Financial institutions can reduce their risks on a short term direct buyer credit loan or reimbursement loan made to a foreign buyer for the financing of U.S. exports through an EXIM Financial Institution Buyer Credit Insurance Policy (known as a FIBC or Bank Buyer Credit Policy).
A direct buyer credit loan is a loan extended to a foreign entity by a financial institution for the importation of U.S. manufactured or produced goods. A reimbursement loan is the financial institution's reimbursement of a buyer's payments to U.S. suppliers. In both cases, repayment of the loan is based upon a buyer obligation to the financial institution. This policy affords coverage against commercial defaults and political events that result in nonpayment under a buyer obligation.
What Is Covered
The policy provides coverage against political risks such as war, revolution, expropriation or confiscation by a government authority, cancellation of import or export licenses after shipment and foreign exchange inconvertibility, and commercial losses due to protracted default, insolvency of the buyer or failure to reimburse for other reasons. Devaluation is not covered.
The policy is issued in one of two policy formats: a "documentary" policy for "buyer" credits, and for certain "supplier" credits when the supplier is a small business, and a "non-documentary" policy for supplier credits when the supplier is not a small business or otherwise does not meet the criteria. The documentary format requires the financial institution to obtain specific documents such as a signed buyer obligation, transport document, invoice, and an Exporter Certificate, EIB94-07. If the beneficiary of the funding is an entity other than the supplier/exporter, a Beneficiary Certificate , EIB92-37, is required. Under the documentary format, having obtained documents that on their face satisfy the policy requirements, the insured financial institution can be assured that defects in the underlying commercial transaction will not cause claim denial.
Under the documentary format, the principal risk assumed is the uninsured retention, if any. Under the non-documentary format, the financial institution remains at risk for not only the uninsured retention but also certain events, such as fraud in the transaction, non-shipment of products, dispute in the transaction or the discovery of non-U.S. goods.
Both policy formats offer equalized coverage for commercial and political risks (comprehensive cover). Political-only coverage is available under the documentary format. Maximum percentages of cover are indicated:
|Sovereign Obligors or Guarantors or political only coverage||100%|
|Non-Sovereign Obligors or Guarantors including non-sovereign public sector and private sector financial (non-letter of credit) and non-financial institutions||90%|
|Approved agricultural Commodities||98%|
Coverage applies to credit terms extended under a direct loan or reimbursement agreement to a foreign buyer named in the policy declarations for any goods produced in and shipped from the United States during the policy period. The maximum period between the date of shipment and the date of the buyer obligation will generally be 45 days. Cover is typically provided for credit terms up to 180 days for agricultural commodities, consumer items, spare parts and raw materials. On a case-by-case basis, capital equipment, and quasi-capital equipment may be insured on terms up to 360 days. Products that are less than 50% U.S. content exclusive of mark-up and certain defense products are not eligible for cover. Principal amounts are covered up to the maximum insured percentages stated above or as specified in the policy declarations.
Documented interest is covered at the applicable rate for the approved currency specified in the policy up to a maximum of 180 days after the due date.
What Period Is Covered
The policy may be written for a period of up to 12 months. The coverage effective date is the first date after which a buyer obligation can be executed under this policy.
What the Insured Agrees to do
The insured agrees:
- to pay the minimum premium in full before the policy is issued;
- to report and pay premium on insured fundings, form EIB92-30, on or before the last business day of the month following the month in which the funding occurred;
- not to enter into any transaction with a buyer who is insolvent or has any debts payable to the insured of $2,000 or more which are 90 days or more past due;
- to report to EXIM, in writing, form EIB92-27, if the buyer has not paid any amount for 90 days after it was due;
- to do everything reasonable to collect from the buyer any amounts owing;
- to obtain EXIM's prior written approval before rescheduling any insured transaction;
- to cooperate with EXIM to effect recoveries.
Claims And Payments
Claims may be filed 30 days after the due date and must be filed within 150 days. The insured must make a written demand for payment on the buyer and any guarantor at least 30 days before filing a claim. Upon payment of a claim, the insured agrees to sign a release, transfer the covered debt obligations to EXIM and notify the buyer to make future payments to EXIM. EXIM pays properly submitted and documented claims, forms EIB92-42 & 43, which are in compliance with the policy within 60 days of receipt.
Policy Application Procedure
The application form, EIB92-41, is completed by the financial institution outlining the specifics of the transaction. Since this policy covers transactions on a single-buyer basis, a separate policy is issued for each foreign buyer. Information about the financial institution and the buyer, including a credit agency report and financial statement on each entity, must be submitted to support the request. Refer to EXIM's Short-Term Credit Standards, EIB99-09, and the application, for specific requirements and to determine the likelihood of approval.
Upon its review and approval of the application, EXIM issues a policy quotation stating the parameters of coverage. These parameters include EXIM's limit of liability per buyer obligation, the insured percentage, claim payment limit, premium rate, policy period and any special conditions required.
The policy quotation is effective for a maximum of 90 days and assures the financial institution that all policy conditions will remain unchanged for the quotation period. Quotation periods in excess of 90 days are generally not available. The policy is issued upon receipt of the minimum premium (the policy coverage effective date), which must be received in full within the quotation period. Premium is then paid, at the rate specified in the policy, on fundings by the insured financial institution. A premium reconciliation is made at the end of the policy period and an appropriate premium refund is made.
