options includes ECAs that are primarily driven by public-policy objectives and those that are mandated to operate largely on self-funding, commercial terms.

Certain ECAs are driven primarily by public-policy mandates and are, accordingly, funded by their national governments. These agencies are often lenders of last resort, and may focus on providing a combination of risk insurance, guarantees and financing.

Public policy objectives may be as focused and straightforward as the stated objective of promoting and enabling exports, or they may relate to requiring a level of national content in exported goods as a proxy for assuring that some national benefit accrues as a result of the publicly supported and funded export activity.

Public policy objectives may also extend into market development, international development and aid, as well as other areas where the support of trade may be an important enabler—regardless of whether it is commercially viable.

Certain ECAs such as the Export-Import Bank of the United States (Ex-Im Bank) are expressly forbidden as a matter of policy from competing with private sector providers. Unlike other agencies, the Ex-Im Bank must proactively exit or cease certain activities, including direct lending, when it becomes apparent that a private sector provider is prepared to engage in those activities.

Understanding hybrid models and the changing mandates of export credit agencies

Other ECAs are driven by a mandate that combines an element of both public policy and commercial viability, resulting in a type of hybrid model.

For example, Export Development Canada (EDC), the export credit agency of Canada, is fully self-funded and operates much like a commercial operation. At the same time, EDC remains a Crown corporation, and is often a supporter or instrument of public policy, as required by the EDC Act and the regulations that support the Act.

It is worth noting that EDC operates generally on commercial principles but can secure financing at favourable rates because of its status as a Crown corporation, which effectively means that it is treated by the market as sovereign or government risk, not as commercial risk. In many international transactions, this allows EDC to assist exporters with government bids.

Some ECAs have been restructured such that the short-term insurance side of the business has been privatized and separated from the export finance component. While most ECAs continue to focus on country and bank risk, a recent evolution in the industry is that ECAs are beginning to underwrite corporate risk, such as Export Risk Guarantee (ERG) of Switzerland.

Similarly, ECAs are taking a much broader view of their role and mandate and are shifting away from narrow definitions, such as ensuring minimum levels of national content in exports to targeting activities that generate national benefit.

Just like other providers of services related to international trade, such as trade finance banks, ECAs face significant challenges in terms of the organizational scale and geographic scope required to maintain operations. This is particularly true if these operations are required, based on the mandate of a given ECA, to be financially viable and self-sustaining (recall that not all ECAs are held to a standard of financial viability).

At the highest level, the wide range and variety of ECA models and modes of operation provide exporters and importers with a variety of financing, insurance and guarantee options suited to a wide range of transactions across the globe. Equally true, however, is that the variety of models, objectives and mandates complicates the process of aligning ECA standards through vehicles such as the OECD arrangement and others.

The objective of levelling the playing field in international trade becomes difficult in proportion to the variety of models that exist and evolve relative to ECA operations.

The post What are export credit agencies and what role do they play in international trade? appeared first on Trade Ready.

As any experienced international trade professional can tell you, doing business in global markets isn’t without its trade finance challenges.

Breaking into a new market often involves a significant investment upfront, and keeping track of currency fluctuations can be an ongoing concern once you do. On top of that, it’s not always easy to secure payment, and chasing down money owed to you or your business can be a real hassle.

With these trade finance challenges in mind, here’s some advice from case studies from the FITTskills International Trade Finance course that will help smooth the path towards success.

1. How do I choose the right bank or financial institution to help finance my international business?

The thought of taking out a sizable loan or financing plan can cause trepidation. Fortunately, taking the right steps before money ever changes hands to select a financial partner you trust and will offer you what you need should alleviate many of your concerns.

Like many aspects of exporting and importing, thorough research of several options is necessary. It’s OK to have a preferred option in mind, but make sure you’re not missing opportunities elsewhere that could benefit your business in the long run. Thoroughly investigate and compare each option before you even make an initial appointment, and understand the costs, benefits, and disadvantages of each option.

Having trouble deciding which options to focus on? Referrals are one excellent option.

If a bank or financial institution has worked well for similar companies you know, it could be a strong option to start your search.

Government-supported options are also excellent places to look for financing. In Canada, organizations such as Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) are well equipped to help you with trade finance challenges, while American companies can look at the U.S. Export-Import Bank and the U.S. Small Business Administration.

2. How can I minimize risk related to fluctuations in foreign currency?

While a change in the exchange rate could potentially reduce costs, it’s the opposite situation where a change increases costs that can keep finance professionals up at night.

One solution could be to write a fixed rate of exchange directly into a contract, along with the price, date and quantity of an order. This type of contract is known as a forward foreign exchange contract. While this forces you to forego any potential benefits of a changing exchange rate, the stability reduces risk and makes it easier to budget within a larger financial plan.

