Trade Finance- Report.pdf

Export Finance in India Issues and Challenges January 2018

The Associated Chambers of Commerce and Industry of India

Export Finance in India: Issues and Challenges

January 2018

The Associated Chambers of Commerce and Industry of India ASSOCHAM Corporate Office: 5, Sardar Patel Marg, Chanakyapuri, New Delhi-110 021 Tel: 011-46550555 (Hunting Line) • Fax: 011-23017008, 23017009 Email: [email protected] • Website: www.assocham.org

foreword

Sandeep Jajodia President ASSOCHAM

Export Finance focuses on providing payment, financing and risk mitigation solutions in support of the transactions between exporters and foreign buyers. Export Finance can play an important role in addressing some of the key challenges faced by India in the export sector. Ability to offer payment terms more favourable to buyers enhances the chances of exporters securing more orders. Export Finance instruments enable exporters to offer competitive payment terms to buyers whilst mitigating the default risks and working capital shortages that arise from such competitive payment terms. Export Finance can be leveraged to strategically increase Small and Medium Enterprise (SME) participation in international trade. Cost and access to finance are factors that especially determine the export capability of SMEs. Improving access to Export Finance at competitive rates could be a critical factor in further improving labour intensive SME participation which accounts for around 50 % share in India’s exports and also project and capital goods exports from India. This study “Export Financing in India: Issues and Challenges” offers an analytical understanding of how Export Financing instruments can be used as a tool to facilitate and promote Indian exports and provides some suggestions to improve availability, access and the effective utilization of Export Finance instruments in the country. In addition, the paper looks in detail the role of public sector Credit Agencies/Export Import Banks and institutions offering insurance cover and guarantees in promoting exports especially project exports and infrastructure related investment by countries

Sandeep Jajodia

message

D. S. RAWAT Secretary General ASSOCHAM

Export finance is a critical tool which can be used to stimulate exports. Small and medium enterprises engaged in exporting frequently cite lack of finance — particularly to meet working capital requirements — as a key barrier to export growth. Credit access constraints still represent an important barrier to export even in developed countries because imperfections in the credit markets increase the transaction costs faced by firms that intend to export. To deal with these market failures, Governments provide trade credit and trade insurance handled by the national Export Credit Agencies. In India share of export finance in total non food credit deployment is still very low and not commensurate with the contribution of exports to the economy. Medium and long term export finance from Exim Bank of India for project exports and capital goods has been growing but still way behind similar credit provided by China’s Export Import Bank in particular. The five-year Foreign Trade Policy announced in April 2015 had set an ambitious target of India’s goods and services exports touching $900 billion by 2020. It also aimed at increasing India’s share of world exports to 3.5%, from 2%. To achieve this target is a challenge. This would need strengthening of export finance policy framework and institutions apart from wide ranging policy initiatives to improve incentives and cut high logistics costs associated with our foreign trade. This study “Export Financing in India: Issues and Challenges” is a part of our knowledge series programme which looks at issues of contemporary interest of relevance to India. This paper looks at many dimensions of export finance and role of Export Credit Agencies/Exim Banks in India, China, and Republic of Korea etc. I very much hope this paper would be useful to policy makers, people engaged in business and academia and help in fostering informed debate.

D. S. Rawat

Table of Contents Abstract................................................................................................................... 9 I. Overview................................................................................................................10 II.

India’s Export Finance Institutional Framework.......................................................12



– Reserve Bank of India............................................................................................... 12



– Commercial Banks.................................................................................................... 13



– Export Import Bank of India..................................................................................... 14

III. Export Credit Insurance Agencies: Instruments to manage risks...............................17

– Need for Export credit insurance............................................................................. 17



– Export insurance and guarantee.............................................................................. 17

IV. Trends in export credit............................................................................................20 V.

Role of Export Import Banks/Export Credit Agencies in export promotion...............22



– History of export finance institutions:ECAs/Exim Banks.......................................... 24



– Role of Exim Bank Of India....................................................................................... 25



– Sovereign lending programs..................................................................................... 26



– Concessional financing scheme of the Government of India.................................. 28



– Challenges facing the Exim Bank of India................................................................. 32

VI. Role of select foreign Export Credit Agencies(ECAs)/Exim Banks..............................34

– Role of China’s Exim Bank......................................................................................... 34



– China Export & Credit insurance Corporation (Sinosure)......................................... 35



– Export Import Bank of Korea.................................................................................... 38



– United States Exim Bank........................................................................................... 39



– Credit insurance & Guarantee Institutions.............................................................. 40

VII. Credits provided by Exim bank of India vis-à-vis foreign ECAs/Exim Banks...............41 VIII. OECD Arrangement on Export Credit.......................................................................43 IX. Challenges of Export finance in India.......................................................................47 X

Conclusions and Recommendations........................................................................48



References..............................................................................................................53

Abstract

E

xport Finance encompasses a range of instruments that can help promote exports to new markets as well as help diversify the product portfolio of Indian exports. However, the relevance and applicability of Export Finance for India has not received much attention in the policy making framework. This paper seeks to partially fill that gap by providing an analytical understanding of how Export Financing instruments can be used as a tool to facilitate and promote Indian exports and provides some suggestions to improve availability, access and the effective utilization of Export Finance instruments in the country. In addition, the paper looks in detail the role of public sector Credit Agencies/Export Import Banks and institutions offering insurance cover and guarantees in promoting exports especially project exports and infrastructure related investment by countries like China, Republic of Korea and the United States of America. In particular, the role played by Chinese Export Import Bank, Insurance & Guarantee and Foreign trade related institutions have played a decisive role in promoting Chinese project exports to Africa and Latin America. The Chinese approach in this regard provides interesting insights and lessons for emerging economies like India.

9 Export Finance in India: Issues and Challenges

I. Overview: Role of Export Finance

I

nternational trade is costly and risky. Shipping goods across borders takes longer than shipping domestically and thus requires more working capital. Shipping longer distances also increases the risk of damage, adding to insurance costs. In an international trade transaction the exporter faces the risk that the importer might default, and the importer faces the risk that the exporter might fail to meet the product quality specifications set out in the contract. Such risks and costs are further heightened in light of the fact that international trade involves partners located in different countries with different jurisdictions. This makes conflicts both harder and more costly to resolve.

Financing/payment terms in international trade fall under three broad categories. Under open account (OA) terms, goods are shipped and delivered before a payment is made by the importer. Under cash-in-advance (CIA) terms, the payment is received before the ownership of the goods is transferred. If a transaction is on letter of credit (LC) terms, the importer’s bank commits to make the payment to the exporter upon the verification of the fulfilment of the terms and conditions stated in the LC. Each payment method places the financing burden on a different actor: the entire burden is on the exporter in a transaction on OA terms, and on the importer in a transaction on CIA terms. LC is the safest financing instrument for both trade partners: the exporter obtains a bank guarantee to secure payment, and the importer is protected against potential losses arising from exporter misbehaviour. Nevertheless, LC is a costly instrument as banks levy fees and charges for issuing LCs. Another widely-used payment method in international trade is documentary collection. If a transaction takes place on documentary collection terms, the exporter’s bank is authorised to collect the payment on behalf of the exporter. Since the bank acts only as an intermediary, without any obligation to make the payment in case of default, a documentary collection is very similar to OA terms. Institutional quality and financial sector efficiency are important factors in determining the choice of financing terms. In particular, a transaction is more likely to occur on CIA terms if the importer is located in a country with weak enforcement (low institutional quality) and/or with low financing costs (efficient financial sector), and on OA terms if the exporter is located in a country with weak enforcement and/or with low financing costs. If both trade partners are located in countries with weak enforcement, then the transaction is more likely to occur on LC terms. These theoretical predictions, have important implications for developing countries. Given their relatively weak institutions, exporters located in such countries are likely to bear the financial burden associated with their international trade transactions. Therefore, access to cheap trade finance is particularly important for exporters located in developing countries. The relative risk associated with each financing term is an important determinant of the choice of financing terms. One should expect trade partners to choose the financing term that minimises the default risk. 10 Export Finance in India: Issues and Challenges

Furthermore, the choice should minimise the potential losses that would result from a breach of the contract. Further, resolving disputes pertaining to breach of trade transactions takes time as verifying/ refuting what is claimed is, at best, difficult. Another difficulty arises in identifying the law applicable in the event of a dispute. Such uncertainty adds to the risks associated with an international trade transaction. One way to deal with such uncertainty is to harmonise international sales law across countries. To achieve this goal, the United Nations Convention on Contracts for the International Sales of Goods was signed in Vienna in 1980. This treaty, also known as the Vienna Convention, came into force in 1988. As of today, 89 countries have ratified the Vienna Convention. India is not yet a party to it. Its benefits can be expected to grow even further as more countries ratify the convention. The choice of financing terms in international trade also depends on the availability of working capital. Ideally, the party that can access financing more cheaply should finance the transaction. Trade partners may rely on their internally generated capital or seek external financing to finance their international trade transactions. Roughly 80–90 percent of global trade relies on some form of trade finance. Thus, the availability of trade finance becomes a vital determinant of international trade flows. The literature, for instance, identifies a shortage of trade finance as one of the drivers behind the Great Trade Collapse. In 2008/09, the International Monetary Fund (IMF) and the Bankers’ Association for Finance and Trade, merged with the International Financial Services Association, (BAFTIFSA) jointly conducted a series of surveys of commercial banks located in developed and developing countries on their perception of the use of bank-intermediation in international trade. The results of the surveys show that OA and LC terms each account for about 40 percent of international trade transactions, and the rest is accounted for by CIA terms (IMF 2011). Although the patterns presented by the IMF/ BAFT-IFSA surveys are valuable, they are based only on the perception of commercial banks. According to informed sources a large part of annual manufacturing exports are financed on OA terms, which are followed by LC and CIA terms. Under LC terms the exporter receives the payment only after the documents are cleared by the importer’s bank at the destination, requiring the exporter to pre-finance the transaction. This implies that majority of export shipments require pre-financing on the exporter’s side. In other words, Indian exporters usually bear the financing burden of the international transactions they engage in. Role of financial markets in facilitating international trade, especially in developing countries, is vital. In particular, the goal of these countries to diversify exports both in terms of products and destinations, i.e. towards new markets, calls for additional trade financing. Given their shallow financial markets, access to trade finance still remains a challenge. One possible remedy would be to extend short-term credit lines to exporters through Exim banks, with a view to meeting their working capital needs. Another remedy would be to create new instruments linked, for instance, to LCs, which can be used by beneficiary exporters to obtain short-term financing in their home countries. Bankers’ acceptance is one such instrument. However, these instruments are seldom used because of their complexity and inconvenience.

