In the December 2011 issue of On the Money we provided a general overview of the key sources of alternative funding in the current economic climate and asked you to indicate which sources were of particular interest to you. As a result, in this issue, we look at one of these in more detail: Export Credit Agencies or "ECAs".
In the past, ECAs acted merely as insurers of last resort, underwriting transactions seen commercially and/or politically as too risky. Today that position has changed; ECAs frequently constitute a key element in mainstream funding. Project finance, for example, is an area in which ECAs commonly participate, in particular given the demands of recent large scale developments in the energy and infrastructure sectors.
Moreover, ECAs are increasing the types of financial support that they provide. ECAs now have a variety of financial products, and are more commonly also lending to their customers direct. This is in addition to their more traditional role in supporting transactions through guarantees and credit insurance. For example, KSURE, the Korean ECA, has long been a provider of such direct funding and recently changed its name (from Korean Export Insurance Corporation to Korea Trade Insurance Corporation) to signify its increased scope of support; it testifies to a remarkable growth in business.
The Berne Union, the leading international association for ECAs worldwide, has recently published its figures on ECA related trade for 2011. This reveals that during 2011 Berne Union members insured USD1.7 trillion worth of exports, which represents more than 10% of international trade. For our purposes it is also interesting to note that Medium to Long Term Export Credit Insurance (known as "MLT"), which covers transactions with repayment terms between 3 to 5 years or more, grew by 10% in 2011 (as compared with the previous year) to a record high of USD191 billion. This demonstrates the crucial role which ECAs play in supporting finance transactions in the current market.