Case Study Details - Playbook of Solutions

Description

Export Credit Guarantees (ECGs) are assurances to domestic companies against the risks associated with international export transactions and activities. They are provided by Export Credit Agencies (ECAs), which are usually government-owned but can also be private companies operating on behalf of the government. Export Credit Guarantees vary in type depending on the country and the institution. Typically, guarantees protect against bad debt losses for the exporter and/or the financing bank. In addition to Export Credit Guarantees, some ECAs may also offer direct loans.

Benefits

Export Credit Guarantees help mitigate the risk of non-payment from foreign buyers, therefore increasing investors’ confidence in engaging in international trade. They are especially relevant in countries where private insurers lack the risk appetite to engage, and pertinent in most emerging and developing economies. They cover political and commercial risks to overseas investments. By providing these guarantees, ECAs encourage export activities and facilitate international trade. They also serve as a crucial instrument for shaping public policy, as they provide targeted support to specific sectors and types of projects. Consequently, ECAs have progressively enhanced their developmental, environmental, and social safeguard standards.

The extensive scope and adaptability of ECG's export credit guarantees render them well-suited for a diverse array of initiatives, from small businesses to large-scale infrastructure projects. Moreover, they do not prevent the parallel participation of private insurers.

Case Study

US EXIM offering Export Credit Guarantee

In 2020, the Export-Import Bank of the United States (EXIM) approved USD 91.5 million in loan guarantee financing to support U.S. exports of design engineering and construction services to Senegal. The project involved the installation of low-voltage power lines and mini-grids of stand-alone solar units, reducing the need for diesel generators. It aimed to bring electricity to approximately 330,000 Senegalese across more than 400 villages.

J.P. Morgan Chase was the lead arranger and mandated lender for the project, which totaled an estimated USD 100 million. EXIM guaranteed 81.5% of the funding, on top of a sovereign guarantee from the Senegal’s Ministry of Economy, Planning and Cooperation, with Senegal National electricity company (Senelac) as the borrower.

From the lender and guarantee provider’s perspective, the export credit guarantees helped secure the project against foreign competition and fulfill EXIM's goals, including supporting small businesses, promoting exports to sub-Saharan Africa, and advancing renewable energy technology.

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