The Export Credit Insurance (ECI) aims to guarantee export credit transactions against commercial, political and extraordinary risks that may affect exports of Brazilian goods and services. As provided by Act No. 11,281, of February, 2006, the Union, through the Ministry of Finance, may grant cover for risks assumed by virtue of the Export Credit Insurance and hire an institution authorized to perform all services related to it.
According to MF Ordinance No. 416 of December, 2005, the Secretariat of International Affairs – SAIN is responsible for authorizing the insurance coverage of the Export Credit Insurance, under the terms of the Export Guarantee Fund (FGE).
Created by Act 9818, of August, 1999, the FGE is a fund of accounting nature, linked to the Ministry of Finance, which aims to cover the guarantees provided by the Union for the Export Credit Insurance transactions against commercial, political and extraordinary risks.
As a member of the Chamber of Foreign Trade – CAMEX, and created by Decree Nº 4993 of February, 2004, COFIG has the competence to regulate and monitor transactions of the Export Financing Program – PROEX and of the Export Guarantee Fund (FGE), setting parameters and conditions in order to provide financial assistance and guarantee for exports through the Federal Government (Act 6704, of October, 1979, and Decree Nº 3937, of September, 2001).
The decisions and deliberations of this Committee are taken by consensus. If the members fail to reach an agreement, the transactions and/or topics are forwarded to the Council of Ministers of CAMEX for a final decision.
COFIG has the following members (each one has a substitute):
- Executive Secretariat of the Ministry of Development, Industry and Foreign Trade (MDIC) – chairs the Committee;
- Ministry of Finance – Secretariat of International Affairs (SAIN) holds the Executive Secretariat of the Committee and replaces the president in his absence or incapacity;
- Ministry of Foreign Affairs (MRE);
- Ministry of Planning, Budget and Management (MPOG);
- Office of the President of the Republic (Casa Civil);
- Ministry of Finance – National Treasury Secretariat (STN).
There are also the non-voting members participating as guests/operators, with one official representative and a substitute:a)
- Banco do Brasil S.A;
- Brazilian Development Bank – BNDES;
- Executive Secretariat of the Chamber of Foreign Trade – CAMEX;
- Brazilian Guarantees Agency – ABGF.
For Medium and Long Term transactions, where the repayment term is over two years, the guarantee is formalized by the Export Credit Insurance Coverage Guarantee Certificate that will be effective during the whole financing period. The Certificate cab cover two different types of financing, as described below:
The Export Credit Insurance Coverage Guarantee Certificate (Policy) is issued in favor of the exporter, who grants credit to his overseas client. According to his working capital needs, the exporter can request a refinancing (through discount of the corresponding bonds), transferring to the financing bank the right to an indemnification covered by the Policy.
The Export Credit Insurance Coverage Guarantee Certificate (Policy) is issued in favor of the financing bank, which will establish a credit facility directly to the overseas client and pay the exporter up-front.
- PRE-CREDIT RISK (PERFORMANCE) – The manufacturing risk is represented by the possibility of an interruption in the fulfillment of obligations established in the commercial contract, due to the occurrence of any distress factors affecting claims, which may be related to the buyer or its country of origin. The cover provided during this period concerns the costs incurred by the exporter up to the time when the contract is interrupted.
- CREDIT RISK (POST-SHIPMENT) – The credit risk is represented by the inability of the buyer to pay the installments derived from the financing related to the purchase of goods and/or to the contractual obligations established with the exporter. The cover provided at this stage refers to the amount owed by the importer.
NATURE OF RISKS
The risks covered are classified as commercial or political & extraordinary.
The Coverage Price (“premium”) is calculated based on the principal to be financed. The pricing considers, basically, the importer’s country, the type of risk (pre-credit or credit risk), the nature of the risk (commercial or political & extraordinary), the maturity of the transaction and the debtor’s financial standing.
The export credit insurance is valid from when the Export Credit Insurance Coverage Guarantee Certificate (Policy) is signed and the corresponding Coverage Price is paid.
The premium against the manufacturing risk must be paid when the Export Credit Insurance Coverage Guarantee Certificate (Policy) is signed. When it is credit risk, the guaranteed has can choose to pay the premium in accordance with the shipments.
In buyer credit transactions that may have more than one disbursement the Coverage Price is paid as soon as the credit is being used. In this case, the Certificate is valid as of the first disbursement.
PERCENTAGES OF COVERAGE
As established by the law applicable to export credit insurance supported by the Federal Government, the percentages of coverage, according to the nature of the risks, are:
– Up to 95% against Commercial Risks;
– Up to 100% against Commercial Risks, when the operation has a bank guarantee;
– Up to 100% against Political Risks.
SUBJECT OF THE COVERAGE
As established by the law applicable to export credit insurance supported by the Federal Government, the subject of the coverage is: Principal + Operating Interest.