An export credit agency (known in trade finance as ECA) or Investment Insurance Agency, is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export financing. The financing can take the form of credits (financial support) or credit insurance and guarantees (pure cover) or both, depending on the mandate the ECA has been given by its government. ECAs can also offer credit or cover on their own account. This does not differ from normal banking activities. Some agencies are government-sponsored, others private, and others a bit of both.
ECAs currently finance or underwrite about US$430 billion of business activity abroad - about US$55 billion of which goes towards project finance in developing countries - and provide US$14 billion of insurance for new foreign direct investment, dwarfing all other official sources combined (such as the World Bank and Regional Development Banks, bilateral and multilateral aid, etc.). As a result of the claims against developing countries that have resulted from ECA transactions, ECAs hold over 25% of these developing countries' US$2.2 trillion debt. These data are unreliable in the absence of source, definition, or date.
Export credit agencies use three methods to provide funds to an importing entity:
- Direct Lending: This is the simplest structure whereby the loan is conditioned upon the purchase of goods or services from businesses in the organizing country.
- Financial Intermediary Loans: Here, the export–import bank lends funds to a financial intermediary, such as a commercial bank, that in turn loans the funds to the importing entity.
- Interest Rate Equalization: Under an interest rate equalization, a commercial lender provides a loan to the importing entity at below market interest rates, and in turn receives compensation from the export–import bank for the difference between the below-market rate and the commercial rate.
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