Risk-based Premium Rates
A risk-based pricing system is used. A disciplined formula provides a premium rate that reflects the major risk elements of each transaction. A non-binding rate indication may be obtained by referring to the Short Term Fee Calculator on the EXIM Internet Homepage or by contacting the Business Development Division with specifics of the contemplated transaction. Changing conditions may result in a different rate being finally offered than is initially indicated.
Premium is paid on the total principal volume amount to be insured. The premium rate is paid per $100 of invoice value.
The following minimum premiums apply:
|Sovereign and Political-Only coverage||$ 750|
|Financial Institution Private and Non-Sovereign Public||$ 1,500|
|Non-Financial Institution Private and Non-Sovereign Public||$ 2,500|
EXIM FINANCIAL INSTITUTION BUYER CREDIT EXPORT INSURANCE
COMPARISON OF POLICIES
|POLICY FORMAT||DOCUMENTARY POLICY||NON-DOCUMENTARY POLICY|
|ELIGIBLE TRANSACTIONS||All "Buyer" Credits and "Supplier" "Supplier" Credits when exporter is a small business.||"Supplier" Credits when exporter is not a small business, or does not meet required criteria.|
|ELIGIBLE BUYERS |
Public sector (government) obligors
Private sector obligors
Financial institutions as obligors or guarantors
|EXPORTER/BENEFICIARY CERTIFICATE||Required. Exporter/beneficiary provides representations regarding U.S. content and shipping requirements||Not required. Financial institution is responsible for U.S. product and export requirements.|
|If properly authorized representations exist within Exporter/Beneficiary Certificate(s), and other documents are in compliance with policy requirements, claims may be paid regardless of:|
|- fraud in underlying transaction||Yes||No|
|- dispute in underlying transaction||Yes||No|
|- non-shipment of goods||Yes||No|
|- non-U.S. goods shipped||Yes||No|
|PERCENTAGE OF COVERAGE|
|Sovereign Public Sector Obligors||100%||Not applicable|
|Public non-sovereign obligors or private sector, financial (non-letter of credit) or non-financial obligors or guarantors.||90%||90%|
|Approved Agricultural Commodities||98%||98%|
|Letter-of-Credit Transactions||Excluded; use Bank Letter of Credit Policy||Excluded; use Bank Letter of Credit Policy|
|DISCRETIONARY CREDIT LIMIT||None||None|
|UNINSURED RETENTION||The insured must remain at risk uninsured and unsecured. EXIM will consider, on a case-by-case basis, the pro-rata- pass through of retained risk to the participants in connection with participated loans.||The insured must remain at risk uninsured and unsecured.|
|IRREVOCABLE COVERAGE||Coverage conditions locked-in at policy issuance||Coverage conditions locked-in at policy issuance|
|QUOTATION PERIOD||Maximum of 90 days (no fee)||Maximum of 90 days (no fee)|
|POLICY PERIOD||Maximum of one year, subject to EXIM approval||Maximum of one year, subject to EXIM approval|
|The policy is issued upon receipt of an the minimum premium requirements. Once the financial institution begins fundings under the policy, premium reports are submitted and additional premium is paid to EXIM at the rate(s) specified in the policy. At the end of the policy period, and after taking into consideration the total amount of funding premium under the policy, EXIM will refund the advance premium, except for any amount needed to satisfy the minimum premium requirements.|
|PREMIUM RATE||Risk-based single-buyer rates||Risk-based single-buyer rates|
|Sovereign Obligors and Political Risk Only Cover||$750||same|
|Financial Institution Private and Non-sovereign Public||$1,500||same|
|Non-Financial Institution Private and Non-Sovereign Public||$2,500||same|
|FUNDING REPORTING||Due with premium by the last business day of the month following the month when funding occurred||Due with premium by the last business day of the month following the month when funding occurred|
|INTEREST RATE COVER CAP||For U.S. dollars, Wall Street Journal prime rate less 0.5% per annum (fixed or float): see policy documents for other currencies||For U.S. dollars, Wall Street Journal prime rate less 0.5% per annum (fixed or float): see policy documents for other currencies|
|POST-MATURITY INTEREST||Covered up to 180 days after default||Covered up to 180 days after default|
|CLAIM FILING WINDOW||30 to 150 days from due date||30 to 150 days from due date|
|CLAIM PAYMENT||Within 60 days of claim receipt if in compliance with all policy terms and conditions||Within 60 days of claim receipt if in compliance with all policy terms and conditions|
|INFORMATION REQUIREMENTS FOR BUYER CREDIT APPROVAL||Refer to EXIM's published Short-Term Credit Standards(EIB99-09) - Buyers. Depending on the amount of the credit limit, a credit rating may be sufficient; otherwise a credit report, a bank reference, one or two trade references and two or three years' financial statements are required.|
|INFORMATION REQUIREMENTS FOR SUPPLIER APPROVAL||Small business suppliers meeting certain requirements may make the applicant eligible for "documentary" cover under a supplier credit. See EXIM's Short-Term Credit Standards (EIB99-09) - Exporter Credit Standards for an Enhanced Assignment.|
Please call or visit the nearest EXIM office for a free consultation with an Export-Import Bank Trade Finance Manager.