11 Export Finance in India: Issues and Challenges

II. India’s Export Finance Institutional Framework

I

nternational trade typically takes place on the basis of cash or short-term credit, without intermediation through financial markets. Up to two thirds of the value of global merchandise trade is organised using either ‘open account’ or ‘cash-in-advance’ terms (Asmundson et al. 2011). In these transactions, the buyer and the seller are able to agree on terms to share the credit or country risk without intermediaries, although they may mitigate and manage their risks in other ways (for example, diversifying by selling to a number of buyers across a range of markets). Where transactions are undertaken on open account terms, the exporter delivers the goods to the buyer without payment, and the buyer is expected to pay on delivery according to the sales contract. Under this arrangement the exporter draws on working (or other sources of) capital and bears much of the credit risk involved in the transaction. For cash in advance arrangements, the buyer is extending working capital to the exporter and bears much of the credit risk. India’s institutional architecture of foreign trade finance comprises of follwing actors. Table: 1 Institutional Structure for Export Finance Institution Central Bank

Role and Functions • Ensuring through conduct of monetary policy, adequate liquidity for financing exports;

Commercial Banks Exim Bank Export Credit Insurance Agencies

• Administering interest rates / interest equalization schemes. In some countries, Governments directly provide the support • Providing short term finance for exports typically upto 6 months / 12 months • Providing medium and long term finance for exports typically : 1 year - 15 years • Providing export credit insurance to exporters, guarantees to banks

Reserve Bank of India (RBI) Trade finance is a crucial element in the design of trade policies. From time to time, the RBI has undertaken several measures to ensure adequate and timely availability of credit for exports at competitive interest rates. The Reserve Bank’s export credit refinance schemes have played a pivotal role in this area. Commercial banks have been providing credit to exporters at pre-shipment and post-shipment stages, both in rupees as well as foreign currency. The rupee export credit has been generally available at rate of interest linked to the Prime Lending Rate (PLR). The export credit in foreign currency is provided at internationally

12 Export Finance in India: Issues and Challenges

competitive interest rates linked to London Inter-Bank Offer Rate (LIBOR) or similar interest rates. The RBI has been adjusting interest rates on rupee export credit from time to time taking into account the need to maintain competitiveness by looking at interest rate differentials, as also other factors like inflation and developments in financial markets. The RBI has also taken measures to support institutional arrangements for export promotion, such as policy initiatives to provide a liberalised environment for the operations of Special Economic Zones (SEZ) units.

Commercial banks In most countries including India, commercial banks are by far the largest providers of trade finance services. The main role of banks is to act as facilitators and/or intermediaries between savers and borrowers. Banks provide short-term financing for trade transactions by various means, including advances against (or discounting of) export bills. They also help to reduce the risk inherent in trade transactions by providing documentary credit (e.g., letters of credit) services or alternative methods of payment and by facilitating access to foreign exchange markets to hedge against a possible currency risk. While private commercial banks make up the largest share of trade financing activities, they generally tend to favour lending to well-established and larger firms, or to the government, in order to reduce their risk exposure. As a result, small and medium-sized enterprises may not find it easy to secure trade financing through traditional commercial banks. Exporters had lower risk exposures before 1990s, with limited buyer and country risks, given that overwhelming share of exports were mainly destined to Europe and the United States. However, the world dynamics have changed since the 1990s and exporters now require more export finance products, including credit insurance and guarantees. Time has shown that the impact of export promotion is not as much as the impact of the risk mitigating instruments. Export finance can broadly be classified under tow heads: a) Pre-shipment Finance: This includes (i) packing Credit, and (ii) Advance against receivables from the Government like duty back, international price reimbursement scheme (IPRS) etc.. b) Post-shipment Finance: This consists of (i) Negotiation of export documents under letters of credit, (ii) Purchase/discount of export documents, (iii) Advance against bills sent on collection basis, (iv) Advance against exports on consignment basis, (v) Advance against indrawn balances, and (vi) Advance against receivables form the Government like duty draw back etc. Besides, the short term trade financing above, banks on participation with Exim Bank, the apex coordinating agency for export financing in the country, extend project financing (through working group or otherwise) for export projects. Banks are also involved in issuance of letters of guarantee (bid bonds, performance guarantees, advance payment guarantees etc.) on behalf their constituents. The institutional framework also comprises of Export Credit Guarantee Corporation of India (ECGC) Limited which, through its various policies and guarantees issued to the exporters and banks, endeavours to mimimse the risks involved in international trade financing

13 Export Finance in India: Issues and Challenges

Exim Bank of India Exim banks are typically Government-owned banks established to facilitate and encourage the development of trade. They are often conceived as a one-stop shop for export-import financing. Experience of the Exim Bank of India indicates that it has been effective in stimulating the development of trade finance, by introducing new products and services and by disseminating relevant information to potential exporters. Offering a wide array of products and services has made it easier for Exim Bank of India to market its services and satisfy the needs of its clients (and be profitable). Since it enjoys a sovereign credit rating [ Exim Banks Credit Rating: Sovereign Moody’s: Baa3 (Positive); S&P: BBB- (Stable); Fitch: BBB- (Stable); JCRA: BBB+ (Stable),Highest ratings (AAA)/(AI+] as it is backed by the Government. Such a rating makes it easier for the bank to access international credit markets as compared with domestic banks. An Exim bank can also help to regulate/benchmark the cost of the trade finance services offered by commercial banks. However, An Exim bank should be managed as a self-sustainable organization, without subsidized interest rates, but with a modern and creative risk assessment Trade finance, a traditionally paper-based and labour-intensive process, has undergone tremendous changes. Many banks and financial institutions have developed e-trade finance systems and services. The term “e-trade finance” refers to trade finance services delivered through the Internet. E-trade finance will therefore include loan applications, foreign exchange, letters of credit, factoring, credit rating services, cargo insurance and other financial services offered or available online. It may be viewed as a subset of e-finance, which covers the whole spectrum of financial services delivered online. Exhibit 1: Exim Bank of India: Loan and Non Funded Portfolio (Rs Crore as on end March)

14 Export Finance in India: Issues and Challenges

Exhibit 2: Exim Bank of India Loan Portfolio (as on end March, 2017)

Business Performance & Financial Highlights, 2016-17https://www.eximbankindia.in/Assets/pdf/default/files/pastdecadeen.pdf

As on March 31, 2017, the Exim Bank’s total Resources including paid-up capital of Rs 68.59 billion and reserves of Rs 51.64 billion aggregated Rs 1,080.96 billion. The Bank’s Resource base, inter alia, includes Rupee Bonds, Certificates of Deposit, Commercial Papers, Term Deposits, FC Bonds, FC Loans and longterm swaps. During the year 2016-17, the Bank raised borrowings of varying maturities (excluding raised and repaid during the year) aggregating Rs 404.08 billion, comprising Rupee Resources of Rs216.04 billion and Foreign Currency Resources of US$ 2.90 billion equivalent. As on March 31, 2017, the Bank had a pool of Foreign Currency Resources equivalent to US$ 11.47 billion. Exhibit 3 provides snap shot of financial highlights.

15 Export Finance in India: Issues and Challenges

Exhibit:3 Exim Bank of India Financial Highlights

https://www.eximbankindia.in/assets/pdf/public-declarations/InvestorPresentation-June-2017.pdf

The Bank continued to maintain its stature and benchmarks in the international debt capital markets. The Bank, during the year, tapped the deep capital markets of the USA in a debut US$ 1 billion issuance under Rule 144A. The maiden issue was well received by investors, with over 2 times oversubscription and an investor allocation of 61 per cent in USA, which is the highest-ever for any Bank / FI out of India. The Bank’s high domestic credit rating, and the international credit rating at par with the sovereign, helps the Bank to raise resources at finer rates and pass on the benefits to Indian exporters Asset quality: As per the Reserve Bank of India (RBI) prudential norms for Financial Institutions, a credit/ loan facility in respect of which interest and/or principal has remained overdue for more than 90 days, is defined as a Non-Performing Asset (NPA). The Bank’s gross NPAs at Rs 99.62 billion worked out to 9.24 per cent of the total loans and advances as of March 31, 2017. The Bank’s NPAs (net of provisions) of Rs 48.03 billion as of March 31, 2017, were at 4.68 per cent of the net loans and advances (net of provisions) as of March 31, 2017. The Capital to Risk Assets Ratio (CRAR) was 15.81 per cent as on March 31, 2017, as compared to 14.55 per cent as on March 31, 2016, as against a minimum 9 per cent norm stipulated by RBI. The Debt-Equity Ratio as on March 31, 2017 was 7.99:1, as compared to 8.12:1 as on March 31, 2016.

16 Export Finance in India: Issues and Challenges

III. Export Credit Insurance Agencies: instruments to manage risks Need for export credit insurance

P

ayments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil conflict may block or delay payment for goods exported Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss

Export Insurance and Guarantee The main justification for public intervention in trade finance is that private credit markets are unable to provide proper risk coverage to exporters and this may lead to underinvestment. Worldwide, there are two ways of providing export guarantees :(a) The ECA grants a supplier credit, meaning that the insurance is sold directly to the exporter; (b) The ECA gives the insurance indirectly to the exporter by covering the default risk to the bank that finances the exporter. The interventions implemented by the public ECA are governed at the international level by various institutions namely: the WTO ASCM, regarding the use of export subsidies; the Knaepen-Package, regarding minimum risk-based premium fees for country and sovereign risks; and the European Union, regarding the restriction of the public export credit activities to non-marketable Export credit insurance is a financial instrument whereby exporters insure themselves directly against the risk of buyers’ default. The insurer reimburses the firm in case of non-payment. An export credit guarantee provides a guarantee to banks or other financial institutions that are willing to lend either to the exporting or the importing firm. The guarantor takes responsibility for a financial obligation if the primary liable borrower fails to perform. It is common to distinguish short-term and medium to long-term export credit insurance. Medium to long-term insurance is typically used for large transactions such as those related to capital goods, large machinery and turn-key plants. The market for export credit insurance and guarantees comprises not only private but also public players, namely Export Credit Agencies (ECAs). Whereas the market for short-term insurance is dominated by 17 Export Finance in India: Issues and Challenges

private agencies, ECAs underwrite the wider majority of medium to long-term commitments. An agency will typically aim at alleviating the risks inherent to international trade by providing adequate insurance to domestic exporters. Such risks are likely to be more significant in relation to medium and long-term credit arrangements. The issuance of export credit insurance and guarantees is an important spectrum of trade finance, reducing credit risks and allowing exporters to offer open account terms in competitive markets. It is a spectrum of trade financing that is of crucial importance. Indeed, export credit insurance may enable increased financing of foreign receivables on more favorable terms and amounts than otherwise available. Moreover, risk management tools such as export credit insurance and guarantees can be critical to access financing, both because of the higher risks of cross-border trade and the fact that less creditworthy exporters can use insured receivables from high-quality foreign customers to guarantee domestic credit. Insurance or guarantees on export credit can be issued by both private insurers and public agencies. The Berne Union is the leading association for export credit and investment insurance worldwide. ECGC Ltd. (Formerly Export Credit Guarantee Corporation of India Ltd.), wholly owned by Government of India, was set up in 1957 with the objective of promoting exports from the country by providing Credit Risk Insurance and related services for exports. Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters and commercial banks extending export credit. ECGC keeps its premium rates at the optimal level. ECGC discharges following functions;(a) provides a range of credit risk insurance covers to exporters against loss in export of goods and services; (b) offers Export Credit Insurance covers to banks and financial institutions to enable exporters to obtain better facilities from them; (c) provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan. Besides, it provides a host of other ancillary functions which include guidance in export related activities, makes it easy for exporters availing insurance cover to get finance from financial institutions and provides information on credit worthiness of overseas buyers. Companies dealing with international trade have to manage their risks. These risks may be classified into four categories: economic or commercial risks, exchange rate risks, transportation risks and political risks. Exhibit 4 shows some examples of the various types of risks and the methods that may be used to mitigate or reduce them.

