impact of the financial crisis on trade finance appears to have been reached in the first half of 2009.

A 14-country World Bank survey launched in early 2009 examines how and whether changes in trade finance have affected firms and banks in developing countries (Malouche, 2009). The survey covers 402 firms and 75 banks and other financial institutions. It confirms that trade finance has become more expensive and less available although the drop in demand is still the key concern for firms. Moreover, small and medium enterprises (SMEs) as well as larger firms with high exposure to international markets are most strongly affected by the squeeze in trade finance. The banks surveyed do not seem to have suffered from lack of liquidity but became more risk averse and selective, and have therefore been tightening trade finance conditions. Last but not least, the survey detected an increased need for more guarantees and insurance to facilitate the release of trade finance funds.

# **_The Berne Union and the Export Credit Insurance Industry_**

Export credit insurance is a financial instrument whereby exporters insure themselves directly against the risk of buyers’ default. The insurer reimburses the firm in case of non-payment. An export credit guarantee provides a guarantee to banks or other financial institutions that are willing to lend either to the exporting or the importing firm. The guarantor takes responsibility for a financial obligation if the primary liable borrower fails to perform. It is common to distinguish short-term (credit terms of up to and including 12 months for the purpose of this paper) and medium to long-term export credit insurance. Medium to long-term insurance is typically used for large transactions such as those related to capital goods, large machinery and turn-key plants. In some cases (e.g. Three Gorges Dam), this type of insurance has been used in the financing of large scale projects as a floating collateral against current and future receivables, a type of insurance that perhaps not necessarily qualifies as trade finance in the stricter sense.

The market for export credit insurance and guarantees comprises not only private but also public players, namely ECAs. Whereas the market for short-term insurance is dominated by private agencies (some 80 percent of overall business), ECAs underwrite the wider majority of medium to long-term commitments. An agency will typically aim at alleviating the risks inherent to international trade by providing adequate insurance to domestic exporters. Such risks are likely to be more significant in relation to medium and long-term credit arrangements.

The issuance of export credit insurance and guarantees is an important spectrum of trade finance, reducing credit risks and allowing exporters to offer open account terms in competitive markets. It is a spectrum of trade financing that is of crucial importance in the current environment of high systemic risk; with a declining secondary market to offload loans, as well as an increase in bank counter-party risk, demand for export credit insurance and guarantees is high. Indeed, export credit insurance may enable increased financing of foreign receivables on more favorable terms and amounts than otherwise available. Moreover, risk management tools such as export credit insurance and guarantees can be critical to access financing, both because of the higher risks of cross-border trade and the fact that less creditworthy exporters can use insured receivables from high-quality foreign customers to guarantee domestic credit.

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