Small and Medium Entreprises – SME
The Brazilian Government along with the Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A. – ABGF (Brazilian Guarantees Agency) has developed a specific coverage – Export Credit Insurance (ECI/MSME) – to support Micro, Small and Medium Enterprises (MSME) exports. The main objective is to boost MSME growth by enabling these companies to reach overseas markets and maintain a stable level of exports.
In order to qualify for ECI/MSME official support, the Chamber of Foreign Trade (Câmara de Comércio Exterior – CAMEX) approved resolution 34 on May 5th, 2015 which defines Micro, Small, and Medium Enterprises (MSME) as companies with a revenue up to BRL 90 million and exports up to US$ 3 million in the calendar year prior to the application for ECI/MSME.
The other possibility to be eligible for official support despite meeting only the first provision of resolution 34, is for a company to project exports in excess of US$ 3 million for the 12 months period following the application for credit insurance. It is also important to emphasize that there is no minimum transaction amount required to apply for ECI/MPME cover.
TYPES OF CREDIT INSURANCE COVERAGE
There are two types of Credit Insurance coverage available to MSMEs:
Pre-Shipment + Post-Shipment
This type of transaction requires that a financial institution provide funding. The ECI/MSME will cover the Pre-shipment (execution phase) where a financial institution will provide working capital to the exporter, based on a list of a specific contract, in the form of Advances on Foreign Exchange Contracts (Adiantamento sobre Contrato de Câmbio – ACC). As soon as the execution phase is concluded and shipped abroad, the coverage is automatically linked to the Advances on Exchange Bills Delivered financing (Adiantamento sobre Cambiais Entregues – ACE), which aims to provide a financing solution to the exporter´s customer. If the exporter looks for financing in the Post-shipment phase, instead of the ACE, the Export Financing Program – PROEX (from Banco do Brasil S.A.) is can also be linked with the ACC.
Standalone Post-Shipment coverage is also available to exporters in the way of Advances on Exchange Bills Delivered funding (Adiantamento sobre Cambiais Entregues (ACE), or the Export Financing Program (PROEX – Banco do Brasil S.A.). There is also a third option, where the exporter can request ECI/MSME cover whenever there is a credit risk taken directly without a bank loan or financing support.
COVERAGE AND PERCENTAGE OF COVER
The ECI/MSME provides cover against the commercial, political and, eventually, extraordinary risks which might impact the MSME goods and/or services export transactions either in the pre-shipment or in the post-shipment phases.
In the pre-shipment phase, the maximum percentage of coverage for commercial, political and extraordinary risks is 90%. In the post-shipment phase, the maximum percentage of coverage against commercial risks is 90% while for the political and extraordinary risks, the maximum percentage of coverage is 95%. The non-covered portion obviously should be held by the MSME.
The ECI/MSME issues a policy to cover the export credit risk for one or more importers, located in one or more countries. The policy is valid for the whole period established in the agreement.
In the Pre-Shipment + Post-Shipment modality, the ECI/MSME related to the pre-shipment phase covers up to 365 days whereas the policy related to the post-shipment phase covers up to 545 days, encompassing all the export transactions carried out by the MSME in the pre-shipment phase.
As for the Post-Shipment modality, the ECI/MSME covers up to 365 days.
Pre-shipment and Post-Shipment coverage offers repayment terms that can vary from 30 to 180 days, either for goods or services.
The premium fee must be paid in advance using the Federal Payment Form (Guia de Recolhimento da União – GRU) systematically issued by ABGF. Note that the premium fee is charged per export transaction approved (and not according to the total turnover of the exports in the following 12 months) after the request for ECI/MSME, as recorded in the Public Guarantees System (SGP/MSME). The SGP system records, manages and controls all operations carried out by ABGF in the MSME official support scheme.
In addition to the ECI/MSME premium fee related to the first transaction, the MSME will also be charged for the comprehensive credit report (MSME, in the pre-shipment) and for the customer’s report (the obligor in the post-shipment phase). Those credit reports are provided by a credit information bureau. In the next transaction for the same buyer, the MSME will only be charged the premium fee for the credit risk related to the referred transaction.
GRU payment execution is a mandatory pre-condition for issuance of the ECI/MSME policy.