Export finance

What is Export Finance?

To understand what export financing means, let's start with the definition given here: "an export financing consists in funding a medium to long term credit for an infrastructure project abroad typically led by a national exporter.". Let’s take the example of financing a project designed to put in service of new water pipes in a developing country to prevent various diseases, for an amount of USD 50 million over 12 years.

Who is involved in Export Financing?

The different actors involved in export financing are the following:

• Large international banks set up the financing; 
• Exporters execute the project on site;
• Export credit agencies, such as BPI France Assurance Export, mitigate country risks (war, revolution, etc.) as well as counterparty risks (payment default) for large international banks;
• Borrowers who are often public entities (e.g. Ministry of Health in the case of the installation of new water pipes).

What are the types of export financing solutions?

Two financing solutions are essentially proposed:

• Buyer's credit will finance the exported part (as opposed to the local part) related to the export of original capital goods.  It is guaranteed by the export credit agency in the event of default by the borrower with political and/or commercial risk coverage of 95 to 100% of the credit amount, usually under a duration of 12 years. 
• the related financial credit will finance the local part (carried out by a workforce residing on the spot) that cannot be covered by the buyer’s credit. It is not provided by an export credit agency. Indeed, as a relay of the State, the export credit agency intervenes to allow national companies to win new markets, synonymous with jobs in the exporter's country. It therefore usually has a duration of maximum 7 years in principle lower than that of the buyer’s credit.