Another option is to negotiate to have the prices set in your domestic currency, meaning any risk then falls on your buyer or supplier who uses a different currency, rather than your business. Different businesses may value using their own currency, so make sure you know how much such a concession would be worth to your business, and what you may be willing to give in order to assure your needs are met in your contract.

Potential exchange rate fluctuations could also be used as a factor when negotiating the overall price. A buyer may be able to use intense fluctuations as part of a strategy to negotiate a lower price, while a seller may use a stable rate to negotiate a higher price.

In some situations, a company may want to purchase an option from a bank or other financial institution, a specific agreement to allow you or your company buy or sell a certain currency at a fixed exchange rate by a specific date. Another similar option would be to sign a futures contract, fixing a rate to exchange one currency for another with a specific bank or institution for a certain date.

3. How can I make sure I receive payments, and don’t have to chase debtors around the world?

It’s bad enough trying to chase someone down who owes you something back in an everyday context, like books they borrowed or their share of a restaurant tab.

Just think of how those issues would become exponentially more complicated when you’re chasing down another person or business in another country, who owes significantly more money.

A debt collection agency can be used if needed, but results cannot be guaranteed and a portion of the reclaimed amount will then be owed to the agency, reducing the amount your business will receive in total.

Receiving some of the money owed to you is certainly better than none, but whenever possible take steps up front to ensure full payment will be made.

While not always an option, the most fail-proof way to ensure you get paid is to guarantee payment from a third party through a confirmed letter of credit or export credit insurance. This way, payment is guaranteed to the seller, even if the buyer is unable to make the full payment, as is the funds will be backed by the bank or agency.

A company can also request full prepayment before delivery when there is a perceived risk of non-payment. It is also possible to negotiate to receive money in installments based on specific actions if concerns about the buyer’s immediate cash flow are part of the discussion.

The post Overcome 3 of the biggest trade finance challenges with these tips appeared first on Trade Ready.

The U.S. Export-Import Bank, which helps finance foreign trade deals, had its authorization from the U.S. Congress lapse as of June 30, 2015.

Its previous charter, authorized in 2012, was extended in September 2014 to June 2015. However, divisions on Capitol Hill – and even within the bank’s one stalwart supporter, the Republican Party – mean that the bank’s future is unclear.

Though it no longer has the capacity to issue new loans, it is still able to follow through on loans agreed before the June 30 deadline.

Why do we have an Ex-Im bank?

The philosophy behind the Ex-Im bank runs as such: deals that otherwise would not get trade financing, which includes lending, export credits, insurance, and the issuance of letters of credit, would be able to get this financing from the bank, thereby propelling trade with other countries.

The Republican-controlled Congress allowed authorization to lapse, now viewing the bank as a means of “corporate welfare”, which allows poorly-managed corporations to benefit from lucrative international trade deals.

Case in point: in 2014, Ex-Im approved US$20 billion to finance exports. Of that, Boeing received 40% of the financing; the bank is occasionally referred to as “Boeing’s bank.”

What are the effects of losing the Ex-Im bank?

The failure to reauthorize the bank has already had trade implications, Boeing said. The aircraft manufacturer said in a statement July 2,

A suspension of the Bank’s ability to do new business after June 30 is a boon to overseas competitors at the expense of thousands of U.S. exporters and the jobs they support.

General Electric has also warned of the effect of Congressional inaction on Ex-Im for future sales contracts.

U.S. companies are concerned that lack of access to cheaper trade finance puts them at a disadvantage with foreign competitors, especially those coming from China and other developing markets where trade financing is more competitive.

The shutdown on the bank is expected to hurt large corporations the most, as these constitute the largest recipients of Ex-Im financing. The top 10 recipients of Ex-Im funds received 75% of the US$27.3 billion it dispersed in 2013, the Financial Times reported July 1.

Losing the bank is a big loss for exporters to developing markets

But it will also hurt companies who do a lot of trade in less developed countries, which often do not have the funds or the infrastructure to provide trade financing to its businesses, and so rely on foreign corporations to shoulder those responsibilities.

Trade deals with Africa are likely to take the biggest hit, the Brookings Institute in Washington D.C. argues.

Most African states do not have Export Credit Agencies, and so rely on foreign institutions like the Ex-Im Bank to allow trade deals to go through.

In 2013, Brookings said, the bank financed 188 transactions in Africa for over US$600 million to allow 35 of the 49 sub-Saharan African countries to export goods to the U.S.

In the first seven months of 2015, authorizations amounted to US$1.1 billion.

So, if the bank, despite the exhortations of President Barack Obama, is allowed to expire, what will take its place?

What is the alternative to the bank?

The expectation that private sector lending will replace an extinct Ex-Im bank is not entirely feasible, financial expert Amadou Sy writes.

The top challenge that SMEs [small- and medium-size enterprises] face in accessing foreign markets is obtaining financing, either for their buyers or to support their own growth.

“Banks are unlikely to jump in to solve the problem”, he added.