18 Export Finance in India: Issues and Challenges

Exhibit 4: Risks in international trade and mitigation methods

Source: WTO, “Trade, Finance and Financial Crises”, Special Studies 3. Trade Finance Infrastructure Development Handbook for Economies in Transition,UN ESCAP,2005 http://www.unescap.org/sites/default/files/tipub2374.pdf

19 Export Finance in India: Issues and Challenges

IV. Trends in Export Credit

E

xport credit grows with growth in exports. Many important factors which affect exports determine export credit requirements as well. These factors at macro-level include exchange rate of rupee, availability of incentives and others. However, the amount of exports can be considered as the single most important factor determining export credit,

Export credit deployed (outstanding) by the Indian banks/financial institutions in not substantial in terms of share in total deployment of gross banks credit (Table2). Export credit by commercial banks ( in terms of export credit outstanding) constituted, less than 1% of the total gross non food credit outstanding gross bank credit during the period from 2009-10 to 2016-17. The ratio of outstanding export credit to total exports has declined from 3.6 % in 2009-10 to 2.3 % in 2016-17. This proportion is even lower if total trade (export plus imports) is taken into account (Table:2). Table: 2 India: Outstanding Credit in Export Sector and Trade Flows 2009-10

2010-11

2011-12 2012-13

2013-14

2014-15

2015-16

2016-17

Rupees in Billion 1.NFC*

30396

36674

42897

48696

55296

60030

65469

70947

2.EC*

302

318

391

422

483

426

424

425

3.Exports

8455

11429

14660

16343

19050

18964

17164

18541

4.Imports

13637

16835

23455

26692

27154

27371

24903

25668

5.Total Trade

22093

28264

38114

43035

46204

46335

42067

44209

Ratios EC/NFC

1.0

0.9

0.9

0.9

0.9

0.7

0.6

0.6

EC/Exports

3.6

2.8

2.7

2.6

2.5

2.2

2.5

2.3

EC/total trade

1.4

1.1

1.0

1.0

1.0

0.9

1.0

1.0

Note:*-outstanding credit on March end;NFC-non food credit;EC export credit;Source:RBI

20 Export Finance in India: Issues and Challenges

The target for total priority sector advances is 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent amount of Off – Balance Sheet Exposure (CEOBE), whichever is higher. Before the year 2012, only foreign banks were required to lend 12 percent of their ANBC to the export sector because of their global presence in catering to the needs of the sector through trade facilitating mechanisms like collection based payment. Since priority sector lending guidelines were revised in 2012, export credit ceased to exist as a separate category under priority sectors for foreign banks with 20 or more branches just as in case of domestic banks. In 2015, RBI included export credit in the priority sector for domestic banks, but restricting the facility to a sanctioned limit of Rs 25 crore per borrower to units having turnover of up to Rs 100 crore. The share of credit in India’s export turnover is at abysmal levels as against share of exports to GDP at around 20 %. The share of exports as a percentage of net bank credit, which had reached as low as 3.8 per cent in March 2014, is still much below the desired target of 12 per cent fixed by RBI.

21 Export Finance in India: Issues and Challenges

V. Role of Export Import Banks /Export Credit Agencies in Export Promotion

S

pecialised Trade finance institutions have long been part of the financial sector landscape in many advanced and emerging countries with relatively large foreign trade sectors.Evans and Oye (2001) identify three fundamental justifications for a public role in export financing. First, Export Credit Agencies (ECAs)/Export Import Banks (Exim Banks) may provide support to exporting firms in order to offset possible market failures such as the absence of appropriate financing option for exports to high risk destinations. Exim Bank may offset possible market failures by providing export credits directly, by gathering and sharing information on risks, and insuring against risks. Second, ECAs may have an important role in adjusting credit terms for non-financial externalities (domestic economic spill over effects, national security costs, environmental externalities) arising from the failure of non-financial domestic markets. National security and strategic interests and environmental externalities may not be reflected in the private prices of goods and services. Governments have varied terms of access to public credit to take account of such non financial externalities, subsidizing exports from strategic sectors, denying credit to countries deemed security/foreign policy risk, providing subsidized credit to projects which are environmentally sound or have large positive externalities and denying to those projects which do not meet environmental standards. Third, there is a rationale for offsetting perceived unfair support of foreign exporters via their respective governments and ECAs. For example, governments have matched the terms and conditions offered by foreign competitors to level the playing field for national exporters, to discourage unfair export credit practices of competitors All three of these rationales are disputed, especially with respect to the analysis of particular cases in which they may or may not be valid. There is however no one-size-fits-all model for a typical export credit agency as some operates from government departments, and others operate as private companies. ECAs or Exim Banks are governmental or quasi governmental organizations and as such the support they provide is often limited by regulatory framework including minimum local content requirements. They usually provide three basic functions. First, they help exporters meet officially supported foreign credit competition. This is the case when foreign governments subsidize their companies’ exports by offering buyers below-market, fixed-rate financings, exporters often find it difficult to offer financing that matches those subsidized rates. Secondly, ECAs or Exim Banks provide financing to foreign buyers when private lenders cannot or will not finance those export sales, even with the risks removed. Third, and perhaps their most important function, ECAs or Exim Banks assume risks beyond those that can be assumed by private lenders. ECAs or Exim Banks do not compete with private financial institutions. To the contrary, they enhance the ability of their country’s lenders to compete internationally. It should also be noted that they do not offer development assistance to other countries; other agencies typically fulfill this role. Most of the Exim Banks/ECAs share common 22 Export Finance in India: Issues and Challenges

features in their application process, eligibility criteria, risk classifications, terms, and pricing. They also have essentially the same mission: to increase exports and jobs while not competing with the private sector. The similarities among the ECAs or Exim Banks are a result of common business practice, as well as international arrangements like OECD Arrangement (Organization for Economic Cooperation and Development). ECAs or Exim Banks address two fundamental risks involved in an export transaction. The first is political risks, which refers to those events that occur due to political actions taken by the government that impact payment by the buyer. These may include transfer risk (inability to exchange the local deposit to that of the ECA country), expropriation, war risks, cancellation of an existing import and export license, and/or political violence. The second risk ECAs or Exim Banks address is commercial, which refers to non-payment as a result of bankruptcy, insolvency, protracted default, fluctuation in demand, unanticipated competition, shifts in tariffs, and/or failure to take up goods that have been shipped according to the supply contract and other factors not covered under political risks. The solutions ECAs or Exim Banks provide targets five basic financing needs of an exporter: (i) Pre-export working capital;;(ii) Short-term export terms extended to importers;; (iii) Medium- to long-term financing support to overseas importers;;(iv) project financing and;(v) Special export structures (e.g., leases, aircraft financing, on-lending credit facilities, etc.) Working capital support from ECAs or Exim Banks significantly reduces a lender’s risk on the goods or services for export. This support may also assist in posting standby letters of credit needed to secure down payments, post bid bonds, or other activities required in anticipation of an export sale. An ECAs or Exim Banks primary function is to shield the exporter from the commercial and political risks of selling overseas. This can be done as a supplier credit, where the ECA guarantees the obligation of the importer on terms extended by the exporter; or it can take the form of a buyer credit where the ECAs or Exim Banks supports the obligation of the importer directly. Finally, ECAs or Exim Banks have recognized the need to support turn-key solutions with project financing support, as well as tailoring their support to work with the special financing needs of specific industries. The three forms of support from ECAs or Exim Banks come as:(i) Insurance;(ii)Guarantees and;(iii) Loans/credit facilities. ECAs or Exim Banks offer a variety of export credit insurance policies to exporters and financial institutions to reduce repayment risks on foreign receivables due to political and commercial events. Lenders use these programs for several reasons. By limiting the risk inherent in international lending, ECA programs enable lenders to assist their current customers with international sales they otherwise would be unable to finance. These programs also help lenders develop new relationships with exporters and foreign buyers that may grow into long-term, profitable lending relationships. These programs help exporters meet two critical financial needs. First, ECAs or Exim Banks help obtain the working capital financing they need to produce or buy their goods and services for export. Creditworthy exporters sometimes have difficulty securing such financing for a number of reasons: they have reached their borrowing limit with the lending institution; the lender has no relationship with the exporter; or the lender will only provide a low percentage loan against the exporter’s collateral, thereby constraining the firm’s cash resources. Second, ECAs or Exim Banks help exporters secure credit for foreign buyers. Often the exporter cannot

23 Export Finance in India: Issues and Challenges

complete the sale unless competitive financing can be provided. In some cases, the exporter could expand business with current customers if credit is extended.

History of Export finance institutions: ECAs / Exim Banks The first export credit insurance programs in the world were offered by Switzerland starting in 1906. Federal is a privately owned company still operating as of today. The first government export credit insurance programs were established in the United Kingdom thirteen years later in 1919. The rationale for the British programs then, was “to aid unemployment and to re-establish export trade disrupted by the conditions of war”. In addition to export credit insurance, the British government established a trade finance program, offering up to six-year financing of exports at a preferential rate. The British programs were administered by the Board of Trade with the consent of the Treasury, with the provision that income should be sufficient to meet possible losses. Success of British and Swiss model of export financing led to the establishment in several other European of guarantee and insurance schemes, including Belgium (1921), Denmark (1922), the Netherlands (1923), Finland (1925), Germany (1926), Austria and Italy (1927), France and Spain (1928), and Norway (1929). Export Import Bank of India (1982) The ECAs or Exim Banks own financial condition – particularly the size of their capital and reserves – serves to limit the total amount of exports they can support. ECAs or Exim Banks can help finance short/medium/ long-term transactions, and the conditions of financing assistance are usually quite different depending on the tenor. A short-term transaction is usually defined as up to one year, medium-term as one to five years and long-term as over five years. The OECD Agreement on Export Credit currently limits the maximum term to ten years. Normally, export credit agencies provide assistance that does not exceed 90 percent of post shipment financing, with the exporter or bank taking the balance of the risk for its own account. Preshipment assistance is also usually limited to a maximum of 90 percent of required credit. On medium- and long-term transactions, official schemes require the foreign buyer to make an advance payment of at least 15 percent. On short-term coverage, no advance payment is required from the foreign buyer. Governments support export credits in, broadly, two ways: through direct loan and some form of subsidy programs and through insurance and guarantee programs. Under direct loan programs, government institutions extend export credits directly, often in association with private financing. Under subsidy programs, governments operate indirectly on export credits by extending preferential refinancing and interest subsidies to private lenders. In the United States, Canada, and Japan, official export institutions lend directly to both domestic exporters and foreign importers at fixed subsidized rates. In Germany, France, the United Kingdom, and Italy, official institutions combine direct lending, refinancing of private export credits at preferential rates, and interest rate subsidies to achieve similar results. The subsidy in officially supported export credits arises in several ways: loans are made at fixed rates to borrowers who would normally qualify only for variable rate loans, at maturities generally longer than available in the private market for comparable loans to such borrowers, and at lower rates than these borrowers would otherwise pay. Governments also subsidize exports through loan insurance and guarantee programs when they sell insurance and guarantees at prices below their true market value.

24 Export Finance in India: Issues and Challenges

When a government guarantees or insures a loan made to finance an export, it creates a financial instrument against which the lending institution, either a bank or an exporter, can borrow at rates close to the government borrowing rate. In fact, nearly 100 countries operate ECA that extend export credit insurance or guarantees. Through these institutions the government assumes a large proportion of the credit risk on loans to foreign buyers. Although the subsidy element on an insured or guaranteed loan is generally smaller than on a directly supported export credit, there are about three times more insured or guaranteed export credits outstanding than direct loans. Therefore, the total subsidy on such programs may still be substantial. ECAs or Exim Banks primarily provide long and mid-term financing which can be in form of financial credit, credit insurance and guarantees. They also provide short term financing for trade transactions. Most industrialized nations have at least one ECAs or Exim Banks. Most of them have separated their insurance and guarantees business from their credit finance and international partnership functions. This usually helps them to classify their transactions, operations and focus. ECAs or Exim Banks are typically each nation’s policy bank, used as the instrument of strategic cooperative partnerships between the Exim nation and a foreign country. They form the channels used to grant concessionary loans and preferential export buyers’ credit to foreign countries so as to promote the purchase of locally-produced goods. Exim Banks as a concept are channels of stabilising foreign trade, promoting cross-border investments, advancing the internationalization of a country’s currency, growing SMEs, (Small & Medium Enterprises) facilitating greater economic openness and raising long term capital (particularly through Bonds). Many of the world’s ECAs provide larger levels of financing than Ex-Im Bank of India. For example, China financed more than $100 billion of Chinese exports in 2013. Likewise, it is estimated that South Korea, also finances more than $100 billion per year to support exports from South Korea. United States exports of all kinds, whether by providing loan guarantees to overseas airlines for the purchase of Boeing jets.

