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The purpose of an Export Agreement (based on an ECA loan)

An Export Agreement (based on an ECA loan) is a financial arrangement that facilitates international trade by providing loans, loan guarantees, and insurance to support domestic companies’ exports.

The Export Agreement outlines the terms and conditions of the sale, including the price, delivery schedule, and payment terms. The Agreement also specifies the ECA loan details, including the loan amount, interest rate, and repayment schedule. The Exporter and Importer shall comply with the terms and conditions of the Agreement. Have in mind that the ECA loan is subject to the laws and regulations of the Exporter’s country.

How ECA Rules and Regulations Work?

Export Credit Agencies (ECAs) offer these services to mitigate the risks associated with selling goods and services in overseas markets.

ECAs can be government agencies, quasi-governmental agencies, or commercial financial institutions that support the domestic economy and employment by helping companies find overseas product markets.

The ECA provides loans to the Importers, guaranteed by the Exporter’s government (Sovereign Guarantee), to cover the cost of the goods. Such loans are typically based on a fixed interest rate, which is lower than commercial lending rates. It makes them an attractive option for importers. The loan is usually denominated in the currency of the Exporter’s country, and the repayment terms are structured to align with the delivery schedule of the goods.

ECA’s responsibilities

One of the ECA’s responsibilities is to provide insurance coverage to exporters against the risk of non-payment by importers. This helps mitigate the credit risk associated with international trade. The Importer shall purchase such insurance coverage from the beginning of the ECA.

ECAs offer a variety of export credit insurance policies to exporters and financial institutions, covering risks such as non-payment by the buyer or exporter. They also provide guarantees, usually issued directly to a commercial bank. It covers the bank’s loan to the exporter or foreign buyer. Loans and credit facilities are also part of the support offered by ECAs, which provides insurance coverage for pre-shipment or post-shipment purposes.

Benefits of ECA Loans

The use of an ECA loan can provide several benefits to the parties involved, including:

• The Importer can purchase goods at a lower cost, as the ECA loan is provided at a lower interest rate than commercial lending rates.
• The Exporter can reduce its credit risk, as the ECA provides insurance coverage against non-payment by the Importer.
• The ECA can promote exports from the Exporter’s country, which can help to support economic growth and job creation.

The OECD Arrangement on Officially Supported Export Credits sets out the rules and guidelines for ECAs. It includes the repayment terms and the requirement for equal repayments of loan principal on at least a semiannual frequency. The arrangement also covers associated financing, which may take various forms, including mixed credits, mixed financing, joint financing, or parallel financing.

Overall, the Export Agreement based on an ECA loan provides a financing solution that can facilitate international trade and promote economic growth.

Check out more pages of our website for related content:

• Arrangement on Officially Supported Export Credit 
• Green Loan Agreement
• Loan Agreement 
• Engineering, Procurement and Financing Contract (EPF)
• Engineering, Procurement, Construction and Finance Agreement (EPCF)

Reference List

1. OECD – Arrangement on Officially Supported Export Credits (2024)
2. World Bank – Export Credit Agencies Overview
3. International Trade Administration (U.S. Department of Commerce) – Export Finance Programs
4. UK Export Finance (UKEF) – Export Credit Guarantees
5. Export Development Canada (EDC) – Export Credit Insurance
6. Euler Hermes (Allianz Trade) – Export Credit Insurance Solutions
7. OECD Country Risk Classifications (2024 Update)