# Mitigating Techniques for Commercial Risk/Governments-Transference

| Unit 3.5-Mitigating Techniques for Commercial Risk | Introduction | Commercial Banks | Loans | Letter of Credit | Draft Collection | Accounts Receivable | Governments | Factoring | Forfaiting | Banker's Acceptances | Credit Insurance | Summary | Resources | Activities | Assessment Go to Unit 3.1 | Unit 3.2 | Unit 3.3 | Unit 3.4 | Unit 3.5 Return to Trade Finance Module 3: Commercial Risk |

## Governments- Transference

Many governments are involved in supporting international trade and investment. International trade and investment are considered the two key engines that drive economic growth. Governments set the tone for economic development through policies and actions. Most want to foster exports as opposed to imports; exports create internal jobs, while imports create jobs in other countries.
As a result, most major economies have created specialized governmental institutions that are known as “ECA’s,” or Export Credit Agencies. An ECA provides insurance or loan guarantees through that country’s financial institutions and shares any losses with the bank in the event of a non-payment, depending on the agreement between the ECA and the country’s banks. By providing this type of guarantee, the ECA supports an exporter’s or seller’s ability to extend credit.
ECA financing is very difficult to arrange. It is usually supported by government credit agencies. Normally, the payment for the project is for five years and longer. A credit manager or project-finance banker can determine what kind of project or government-supported financing best fits the situation.
An example of an “ECA” is the US Export-Import Bank. The Ex-Im Bank works within a set of policies that focus on creating US jobs and adhering to US positions and regulations. As a result, it has certain restrictions on utilizing its programs that may prevent some buyer companies from getting financial support. In order to insure that their programs are creating jobs in the US, participating companies must ship all products overseas from the US, and support may be limited to the US content of the products. In addition, the final manufacturing stage must be in the US, and some programs require shipment on US vessels. Finally, with few exceptions, no product can be shipped to a military buyer. Within these restrictions, the Ex-Im Bank can support a variety of trade transactions under numerous programs.
The Ex-Im Bank's programs cover a variety of needs. In some cases, a company that needs financing, that is, a buyer requires pre-export financing assistance, which is offered through pre-shipment insurance and a working capital loan guarantee program.
Post-shipment assistance is provided through short, medium, and long-term programs. All the Ex-Im Bank's short-term export programs are insurance programs. These include programs to protect sales to an individual buyer called single-buyer insurance or many buyers at the same time, multi-buyer insurance, including programs designed specifically for small businesses-- the small business program and the environmental program. All goods covered under these programs must have at least 50% US content.
The Ex-Im Bank's medium-term programs include insurance, guarantees and direct loans. It is a requirement of any such program that the buyer make a 15% down payment based on the transaction value. A maximum of 85% of the FOB value, plus up to 15% in local costs in the destination country, are covered under these programs.
Under its long-term facility, the Ex-Im Bank offers both guarantees and project finance programs.