Role of Exim Bank of India Global competition in export credit financing has become increasingly formidable, with foreign competitors enjoying substantial support from their countries’ export credit agencies. India’s Exim Bank fills an important role in leveling the playing field for Indian exporters by trying to match credit support that other nations provide to their exporters, thus preventing foreign exporters from enjoying undue advantage. This ensures that India’s exporters are able to compete against foreign competitors based on the quality and price of their products and services, and not lose sales because a foreign government has helped a foreign competitor by providing superior financing terms to a potential buyer. Exim Bank is India’s premier Export Finance Institution and wholly owned by Government of India. Exim Bank provides comprehensive range of financing, advisory and support programmes to promote and facilitate India’s trade and investment overseas. It was established on January 1,1982 under the Export-Import Bank of India Act, 1981 for the purpose of financing, facilitating and promoting foreign trade in India. Exim Bank

25 Export Finance in India: Issues and Challenges

provides comprehensive range of financing, advisory and support programmes to promote and facilitate India’s trade and investment relations with the foreign Countries. Exim Bank plays the role of a catalyst for investment abroad by extending loans to Indian companies for investment in the region and entering into various collaborative programmes. The various financing programmes it offers are given in Exhibit 5. Exim Bank’s Key Lending Programmes / Support Mechanism include; (a) Sovereign Lending Programs; (b) Project Exports Financing and; (c) Overseas Investment Finance (OIF) Exhibit: 5 Trade Financing Prograames offered by Exim Bank of India

Moving Forward with ASEAN India Connectivity Financing and Supporting Mechanism: Financing and Supporting Mechanism: Views from Exim Bank,2013 http://www.mfa.go.th/asean/contents/files/news-20131227-195558-854279.pdf

Sovereign Lending Programs Lines of Credit (LOC) Programme: It is a financing mechanism through which Exim Bank extends support for export of projects, equipment, goods and services from India. Exim Bank extends LOCs on its own and also at the behest and with the support of Government of India. Exim Bank extends Lines of Credit to:(a) Foreign Governments or their nominated agencies such as central banks, state owned commercial banks and public sector organisations;(b) National or regional development banks;(c) Overseas financial institutions;(d) Commercial banks abroad; and (e) Other suitable overseas entities. The above mentioned recipients of LOCs act as intermediaries and on lend to overseas buyers for import of Indian equipment, goods and services. LOCs enable buyers in those countries to import developmental and infrastructural projects, equipment, goods and services from India, on deferred credit terms. Credit offered is 100% of contract value. Credit tenors could range up to 20 years; LOC is a financing mechanism that provides a safe mode of non-recourse financing option to Indian exporters to enter new export markets or expand business 26 Export Finance in India: Issues and Challenges

in existing export markets without any payment risk from the overseas importers. Some of the benefits associated with it are: (a) exporters get payment on shipment; (b) enables import of Indian equipment and technology on deferred credit terms; (c) particularly relevant for small and medium enterprises ;(d) it is an arrangement for financing a number of export contracts under one umbrella. Exhibit 6 provides mechanics of operation of lines of credit. Exhibit 6 Lines of Credit (LOC)

A presentation on Exim Bank Initiatives in facilitating International Trade A presentation on Exim Bank Initiatives in facilitating International Trade ;http://pharmexcil.com/v1/docs/4_Rikesh_Chand_Presentation.pdf

Exim Bank has 209 LOCs, covering 59 countries with credit commitments of over US$ 15.69 billion. During FY 2016-17, 15 LOCs amounting to US$ 2.27 billion were extended. In terms of exposure, 48 % of LOC were extended to Africa and 49 % to Asia and the balance being accounted for by Latin America. The terms and conditions of LOC offer are given in Table:3. Some of the important projects executed under LOC are: a) Um Dabakir Power Station (Kosti), a 4x125 MW combined cycle power plant set up under a Line of Credit of USD 350 million extended by the Exim Bank. It is the largest thermal power plant commissioned in Sudan and contributes to one-sixth of the total power demand of Sudan. b) LOC of USD 178.13 million extended for Expansion of Upper Ruvu Water Treatment Plant; c) 120 MW Itezhi Tezhi Hydro power project of value USD 240 million developed by Itezhi Tezhi Power Corporation (ITPC) a first public private partnership (PPP) in the power sector. Currently owned by Tata 27 Export Finance in India: Issues and Challenges

Power Company, India and ZESCO, a Zambian power utility, on a 50:50 basis funded jointly by African Development Bank (AfDB) and Exim Bank of India Table: 3-Broad Terms of Lending for Lines of Credit (LOC’s) HIPCs

LICs/LDCs

MICs

1.75

2.00

LIBOR + 0.50%

Credit period (years)

20

10

8

Moratorium (years)

5

3

2

56.4

37.3

34.4

Interest rate (% )

Grant element*

* The grant element (difference between Net Present Value of the loan repayments and the actual amount of loan) is in-built into the terms of credit; (a) Heavily Indebted Poor Countries (HIPCs), (b) Low Income Countries (LICs) and Least Developed Countries (LDCs - Other than those included in ‘(a)’ above) and (c) Middle Income Countries (MICs).;Above terms and conditions are indicative and subject to change from time to time: Source: Indian Lines of Credit: An Instrument to Enhance India-Africa Partnership,Exim Bank,2011;http://www.indiainbusiness. nic.in/trade/presentation_loc/exim.pdf

Concessional financing scheme of the government of India Exim Bank has extended a term loan of US$ 1.60 billion to the Bangladesh India Friendship Power Company Pvt. Ltd. (a 50:50 joint venture between the Bangladesh Power Development Board, Bangladesh, and NTPC Ltd., India) for financing the 1320 MW (2x660 MW) ultra-super-critical to be one of the largest power plants in Bangladesh. The Facility Agreement for the term loan was signed in March 2017. The contract for the construction of the project, on turnkey basis, has been awarded to Bharat Heavy Electricals Ltd., following an International Competitive Bidding process plants in Bangladesh. Buyer’s Credit under NEIA: Under the Buyer’s Credit under GOI’s National Export Insurance Account (BC-NEIA) Programme, the Bank finances and facilitates project exports from India by way of extending credit facility to overseas sovereign governments and government owned entities for import of goods and services from India on deferred credit terms. This facility covers 85% of contract value. Credit period upto 15 year may be considered. Exim Bank has introduced this product in conjunction with ECGC under GOI’s National Export Insurance Account (NEIA). The Bank as on March 31, 2017 sanctioned U.S. $ 2.84 billion for 22 projects valued U.S. $ 3.07 billion. The Bank has also given in-principle commitments for supporting several projects and the current active pipeline includes 41 proposals aggregating U.S. $ 5.34 billion under BC-NEIA, at the behest of several leading Indian project exporters. A Buyer’s Credit facility of Rs 9 billion has been domiciled under the Export Development Fund (EDF) for financing the export of goods and services from India to Iran. The facility has since been enhanced to Rs 30 billion and an Amendatory Agreement to the Framework Agreement was signed, envisaging financing the import of steel rails from India by Iran, and the development of the strategic Chabahar Port. The Bank during has also supported the acquisition of an aeronautical company in France, and the setting up of a wind farm and acquisition of an auto components company in USA.

28 Export Finance in India: Issues and Challenges

Box 1: Broad Guidelines for Government of India-LOCs • Transparent competitive bidding process by LOC-recipient Government is mandatory. Only in very exceptional circumstances, intimated to Exim Bank and approved in advance by GOI, will exceptions be considered. • Transparent competitive bidding process by LOC-recipient Government is mandatory. Only in very exceptional circumstances, intimated to Exim Bank and approved in advance by GOI, will exceptions be considered • Eligibility of participation is limited to Indian companies registered in India and/or incorporated/ established under any law in force in India. • Goods and services for minimum 75% value of the contracts covered under these LOCs must be sourced from India. A suitable relaxation not exceeding 10% may be considered on a case to case basis for exceptional reasons, especially in case of projects having civil construction. Consultancy services under the project will be sourced from India. • Selection of Indian company as per the above process is the complete prerogative & responsibility of the government of LOC-recipient country. Contract is between the borrower of LOC-recipient country and the Indian company. Transparency in the award of contract is extremely critical. • Goods and services covered under the LOCs will be free from all kinds of taxes and duties of any nature whatsoever levied in the LOC-recipient country including all corporate/personal/Value added taxes, import/custom duties, special levies and social security contributions for temporary employees deputed by Indian exporters in relation to the project execution in the Recipient countries. • Government of LOC-recipient country must provide sovereign guarantee for repayment and servicing of the loan in case the loan is taken by its agency. Liability of the Borrower/Recipient of the LOC, for repayment of Broad Guidelines for GOI-LOCs principal installments and payment of interest and other dues under the LOCs, to Exim Bank, is absolute and irrevocable, and is, in no way, linked to repayment/payment by sub-borrowers or to the completion of the projects/ contracts covered under the LOCs, or subsequent operation thereof.

Overseas project exports financing: Exim Bank of India plays a pivotal role in promoting & financing overseas projects. Projects and services, broadly categorised into: Civil engineering construction projects, Turnkey projects, Consultancy services, and Supply contracts on deferred payment terms. Exim Bank extends funded & non-funded facilities towards towards financing project exports from India. Over the past three decades, increasing number of contracts have been secured by Indian companies in Asia, Sub Saharan Africa, CIS, Latin America. Such projects supplement the efforts of the host country governments in achieving their developmental objectives.

29 Export Finance in India: Issues and Challenges

Overseas Investment Finance: Under this initiative Exim Bank of India offers comprehensive assistance in terms of pre-investment advisory services and finance through debt and equity. Finance is available for Green field projects, brown field expansion, Overseas acquisitions directly or through special purpose vehicle (SPV); Direct equity participation in Indian ventures abroad; and Joint investments by Indian and overseas company in third country markets. As on March 31, 2017, Bank has so far provided finance to 587 ventures set up by over 451 companies in 78 countries. Aggregate assistance for overseas investment: Rs 52,913crore One key factor in this competitive race is export financing. Indeed, global competition in export credit financing has become increasingly intense, with foreign competitors enjoying substantial support from their countries’ export credit agencies (ECAs). Indeed, many of India’s international trade competitors invest significantly more in export credit assistance than India. As the official export credit agency of India, the Exim Bank of India provides financing and insurance for export transactions that would not otherwise take place because commercial lenders are either unable or unwilling to accept the political or commercial risks inherent in certain deals. Exim Bank of India enables transactions that might not otherwise occur and keeps the Indian exports competitive in world markets by offering three types of financial programs: direct loans; guarantees, and insurance. The Bank’s direct loans provide financing directly to foreign buyers of Indian goods and service. Loan guarantees cover repayment risks on a foreign buyer’s debt obligations incurred to purchase Indian exports. Here the Bank guarantees to the lender that if the foreign borrower defaults on the debt it used to purchase an Indian export product, the Exim Bank of India will repay the outstanding principal and interest. Finally, the export credit insurance instrument helps Indian exporters sell their goods overseas by protecting them against the risk of foreign buyer or other foreign debtor default for commercial or political reasons, thus allowing Indian exporters to extend credit to their international customers. Through these instruments, the Exim Bank of India makes new export sales possible by filling market gaps where the private sector is unable or unwilling to take on risks— often for example with regard to exports to places in Africa and Latin America. Over time the Exim Bank of India’s mission has evolved to not just promote Indian exports but also to address India’s competitiveness in the global marketplace, specifically by using export financing as a tool to level the competitive playing field by taking financing terms off the table as a determinant when foreign buyers are choosing whether to purchase Indian. or competing country product. This enables Indian exporters to compete in international markets based on their price and quality, and not lose a potential sale because a competing country’s government is offering excessively generous financing terms to close a sale. For example, in case of project exports financing package becomes important. Credit packages with longer terms and drastically reduced fees often provide competitive edge. Export credit financing is especially important to small-medium sized enterprises (SMEs), and thus a particular focus of the Exim Bank of India is to support SME exporters, which account for close to 50 percent of goods exports in India Small businesses benefit in two distinct ways from export credit financing. First, the Exim Bank of India directly supports small-medium sized businesses. Secondly, small businesses 30 Export Finance in India: Issues and Challenges

