A Reference Guide to Trade Finance Techniquesrisk of the buyer and the horizon of risk.
UKEF takes the documentation risk and
will provide an unconditional guarantee
to the financing bank. UKEF usually has
recourse to the exporter in the event of a
default caused by the non-performance of
the exporter. Supplier Credit Financing Facility.
Under this facility, UKEF provides
guarantees to banks which have
purchased any bills of exchange or
promissory notes issued to a UK
exporter on behalf of or by the importer,
or where the bank has provided a loan
to the importer. The contract between
the exporter and importer must have
a minimum value of GBP 25,000 or its
foreign currency equivalent. Credit can
be extended to buyers up to a maximum
85% of the contract value, and the
payment period must be at least two
years. Premium is payable based on the
country and credit risk of the buyer and
the horizon of risk. UKEF does not take
the documentation risk.
Lines of Credit.
UKEF can provide a guarantee to a bank
of a qualifying loan issued to an overseas
bank to support a foreign purchaser of UK
exports. The loan must be for a minimum
of two years and in support of a contract
with a minimum value of USD 25,000.
The buyer must make a downpayment of
at least 15% of the value of the contract.
If the borrower defaults, UKEF makes
payment to the financing bank. A premium
is charged by UKEF.
Project Financing Facility.
UKEF offers a guarantee to banks
providing loans to a major infrastructure
project abroad. The guarantee is on a
similar basis to that offered under UKEF’s
buyer credit facility (see above).
Bond Insurance Policy.
This provides protection against an
‘unfair’ call under the terms of a bond or
guarantee or in the event a call is made
as a result of actions by the foreign
government (such as the withdrawal of an
export licence).
Overseas Investment Insurance.
This provides protection against loss of
equity investments in, or loans provided
to, foreign entities by a UK entity, as a
result of war, expropriation, the imposition
of new exchange control restrictions or
a breach of government undertakings.
Protection is offered up to a maximum of
90% of the amount insured.Short-term
Letter of Credit Guarantee Scheme.
This is accessed through an exporter’s
bank. This allows a UK exporter’s bank
to share the credit risk with UKEF when
confirming a letter of credit issued by a
bank in a number of emerging markets.
Bond Support Scheme.
This scheme provides a guarantee to a
bank that it will receive amounts it has
paid to a bondholder if a bond is called
and it cannot recover the amount paid in
full from the exporter. UKEF shares the
risk with the bank for up to 80% of the
value of the bond.
Export Working Capital Scheme.
This provides a guarantee to a bank to
meet a proportion of losses it may suffer
if the exporter fails to repay a working
capital facility made available to fulfil a
specific export contract. UKEF is able to
provide cover for up to 80% of the value of
the facility.
Export Insurance Policy.
This provides protection against an
importer’s failure to pay under the terms of
an agreed contract. It also protects against
certain specified political risks. Most types
of goods and services can be covered,
although for exports of non-capital goods
and services, the exporter must be unable
to receive cover from the commercial
insurance market. Protection is available
for up to 95% of the contract value.
Under all of its facilities, UKEF requires a
minimum of 20% of the contract value to be
sourced from the UK. Subject to risk capacity,
the balance can be considered for support.
As an indication of the differences
between ECAs, the US ECA (the Export-