“Relatively high transaction costs and costs of risk that banks incur when financing small transactions are why banks are less involved in the business of helping SMEs export their products and services abroad.”

However, the overall impact on SMEs should the bank fail to be authorized is expected to be small, as large corporations take a sizable portion of Ex-Im trade financing.

The bank’s lack of authorization may be short-lived, Senate Majority Leader Mitch McConnell said June 30. There are enough votes to put through the re-authorization of the bank, and he intends to put the issue to the floor once more.

Do you think that the US Ex-Im Bank needs to be re-authorized, or would you prefer to see it expire permanently?

The post The U.S. Export-Import Bank could be facing its final days appeared first on Trade Ready.

Northstar Trade Finance was founded in Canada in 1994, specifically to address the unique needs of Canadian SMEs and their international trading partners.

Outstanding strategic partnership model

Northstar first caught the US Ex-Im Bank’s attention several years ago with their strategic partnership model. Northstar works closely with many financial institutions and public sector partners, several of which are shareholders of Northstar.

They have also developed a series of alliances with world-class export credit and export insurance agencies, as operations expanded beyond Canada to the United States, United Kingdom, and continental Europe, among other markets.

The partnership approach, combined with the world-class technical competency of the Northstar team, led the US Ex-Im Bank, America’s export credit agency, to authorize them as a delegated lender.

That meant they were approved to make credit decisions and lending transactions on behalf of Ex-Im: a privileged role accorded to very few trusted organizations.

After several years as a Delegated Lender, their strong continuing efforts have been rewarded with this prestigious honor.

Scott Shepherd, CITP®|FIBP®, the President and CEO of Northstar, notes that “This recognition, by one of the top export credit and insurance organizations in the world, is a tremendous win for the Northstar Team.”

It’s an undeniable acknowledgment of the value and effectiveness of our partnership approach, as well as our single-minded focus on and commitment to SMEs pursuing opportunities in the global marketplace.

Addressing a crucial need for SMEs

International trade forms a significant portion of many nation’s GDPs, and SMEs are increasingly recognized as engines of growth, job creation and economic value. Yet access to trade financing to fund these activities has often been underappreciated or difficult to acquire.

More recently, the direct and critical link between trade success and access to financing – including traditional trade finance and emerging solutions in supply chain finance – has been recognized at the most senior levels of political leadership and by heads of key international institutions like the WTO and various multilateral development banks.

Many small and medium-sized enterprises pursuing opportunities in international markets, however, still have trouble accessing trade financing – including highly effective risk mitigation solutions – through traditional providers of trade and supply chain finance.

Northstar has therefore developed an effective business model aimed specifically at addressing the unique challenges and needs of SMEs in Canada and internationally.

Even as major financial institutions reduce their international exposures or exit lines of business like trade finance, Northstar is actively working to extend its footprint, both directly and through expansion of its international partnerships.

Shepherd, a long-time supporter of FITT and a CITP®|FIBP®, notes, “At Northstar, we have gathered a team of top-level credit, risk and international market experts.”

“In addition to developing and structuring effective financing solutions in support of trade, we are uniquely positioned to provide advice and support to SMEs operating in or aspiring to operate in international markets, from OECD economies to emerging markets.”

“Our network of partners and associates provides an additional resource-base upon which Northstar can draw to help enable SME trade activity.”

Providing excellence in trade finance with innovation and expertise

It is clear that no single bank, export credit agency, multilateral institution or other entity can meet all of the trade financing needs in Canada or internationally.

It is equally a reality that SMEs continue to experience disproportionate difficulty in obtaining adequate, affordable levels of financing – including trade financing – despite the increased rhetoric about the importance of this market segment.

In Canada, the clear directive of the federal government through the Global Markets Action Plan, to support SMEs in their pursuit of international opportunity, is consistent with similar priorities in many markets around the world.

The reality, however, is that 80-90% of trade activity is supported by some form of trade finance, yet SMEs continue to experience difficulty in accessing trade finance, and the traditional providers of this form of financing are now increasingly challenged by credit and capital constraints and by limitations in capacity linked to increasing regulatory pressure.

As trading patterns evolve and exporters expand and diversify beyond traditional trading partners, the needs of SMEs for expert advice and well-structured financing will increase exponentially, as will the need for alternate sources and additional capacity.

Northstar, however, is nothing short of a world-class innovator in the financing of international commerce, benefitting from strategic alliances with organizations like FITT, numerous shareholder financial institutions, and various top-tier export credit and international institutions.

The award from US Ex-Im reflects the technical competency of the Northstar team: a key element of international business and trade.

Through more than two decades of evolution, building a network of effective partnerships, alliances and collaborations around the globe, they have been able to serve a crucial need for SMEs at a time when access to effective and innovative trade financing is more important than ever.

The post Northstar from Canada wins prestigious award from the Export-Import Bank of the United States appeared first on Trade Ready.