benefit indirectly from large company export credit support as subcontractors to large company exporters. For example, when a large automobile company successfully exports a car, rail equipment, it’s effectively exporting assembled parts contributed by large numbers of Indian SMEs. Why export financing? There are two reasons: externalities and risk. The benefits from robust exporting accrue not just to the exporter but to the overall economy in terms of job creation and income generation. Second, lack of export finance may result in less than the potential level of exports because of risk factors. For example, the Exim Bank of India Bank often supports SMEs exporters which are unable to secure upfront capital from private markets for needed materials or inputs to manufacture a product because technical or political risks make the transaction uncertain or when a foreign buyer needs financing to purchase the goods or services of an Indian exporter. Thus, Exim Bank of India does not compete with private sector lenders but rather acts as a “lender of last resort,” responding to a market failure by providing export financing products that fill gaps in private trade financing. Another important function of Exim Bank of India is to level the playing field for Indian exporters by matching credit support that other nations provide to their exporters, thus preventing foreign exporters from enjoying undue advantage. This ensures that Indian exporters are able to compete against foreign competitors based on the quality and price of their products and services, and not lose sales because a foreign competitor offers superior financing terms to a potential buyer. Thus, the Exim Bank of India helps companies compete against foreign competitors who receive assistance from their export credit agencies. In fact, Chinese government has made export credit financing a focal point of its nation’s export promotion strategy, launching the most aggressive export credit financing campaign in history. China’s use of export credit financing does not follow OECD norms, particularly with regard to its “tied aid” practices, which refer to development assistance that is conditioned upon the purchase of goods and services from the donor country. China is a major practitioner of tied aid transactions, which has given it an unfair advantage in many export deals. It can be difficult for small businesses to break into new markets. This may be due in part to the challenges small business face in accessing export financing, such as difficulty borrowing against foreign accounts receivable. The smaller dollar amounts involved, coupled with the time and expertise required to assess country-specific risks, may lead some banks to forego lending to small businesses seeking to export products. Even creditworthy small businesses may struggle to obtain private credit without a government guarantee. Various export financing programmes of Exim Bank of India can help open markets for exporters and promote development in regions of the world that private markets consider to be riskier. For example, while only about 8.5 percent of all India’s. Exports go to Africa, about two thirds of Exim Bank of India portfolio supports exports to this region. Gaining a foothold in these growing markets could be extremely lucrative over the long term— even if financing these exports poses a risk in the near term. Therefore, Exim Bank has a vital role when private lenders are unwilling to bear the political or other risks that these transactions might entail

31 Export Finance in India: Issues and Challenges

Moreover, exports are a critical component of economic diplomacy—and expanding the reach of Indian businesses overseas can serve more than just a profit motive. For example, it can help constrain efforts by our competitors to broaden their spheres of influence in the developing world. Capital remains a key constraint to the outlook and operations of Exim Bank. To be functional as an ECA/ Exim Bank of India requires high level of capital than it has ever had since inception. Exim India’s total assets stood at Rs 1080.96 billion. For instance, China Exim Bank had about $500 billion in total assets in 2016, separate from the assets owned by SINOSURE. The India Exim Bank also had about $15 billion in total assets. According to the OECD, ECAs are now the world’s biggest class of public finance institutions operating internationally. Collectively they exceed the size of the entire World Bank Group and fund more private-sector projects in the developing world than any other class of finance institution.

Challenges facing Exim Bank of India At a global level, the amount of medium and long term ECA financing with ODA grants and loans disbursed to total exports could be almost one-third of exports. Despite the efforts of India’s Exim Bank to increase their product offering and competitiveness with other sources of financing, Exim financing for projects, to some extent, still requires the involvement of commercial banks. Demand for funding for renewable energy and infrastructure amongst others is likely to remain significant in the coming years. Furthermore, the evolution of the Basel III regulations towards a higher percentage risk weighting may result in limiting the banks’ participation in project finance and therefore further increase the importance of the ECAs Eligibility for Exim Bank support for projects financed on limited/non-recourse basis has gained popularity. Financing of such projects depends on assessment of future cash flows. Such projects undertaken in the past were financed by the government of the country. Credit for purchase of equipment for such projects was generally backed by sovereign repayment guarantees that provided Exim Bank/ECAs with reasonable assurance However, over the last decade many governments in developing countries and elsewhere have switched over to PPP mode with diminished role for sovereign guarantees. This has opened a new window for ECAs willing to assume project risk. China has emerged as a huge supplier of ECA credit which is geared to both mercantilist and political ends. Export credit offered by China is mainly targeted at infrastructure, power, mines which are capital intensive and entail large import of capital goods from China. Financing of capital intensive infrastructure projects by China in mining, power, ports, railways have immensely helped China to promote its capital goods exports Similarly, during late 1980s and early 1990s large number of European ECAs extended credit to China’s power sector which benefited their power equipment suppliers. Japan has also benefited from its exim credit. Japanese firms were able to bag contracts on projects financed by their Exim agencies. One reason attributed to their success was the preliminary work undertaken by the Japanesese consultants to define project specifications that put Japanese firms in an advantageous position in the bidding process.

32 Export Finance in India: Issues and Challenges

Competing with foreign Exim Banks/ECAs has become increasingly difficult. Massive increase in China’s medium and long-term official export credits, more than the G-7 countries combined is a factor which cannot be brushed aside. Even countries that have agreed to abide by the OECD Arrangement have found ways around it. For example, OECD members can engage in subsidized trade financing through ostensibly private financial institutions that are not subject to the agreement, or use the “escape clause” to proceed with an objectionable tied aid offer as long as it is in a country’s “national interest.” Further impediments to the Arrangement’s effectiveness include its lack of enforcement and data verification mechanisms. In light of activities of foreign ECAs/Exim Banks it may be important for leveling the international trade playing field.

33 Export Finance in India: Issues and Challenges

VI. Role of select foreign Export Credit Agencies/Exim Banks

E

CAs broadly offer two main categories of financing. The first is buyer’s credit financing; this is the traditional product offered by ECAs, which requires an underlying supply contract between the exporter and the buyer. The second is untied financing, which does not require an underlying support contract, but can be provided on the back of an off-take arrangement (the borrower is generally a supplier of a commodity to a buyer in the country of the ECA) or an equity investment (the sponsor or equity investor in the borrower is from the same country as the ECA). ECA financing can more granularly be broken down into three areas. The first is corporate or sometimes sovereign loans with ECA support, the second is project financing, often with multiple ECAs working together for ultra large projects. A case in point is when eight export credit agencies (from Japan, Australia, Korea, France, Germany and the Netherlands) and a syndicate of 24 commercial lenders came together on a $20 billion project financing of a liquefied natural gas project in Australia sponsored by Inpex Corporation. The third category is untied financing, which is also sometimes part of project finance deals: this is based on strategic financing in order to secure important commodities, primarily oil & gas. The export credit agency will provide cover either by means of insurance to the exporters or bankers or by means of a direct guarantee of payment to the bank covering a loan to an overseas borrower to finance the supply of goods and services in the event of any default in payment by the buyer or the borrower under a loan agreement. Such insurance cover or guarantees could be a combination of comprehensive cover (ie, commercial and political) or only political risk cover.

Role of China’s Exim Bank In China, export finance activities are central to the “going-global” strategy since they support domestic companies to do business overseas by mitigating commercial and/or political risks. Over the last few years, export credit financing in China has increased significantly reaching values well above those of several developed countries. In China, the bulk of export credits is provided by policy banks which were created in the 1990s before the country’s WTO accession: China Export-Import Bank (Eximbank), China Export and Credit Insurance Corporation (Sinosure), China Development Bank, and China Agricultural Development Bank. All these policy-oriented financial institutions have the mandate to promote Chinese exports and investment abroad; they are fully owned by the Chinese government, and their management is appointed by, and report to, the State Council. Nevertheless, they differ in the services offered as described below. The Export-Import Bank of China was created in 1994 with the mission to promote the exports of Chinese

34 Export Finance in India: Issues and Challenges

engineering goods and high- and new-tech products, to support Chinese enterprises that have a comparative advantage in their “going-global” operations, to develop and strengthen relations with foreign countries, and to enhance Sino-foreign economic and technological cooperation and exchanges. The China Exim bank primarily offers overseas financing through a range of activities such as export credits (including export seller’s credit and export buyer’s credit), international guarantees, loans for overseas construction and investment, and official lines of credit. It is the only Chinese bank authorized to provide concessional loans. Its customer base consists mainly of state-owned enterprises and foreign trade corporations, but it also serves small and medium-sized enterprises. The Bank’s main source of funding is the bond market. The China Exim bank’s overseas financing activities have grown rapidly over time. During the year 2014 alone, China offered medium and long term export finance of U.S. $ 58 billion as against India’s U.S. $ 4.5 billion; the amount of short term export finance in 2015 was of the order U.S. $ 364 billion against India’s U.S. $ 48 billion. The China Exim bank is particularly active in supporting Chinese companies investing in infrastructure, oil and gas, mining, and telecommunication projects abroad, especially in Africa

China Export and Credit Insurance Corporation (Sinosure) Sinosure was created in 2001 − by merging the export-credit insurance departments of China Exim Bank and the People’s Insurance Company of China (PICC), with the mandate to promote exports and crossborder investments through export credit insurance and investment insurance. Sinosure is the sole policyoriented insurer in China. So, different from China Exim bank, it is specialised in export credit insurance. The wide range of services offered by Sinosure include short-, medium- and long-term export credit insurance, bond and guarantee facilities, as well as investment insurance and credit information service. Sinosure’s client base consists of Chinese-owned companies based both in China and overseas that have export licences. In the past few years, Sinosure’s activities have grown significantly. Indeed, in 2010 the volume of insurance and guarantees reached a value of more than US$ 150 billion that is three times the volume of the Corporation’s business in 2008. The China Development Bank (CDB) is one of China’s policy banks is focused less on international affairs. Nevertheless, the CDB has also extended its overseas financing activities by creating in 2007 an equity fund, the so-called China-Africa Development Fund (CADF), which aims to support Chinese firms investing in Africa. The proposed financing cap for the CDAF was U.S..$5 billion China offers a broad array of instruments to promote its exports, guarantee preferential access to natural resources and new markets, and to improve import terms with the developing world. These instruments include: (i) preferential export buyers’ credits: refer to credit provided to foreign borrowers to finance their imports of Chinese goods; (ii) export sellers’ credits: are preferential loans for Chinese companies operating abroad. They are provided by the China Exim bank and are nonprofit-oriented. ; (iii) mixed credits: refer to a package financing mode which combines lines of export buyers’ credit granted to a borrowing country together with export sellers’ credit (short-term credit) provided to a Chinese company, and concessional loans (in the form of foreign aid) often offered for a specific project. These types of credits are similar to the mixed credits used by most OECD member countries; (iv) natural resource-backed loans and lines of credit: In these types of credit, countries use their natural resources to guarantee a loan provided by China 35 Export Finance in India: Issues and Challenges

(usually to build infrastructure) with better terms and conditions than those available from traditional commercial banks. In most cases, the loan is contingent on a Chinese company obtaining preferential access to the natural resources to be developed.; (v) concessional loans: are loans offered to developing countries at subsidized interest rates, and are usually tied to Chinese exports. In other words, they are contingent on a certain percentage of Chinese goods and services being procured with that loan. This methodology is similar to the concessionary finance provided by traditional donors, and allows Chinese companies to gain an advantageous entry point to new markets. The loan can be used to buy equipment, technology, materials and/or services. However, at least 50 percent has to come from China. It usually has a maximum maturity of 20 years with a grace period of 3 to 7 years (during this period only interest payments are made, no repayment of the principal), and is denominated in Chinese Renminbi); and (vi) others such as direct government subsidies or export economic zones are special areas that the Chinese government settled within China to attract domestic and foreign investment, and promote exports. Chinese export credit financing through the instruments described above has increased remarkably over the past decades. China Exim bank has been active in supporting Chinese exports, especially in Africa, according to its official “African Policy” that “encourages and supports Chinese enterprises’ investment and business in Africa, and will continue to provide preferential loans and buyer’s credits to this end” One of the most highly publicized examples of Chinese natural resource-backed loan is the one arranged by China Exim bank in Angola in 2004. According to this agreement, China provided highly concessionary loans to build and rehabilitate Angolan infrastructure (e.g. railways, hospitals, telecommunications, secondary schools, etc.) in exchange of barrels of oil. After the success of the oil backed financing in Angola, the mechanism became popular and the resources used to back deals have diversified to include bauxite (Guinea for the construction of the Souapiti dam in 2006), chromium (Zimbabwe for the construction of coal mines and thermal power stations in 2006), iron ore (Gabon for the Belinga iron ore reserve in 2006), and even cocoa (Ghana for the construction of the Bui dam in 2007). In 2007, China Exim Bank offered to Nigeria an infrastructure loan of US$ 2 billion at a very competitive commercial rate in exchange of preferential access to oil blocks; and signed an agreement with the Congolese government according to which China Exim Bank offered US$ 6 billion infrastructure loans to the Democratic Republic of Congo (DRC) secured by a copper cobalt mining venture, of which Chinese firms would own 68 percent. Moreover, in 2008 China provided a concessional loan of US$ 4 billion to Venezuela to finance infrastructure, electricity, health and education projects to be paid back in oil. In 2009, China lent Brazil US$ 10 billion in exchange for future oil shipments. The rise of China’s export finance activities poses an important challenge to exporters from both the developed and emerging economies. China is not a member of the OECD and therefore does not need to comply by the same OECD rules that limit tied aid and credits practices in OECD countries; impose maximum repayment terms, country risk classification and minimum interest rates; require the exchange of information on export finance activities; and impose social, environmental and governance standards on financing activities. This arrangement ensures competition among exporters is based on the quality and price of goods and services exported rather than on the most favourable officially supported financial terms and conditions. As a non-member of the OECD, China is not obligated to adhere to the OECD

36 Export Finance in India: Issues and Challenges

Arrangement’s guidelines and has even put OECD Arrangement participants at a competitive disadvantage. China’s practices may be creating incentives for countries to engage in rate cutting and to offer exceptional terms. China’s export credits, concessional loans, and SEZs have played a strategic role in strengthening the economic relations between China and other developing countries, especially in Africa. This is vital for China in order to gain access to natural resources essential for its growing economy; to gain access to new markets for its manufactured goods; and to enhance its sphere of influence to become a global superpower. As a result, Chinese trade deals with the developing world have increased markedly over the past decade. Sino-African and Sino-Latin America bilateral trade increased have soared on the back of concessional credit packages. The credit export instruments offered by China contribute to increase in its trade with countries in Africa and Latin America. China through the Exim Bank supports its companies to invest in infrastructure, a sector which is vital for developing countries and generates demand for equipment and capital goods sourced from China. Chinese banks offer more favourable loan terms such as longer grace and repayment terms, and lower interest rate. Moreover, in contrast to Western ECAs, China provides export credit financing with (almost) no political, economic, environmental or human rights conditions attached. Nevertheless, the increases in China’s export credit financing are not risk-free for its partner countries, especially in Africa. If African countries now accumulate too much debt too quickly by borrowing from China to finance much needed investments, they may experience new debt sustainability issues Sinosure typically provides its services through commercial banks. A Sinosure credit is typically established through a bank, which will grant a loan on the basis of a guarantee from Sinosure. The Sinosure guarantee works as a credit enhancement and if the borrower defaults, the bank can instead claim payment under the Sinosure guarantee. If a claim is made under a Sinosure guarantee, Sinosure will pay the lender and subsequently become a party to the loan agreement with respect to the part of the loan paid under the guarantee. If Sinosure has entered into the transaction as a direct lender, Sinosure will act as the lender of record for its own loan. However, if the Sinosure loan is part of a larger loan syndicate, an agency, institution or one of the other lenders, which has undertaken the agency role will typically handle the loan governance. Its export credit insurance covers a large number of buyer credit policies and medium and long-term projects within hi-tech, large electro-machinery and heavy equipment, overseas engineering contracts, etc. More recently, Sinosure has offered (i) credit support to Chinese companies investing outside China in an attempt to support the Chinese “Going Abroad” policy and (ii) leasing insurance policies. The leasing product is a type of financial lease where Sinosure provides credit enhancement to the lessor against the lessee’s default while also providing a buy-back option at a certain time at a pre-defined price. As the lease structure is also a guarantee against default, it is basically just a slightly modified version of the standard non-payment guarantee provided to banks. Since its establishment, Sinosure has played a substantial role in supporting Chinese foreign trade and international economic cooperation. According to Sinosure statistics, it has supported exports, domestic trade and investments with a total value of U.S. $2,800 billion.

37 Export Finance in India: Issues and Challenges

China’s official government system of export financing is supplemented by lending from commercial banks controlled or owned outright by the government as well as quasi-government agencies. China’s “policy banks, ” such as the China Development Bank, are directed to extend loans for specific purposes delineated in China’s official economic plans, including the goal of producing “national champions” able to compete on a global scale. The China challenge is twofold. First, the volume of Chinese government financing easily outstrips the capacity of even some of the well-established ECAs of developed countries like U.S.A., U.K. According to U.S. Exim Banks’ 2010 Report to Congress on Export Credit Competition, “China seems to have a team of financial institutions doing vast amounts of short-term and medium- and long-term export finance” which “in aggregate….could well total over $100 billion a year.” Ex-Im concludes that “from the top down, the size, scope, and focus of [Chinese institutions providing export finance] is simply incomparable to anything within the OECD (Organization of Economic Cooperation and Development ) /G-7 [U.S. Exim Bank Report,2011]. The Ex-Im Bank’s total credit limit is $100 billion, meaning its outstanding aggregate amounts of loans, guarantees, and insurance cannot exceed $100 billion at any one time [CRS, 2012,p11]. With roughly $90 billion in outstanding loan guarantees, the bank’s current legal ability to extend additional loans is far too limited to compete with the government of China.

Export Import Bank of Korea The Export-Import Bank of Korea (Korea Eximbank) is an official export credit agency providing comprehensive export credit and guarantee programs to support Korean enterprises in conducting overseas business. Since its establishment in 1976, the bank has actively supported Korea’s export-led economy and facilitated economic cooperation with foreign countries. Korea Exim bank’s primary services include export loans, trade finance, and guarantee programs structured to meet the needs of clients in a direct effort to both complement and strengthen the clients’ competitiveness in global markets. Korea Exim Bank (Kexim) has played a crucial role in long-term export finance for South Korean exporters. Kexim provides financial guarantees to covered lenders in order to encourage their participation in project financing, while aiming at leveraging liquidity of bank markets to maximise the amount of Kexim’s financial support to projects. The bank also provides overseas investment credit, natural resources development credit, import credit, and information services related to business opportunities abroad. Furthermore, the bank is responsible for the operation of two government funds: the Economic Development Cooperation Fund (EDCF), a Korean Official Development Assistance program, and the Inter-Korean Cooperation Fund (IKCF), an economic cooperation program with North Korea. The bank strives to become “Your Partner for Global Business” as reflected in its vision by continuously fostering innovation and development throughout its operations. Unlike other ECAs (in OECD member countries), almost 80% of Kexim’s funding comes from international borrowing. This particular aspect makes Kexim a benchmark issuer in the international bond market with its annual funding amount exceeding US$10 billion, the largest amount issued by a South Korean institution. Kexim has diversified its funding sources into 25 different currency markets such as yen, Australian dollars and Brazilian Real. Thanks to these diversification efforts, Kexim has gained a great capacity to provide 38 Export Finance in India: Issues and Challenges

sufficient liquidity with competitive pricing. For South Korean banks, the ability to access loan guarantees from Kexim meant they can offer more competitive pricing and longer tenors. Kexim’s financial guarantee is proven and has been well accepted by global commercial banks over the years. Its improved credit ratings in recent years have provided an added boost to the confidence of the banks in Kexim-covered deals.

United States EXIM Bank President Roosevelt established the bank in 1934 as part of the New Deal and in 1945 Congress made it an independent agency in the executive branch. The U.S. Exim Bank’s main tools are loan guarantees, working capital guarantees, direct loans, and export-credit insurance. Loan guarantees are the largest portion of the Exim Bank’s financing in developed countries like U.S.A. These guarantees allow foreign and domestic lenders to finance foreign buyers of US exports at a reduced risk. The bank charges a foreign buyer of US exports a fee based on the loan’s length, size, and risk. The bank then guarantees lenders that it will cover up to 85 percent of the contract value of the loan’s outstanding principal and interest if the foreign buyer of US exports defaults. The working capital guarantee program guarantees short-term loans made to qualified US exporters to fund everyday operations of a company. These guarantees are made on a one-time basis or as a revolving line of credit. The Exim Bank guarantees to pay up to 90 percent of the outstanding balance of the working capital loan to the lender if the borrower defaults. The direct loan program provides loans to foreign buyers of U.S. exports for up to 80 percent of the US contract value. The U.S.A. imposes stringent domestic content requirements. U.S.A. provides loans against exports for the entire shipment only if the domestic content is 85 % or more of the contract value. If the domestic content does not meet the 85 % threshold, the available extent of the Exim loan and guarantees is reduced proportionately.The Exim Bank is responsible for the total value of the loan’s outstanding principal and interest if the foreign borrower defaults. Last, the Exim Bank provides loss insurance to US banks and exporters that extend credit directly to foreign buyers. The exporter pays a fee to the Exim Bank that serves as an insurance premium. Like other major ECAs, the U.S.Export Import Bank is intended to act as export finance gap-filler. It enables “transactions that might not otherwise occur and keep[s] the U.S. competitive in world markets” by financing exports in circumstances where limited or no private financing is available. Much of the Exim Bank’s financing is extended to developing country purchasers of U.S. exports and to U.S. small-and medium-sized enterprises (SMEs) that are unable to access commercial bank funding. In addition, the it uses export financing to level the playing field where foreign exporters might otherwise enjoy an unfair advantage, such as when a foreign government-controlled company is the competitor. Approximately 80 percent of Exim Bank credit and insurance transactions go to SMEs, though by dollar value, most of the money goes to large firms. However, U.S. Exim Bank financing operations are skewed. Boeing Corporation aircraft receive the bulk of support given by the U.S. Exim Bank. In 2010 air transportation accounted for almost half of Ex-Im’s exposure, with Boeing receiving over 60 percent of Ex-Im’s long-term loan guarantees. Concentrating operations so narrowly on one company may threaten its political viability.

39 Export Finance in India: Issues and Challenges

Credit Insurance and Guarantee institutions COFACE, the French Export Credit Insurance and Guarantee Company, is one of the leading export credit insurance companies in the world. It started as a State-owned company in 1946, with the goal of supporting the export of French products to a wide range of destinations. COFACE was privatized in 1994 and listed on the stock market in 2000. In 2002, Natexis Banque Populaire, a French bank, took majority ownership of COFACE. While most of the business of COFACE revolves around providing its own credit insurance and risk management products, it remains in charge of providing public insurance and guarantees for exporters on behalf of the Government of France. EFIC, Australia’s Export Finance and Insurance Corporation, was established as an integrated Government-owned corporation. ECGC, the Export Credit Guarantee Corporation of India Ltd., originated from the Exports Risk Insurance Corporation (ERIC), created by the Government of India in 1957. In 1964, ERIC was transformed into the ECGC, a company wholly owned by the Government of India. ECGC is one of the largest credit insurer in the world in terms of coverage of national exports.

40 Export Finance in India: Issues and Challenges

VII. Credits provided by Exim Bank of India vis-a-vis Foreign ECAs/Exim Banks

A

mong the major official medium- and long-term (MLT) providers in Asia (China, Korea, Japan, and India), the ECA systems typically involves two separate institutions: one, an insurer, focusing on shortterm transactions, with programs stretching into the MLT arena; the other a lender, focusing on MLT (but with many objectives besides simply export credit). Historically, the role of the private sector (commercial banks and private export credit insurers) has been minimal to modest in the overall MLT arena within Asia. Hence, the insurers tend to dominate (if not monopolize) the short-term arena and the lenders typically dominate the long-term one. Amongst the Asian ECAs/Exim banks ,viz, China, Korea and Japan have had sizeable investment and untied programs. Short-term export finance is generally comprised of working capital or trade insurance programs. Shortterm export finance activities differ across countries due to wide disparities in countries’ practices. Some countries encourage short-term exports to be insured by the state while other countries are legally prohibited from insuring short-term “marketable risks. As per U.S. Exim Competitiveness Report,2015, New Short-Term Official Export Credit and Working Capital Volumes, 2015 were (figures within parenthesis in U.S. $ Billion):China (363.9),Korea (136.5), Canada (58.1),Japan (52.9), India (47.6),Germany (12.2),U.S.A. (4.8), Italy (1.9),U.K. (0.1) As per Exim Competitiveness Report,2016 of the U.S. Congress, 26 countries provided noteworthy levels of export credit for MLT transactions. These were with figures in U.S. $ Billion within parenthesis: OECD Countries/Participants to the OECD Arrangement: Austria (0.8),Belgium (3.3),Canada (2.1),Denmark (1.9),Finland (1.1),France (9.4),Germany (9.7),Hungary (0.5), Italy (10.3),Japan (1.6),Korea (7.4),Netherlands (2.7), Norway (1.6),Spain (2.4),Sweden (4.8), Switzerland (1.2),United Kingdom (3.9),U.S.A. (0.2) & other OECD countries (0.8). Non-OECD Countries/Non-Participants to the OECD Arrangement: Brazil (3.0),China (34.3),India (6.2), Russia (4.5), South Africa (1.3); OECD Countries/Non-Participants to the OECD Arrangement: Israel (0.8),Mexico (0.5) and Turkey (0.5). Among this group, the United States provided a financing of just U.S. $ 200 million and China the highest at 34.3 billion. Foreign ECAs Outpace Exim Bank of India: An analysis of standard medium- and long-term official export financing across countries—the type of financing on which countries are most likely to compete—reveals that India trails several major global competitors (Exhibit:7). China is outpacing India by a huge margin in offering export credit. In 2014, China’s new medium- and long-term official export financing was $58.0 billion, up from $40.6 billion in 2013, an increase of more than 40 percent. China’s official financing volume in 2014 was nearly 13 times the $4.58 billion in financing by India—and this does not even include

41 Export Finance in India: Issues and Challenges

investment support, which pushes China’s total support to over $100 billion. The ECAs in South Korea and Germany also provided more medium- and long-term export credit financing than Ex-Im India in 2014. This is despite the fact that South Korea’s economy is much smaller in size compared with India. In terms of standard export credit support as a share of goods exports (Exhibit:7) it was 1.4 % almost half that of China. Exhibit 7: Comparison between India and Other Countries’ Export Credit Financing (new medium & long term official export credit in U.S. $-2014 & 2013)

The role of the Export Import Bank,July,2015,Joint Economic Committee,U.S.Congress https://www.jec.senate.gov/public/_cache/files/0f7b409d-ada7-47f0-9f96-5dfdd853d3b0/jec-report----the-role-of-the-exportimport-bank-report.pdf

42 Export Finance in India: Issues and Challenges

VIII. OECD Arrangement on Export Credit

T

he Organisation for Economic Cooperation and Development (OECD) first articulated export credit financing guidelines in 1978 and periodically updates this non-binding “gentleman’s agreement,” commonly referred to as the OECD Arrangement. Adherents to the OECD Arrangement include the United States, the 28 EU nations, Australia, Canada, Japan, South Korea, New Zealand, Norway and Switzerland. It governs the official export credit programs and activity of all OECD countries The OECD Arrangement is designed to limit the use of government support for medium- and long-term (MLT) export credits in order to avoid a global race-to-the-bottom in government subsidies and to ensure that a country’s exporters compete on the basis of quality and competitiveness of their goods and services rather than financing terms. It describes the most favourable generous terms and conditions members should offer when providing official export credit support. The Arrangement is meant to level the playing field among participant nations and to prevent subsidy competitions that could result in countries extending export credit financing on increasingly more generous terms and to ever more risky recipient. As a non-member of the OECD, China is not obligated to adhere to the OECD Arrangement’s guidelines and has generally ignored them, putting OECD Arrangement participants, including the United States, at a competitive disadvantage. The OECD Consensus has been transposed into EU law by Regulation (EU) No. 1233/2011 of the European Parliament and of the Council. He OECD Arrangement sets rules for export credit that is tied — meaning the financial support is available to a customer only if that support would result in an export from a domestic producer. In recent years, however the size and scope of worldwide ECA activity has grown beyond the scope and rules of the OECD Arrangement, both because of non-OECD ECAs entering the world stage and because of OECD ECAs expanding their practices and activities not governed by the OECD Arrangement. ECAs are increasingly offering alternative programs, some of which are untied — meaning the financial support does not directly result in an export from a domestic producer. Example of these alternative programs include untied export credit to secure resources vital to national interest, untied financing offered to foreign entities in order to influence future procurement decisions, and insurance to domestic companies investing abroad. Parties to the arrangement have to fully adhere to the OECD Consensus guidelines when providing its products. The main feature of the Consensus is an arrangement which sets a floor on interest rates, minimum cash payments of 15%, and maximum repayment periods- maximum maturity up to 10 years for relatively poor countries, up to 8.5 years for relatively rich countries (whereas sector exceptions exist); It applies to official export credits with maturity of two years or more. The OECD Arrangement stipulates the following: (i) All forms of officially supported export credits are subject to repayment

43 Export Finance in India: Issues and Challenges

requirements within specific time limits;(ii)Export Credit Agencies (ECA) ECAs have to use the relevant Commercial Interest Reference Rate (CIRR) as the minimum interest rate;(iii) ECAs that provide guarantees or insurance need to charge a Minimum Premium Rate (MPR) to cover the credit risk, which shall be risk-based and adequate to cover long-term operating costs and losses;;(iv) No concessional export credits shall be offered to countries whose income level, according to the World Bank data, is above the upper limit for lower middle income countries; (v) No concessional export credits should be extended to commercially viable projects, for which CIRR should be used (so only commercially non-viable projects in lower income countries are eligible for concessional export credits). In recognition of development aid objectives, the Consensus makes allowances for aid motivated transactions. It sets a minimum permissible element for concessional financing for such transactions. Currently, the required minimum grant level for aid motivated or mixed credit transactions is 35%. The minimum for grants to the least developed countries is 50%. Moreover, before making such a highly concessional offer, prior notification of twenty working days must be given to all other consensus participants of the terms being offered. This allows other participants an opportunity to offer matching concessional financing. In the case of offers with a grant element exceeding 50% only ex post notification is required. The OECD Consensus also provides participants with the right to match more favorable terms offered by non-participants. There are a number of sector understandings which complement the Consensus and provide special terms. These include understandings concerning nuclear power plants, aircrafts, ships, and satellite communication stations. Military and agricultural commodities are excluded from the list of products covered by the Consensus. Under the OECD rules, the maximum amount of the export contract price eligible for cover cannot exceed the sum of (a) Up to 85% of goods and services originating from the exporting and supporting country; and (b) Local costs, i.e. costs in the importing country related to the execution of the contract, can be up to 30% of the amount of the foreign eligible cost. The 15% of the export contract price not covered has to be considered and should be paid as down payment. The computation of the eligible content depends on the way the ECA interprets the rules and has to be optimized on a case-by-case basis. For example, in some cases the eligible cost could include some “foreign content” such as costs for goods and services sourced in a third country but under the exporter’s contractual responsibility, as well as 85%-100% of the ECA premium and interest accrued during construction. The OECD consensus also defines some terms and conditions of the credit, including the starting point for repayment, maximum repayment term, repayment of principal and payment of interest. For project finance transactions, the maximum repayment term and the average weighted life of the credit are 14 and 7.25 years respectively, reducing to 10 and 5.25 years when the project is located in a High Income OECD country. The exception to this rule are projects in the clean energy/climate mitigation sector where repayment term of up to 18 years is allowable and the ECAs’ support can exceed 50% of the project cost, even if it is located in a High Income OECD country. The main thrust over the years of the strengthening has been in two areas. First, minimum allowable interest rates have been brought closer in line with market rates, thereby reducing the scope for interest 44 Export Finance in India: Issues and Challenges

subsidies by governments. Second, rules and procedures for offering mixed credits have been made more transparent through prior notification requirements and more costly through increases in the minimum permissible interest subsidy or grant element. These measures are aimed at creating a clearer demarcation between commercially motivated and aid motivated transactions. OECD arrangement has strived to bring about convergence in the cost of ECA credit, restrict the use of tied aid for commercially viable projects and imposed restrictions on tied aid for commercially non viable projects. An integral part of the OECD Consensus guidelines is the exchange of information requirements. All transactions must provide notification. Prior notification for transactions not in conformity with the basic provisions, such as minimum interest rate and maximum repayment periods, must be sent to all other participants. The exchange of information system is important because it is the mechanism for ensuring that all participants are aware of nonconforming financing offers. The sanction open to participants in response to nonconforming financing offers is that they may match the financing terms. The risk of matching by other participants is the key deterrent to the initiation of nonconforming financing offers. If participants believe that nonconforming offers will always be matched, then they will see no advantage to initiating nonconforming offers. On the contrary, the initiator runs the risk of triggering an escalation in export credit subsidy practices. Currently, CIRRs are used only for currencies with interest rates below the OECD Consensus matrix rates. However, with the differences in interest rates and currency swap arrangements it is relatively easy to provide subsidies in Japanese yen or Swiss franc currencies by initiating an offer at matrix rates in a high interest rate currency and swapping the loan into a low interest rate currency. The adoption of a fully differentiated rate system would imply the abolition of the matrix interest rate option. In practical terms it would move the system of official export credits towards market terms whatever the currency of denomination - a level playing field. The OECD tied aid rules continue to reduce tied aid and redirect it from capital projects, where it has had trade-distorting effects, toward rural and social sector projects. Tied aid levels have fallen. Further tied aid rules help ensure that tied aid-financed projects represent bona fide development assistance and do not distort trade. For this reason, an increase in tied aid means an increase in the number of social sector and other such projects for which tied aid is not inappropriate. The OECD’s current fee system for export credits sets the minimum fee levels to cover country risk for both sovereign and private borrowers has generally saved costs. OECD members are free to charge whatever they want above this minimum to cover the buyer risk portion of a transaction for private sector borrowers. However, the nature of government financing has changed over the last decade, such that OECD members now sell their goods predominantly to private sector entities in foreign countries rather than to foreign governments. The Arrangement can be understood as a cartel-like, price-fixing mechanism, where the largest lenders of export credits establish limits on competition, in terms of the interest and premia fees, to prevent running substantial losses, and thus to avoid risking intensified scrutiny by their own national parliaments or governments. It is an agreement by the richest countries in the world, and therefore 45 Export Finance in India: Issues and Challenges

its provisions are tailored for their needs. Although interests rates and repayment terms have clear implications for project finance, the sustainability dimensions of the Arrangement have not been addressed systematically. The fact that nuclear power plants are allowed longer repayment terms, and that agriculture and military expenditures are excluded from the Arrangement’s scope, raises questions as to the Arrangement’s impacts on sustainable development. Under the Agreement on Subsidies and Countervailing Measures (ASCM) generally only special and differential (S&D) treatment for developing countries allows for exceptions to subsidies disciplines. If the Arrangement is to continue to enjoy a “safe haven” under the ASCM, its contributions to sustainable development should be measurable, such as for example through incentives to renewable energy. Efforts to discipline export subsidies in the World Trade Organization (WTO) have faced the additional hurdle placed by provisions included in its Subsidies Agreement, which provide an exemption from subsidies disciplines to ECA practices compatible with the OECD Arrangement.

46 Export Finance in India: Issues and Challenges

IX. Challenges of Export Finance in India

E

xport Finance instruments do not match requirements of exports. The share of export credit in total non food credit is extremely low and not commensurate with the share of India’s exports in the GDP around 20%. Also percentage of export transactions covered by export credit guarantee/insurance is much smaller in India compared to the international average of 10-12%. In India critical supply and demand side constraints prevent Export Finance from playing a more proactive role in facilitating and promoting exports. The availability as well as utilisation of Export Finance in terms of lines of credit in particular is low. The supply side constraints are institutional deficiencies and the limited portfolio of Export Finance instruments available in the market. The demand side constraints are the low risk and static export structure of the country. Information gaps and asymmetries are constraints that affect both the demand for and supply of Export Finance in the country. India’s Export Finance sector suffers from two types of information asymmetries particularly for SMEs; first is lack of market information and second is lack of awareness among exporters about Export Finance instruments and its benefits. Difficulty and high cost of accessing information from India about foreign markets and buyers tend to result in the level of risk being overestimated and therefore in many cases over-priced. This is particularly the case with institutions where the risk assessors have limited international experience. Further the low level of awareness about Export Finance result in low demand and use of even the available export financing instruments. India has a number of institutions that facilitate and promote the use of Export Finance. These include the Exim Bank, ECGC Ltd. (Formerly Export Credit Guarantee Corporation of India Ltd.) and commercial banks but coordination and specialization in terms of market and products needs to be strengthened and streamlined. The low understanding and demand for Export Finance in the country is partly the result of the low risk and static export structure of the country. Export revenue is still dependent on traditional exporters, products, markets and buyers with long standing relationships; along with the low level of understanding the supply has also failed to respond to the emerging needs of non-traditional exports and smaller exporters. The variety, availability and sophistication of Export Finance solutions available in the market are quite limited. While there is some availability of Export Finance instruments such as value chain financing (VCF), export credit and payment default guarantee schemes, understanding of their applications and adoption is weak and they remain underutilised.

47 Export Finance in India: Issues and Challenges

X. Conclusions and Recommendations

T

rade finance is a critical tool which can be used to stimulate exports. Exporting firms in developing countries like India frequently cite lack of finance — particularly to meet working capital requirements — as a key barrier to export growth. Credit access constraints still represent an important barrier to export even in developed countries because imperfections in the credit markets increase the transaction costs faced by firms that intend to export. To deal with these market failures, Governments provide trade credit and trade insurance handled by the national Export Credit Agencies. Export Finance focuses on providing payment, financing and risk mitigation solutions in support of the transactions between exporters and foreign buyers. Export Finance can play an important role in addressing some of the key challenges faced by India in the export sector. Ability to offer payment terms more favourable to buyers enhances the chances of exporters securing more orders. Export Finance instruments enable exporters to offer competitive payment terms to buyers whilst mitigating the default risks and working capital shortages that arise from such competitive payment terms.

Export finance providers Export Finance is facilitated by two principal providers; private sector banks and public sector financial institutions specializing in trade financing (Export credit agencies/Exim Bank) acting independently or on behalf of the government. In addition to the domestic financial institutions, multilateral financial institutions also provide risk mitigating solutions to assist international trade. However, private sector institutions tend to focus more on providing short term (up to one year). Also they tend to focus on financing exports to lower risk high-income and more advanced economy markets. This is partly due to problems they face in assessing commercial and country risks. In contrast to private banks, Exim Bank that are supported by the government tend to provide wider coverage in terms of markets and offer short, medium and long term financing options and generally have special financing facilities to support exports by SMEs and project exports. India has a number of financial institutions that can facilitate and promote the use of Export Finance. These include the Export Import Bank of India), ECGC (formerly Export Credit Guarantee Corporation of India), Indian Institute of Foreign Trade through offering Foreign Trade Management courses, specialized studies on foreign markets and commodities. The role these institutions play at present in facilitating and promoting Export Finance is limited. This is partly due to the low level of policy focus on export finance and lack of coordination amongst them.

48 Export Finance in India: Issues and Challenges

Information asymmetries In the export import trade the problem is not mainly of availability of credit but also due to informational and the misalignment between credit supply and demand due to imperfect risk evaluation by firms or creditworthiness evaluation by banks and financial institutions. Information gaps and asymmetries are constraints that affect both the demand for and supply of Export Finance in the country. India’s Export Finance sector suffers from two types of information asymmetries; first is lack of foreign buyers and market information and second is lack of awareness among exporters in the SME about Export Finance instruments and its benefits. High cost of accessing information from India about markets in Latin America, Africa and some parts of Asia especially CIS countries and buyers tend to result in the level of risk being overestimated and therefore over-priced. Besides, the low level of awareness about Export Finance amongst SMEs results in low demand and use of even the available export financing instruments.

Risk mitigation Export Finance instruments help mitigate the risks exporters incur when engaging in international trade. The main risks involved are commercial risk and country risk. Commercial risk refers to risk of non-payment by a private-sector buyer or borrower arising from default, insolvency or failure to take delivery of goods that have been shipped according to the export order. Country risk is the risk of borrower/importer country government actions that prevent or delay the repayment of export credits (e.g., foreign exchange restrictions, sometimes referred to as “transfer risk”) and other borrower country risks (e.g., civil war, physical disaster, etc.). In addition, there are other macro risks; transport and logistics related risks, foreign exchange risk and bank risk. The ability of a buyer to honour payment commitments in time is affected by these risks as well.

Supply and demand side constraints on export credit Export finance in India is both constrained by supply and demand side factors which prevent Export Finance from playing a more proactive role in facilitating and promoting exports. This is reflected in low share of export finance to total net credit which is very low and not commensurate with the share of exports in India’s GDP around 18 to 20%. The supply side constraints are institutional deficiencies and the limited portfolio of Export Finance instruments available in the market. The demand side constraints partly the outcome of the export structure of the country which is low risk and static. Export revenue is dependent on a few products, few markets and few buyers with long standing relationships. This low risk environment has led to low demand for innovative export financial solutions. , diversification of markets and buyers, modification of terms etc. have not been preferred by established exporters.s A key issue in diversifying products and accessing new markets is the shift to new buyers and developing country markets. First involves accepting higher commercial risk and the second involve accepting higher country risk. By mitigating these risks Export-Finance can incentivise Indian businesses to diversify from

49 Export Finance in India: Issues and Challenges

developed country markets to dynamic emerging developing country markets, to invest in new products and cultivate new buyers.

Facilitate exports of new products to new markets through use of innovative financial solutions India’s exports have been growing at an intensive margin; i.e. by selling more of the same products to the same markets. This is a factor that constrains export growth. Growing at the extensive margin (i.e. by selling new products and accessing new markets) is challenging. The Export Finance premiums vary according to the terms and conditions of the export credits, particularly their duration, as well as the credit rating or risk status of the importer or the importer’s bank and of the importing country concerned. It is relatively easier to obtain funding from private banks at reasonable rates when exporting to established buyers in advanced country markets. The cost and availability of finance becomes a greater problem when exporting to buyers in developing country markets where perceived commercial and country risks tend to be high. International banks generally apply strict country credit ceilings and impose high risk premiums on lending to developing countries. The government can address this problem by providing Export Finance solutions that take on some of the risks private banks are unwilling and unable to take and by strengthening and expanding market information (product/marketwise) to help private banks assess commercial and country risks accurately. Four critical demand and supply constraints relating to information, institutions, instruments and structure of exports prevent Export Finance from playing a more proactive role in facilitating and promoting exports in India. Lack of credible, updated and timely information about buyers and markets and resulting over estimation of risk and overpricing of Export Finance solutions has a negative impact on supply. Lack of information about Export Finance instruments and their benefits impacts demand for export finance. The institutional deficiencies in terms of capacity, competency and independence as well as the limited portfolio of Export Finance solutions available in the market, negatively affects supply. Low risk export environment composing of established large exporters having long standing relationships with established buyers in established markets may result in low demand for Export Finance solutions. Need for credible, updated and timely information on products and overseas markets Information plays a critical role in facilitating a well-functioning Export Finance market, and in determining the ease and cost of accessing Export finance. Both, the exporters and financial institutions need information to assess risks. Reliable, accurate and updated information about the exporter, the buyer and the market is critical in being able to accurately assess risks. Risks that are clearly and objectively communicated and understood can be equitably mitigated and managed. Absence of information and visibility tends to result in overestimation of risk, particularly when risk assessors have limited international experience, and thus, the pricing of risk mitigation options can be inflated. India’s export finance sector suffers from two types of information asymmetries first is related to limitations in buyer, market and exporter information and second is related to lack of awareness/information among exporters (especially in the small unorganised sector) about Export Finance solutions and the benefits. Ease of finding buyers and information on foreign markets

50 Export Finance in India: Issues and Challenges

is low and the cost is high, especially with respect to emerging markets. This undermines the ability to accurately assess commercial and country risks. Therefore, lending institutes often base their assessment of risk largely on the track record of the exporter whom they have confidence in to have done their own due diligence of the buyer). This means the new exporters and SMEs find it challenging to access Export Finance at a reasonable cost. The high cost of finance results in low demand, low level of utilization of Export Finance solutions and lower SME participation in exports in the country.

Strengthen lending capacity of the Exim bank of India Global competition in medium and long term export credit financing in particular has become increasingly formidable, with foreign competitors enjoying substantial support from their countries’ export credit agencies. India’s Exim Bank fills an important role in leveling the playing field for Indian exporters by trying to match credit support that other nations provide to their exporters, thus preventing foreign exporters from enjoying undue advantage. This ensures that India’s exporters are able to compete against foreign competitors based on the quality and price of their products and services, and not lose sales because a foreign government has helped a foreign competitor by providing superior financing terms to a potential buyer. To overcome the intense and sometimes unfair competition it is imperative to strengthen the lending capacity of India’s Exim Bank. This would require following initiatives: a) Domestic banks are to lend a minimum of 12 percent of advances by way of export credit. The shortfall in export credit by commercial banks may be deposited with Exim India at Bank Rate on medium/long term basis. Exim India may swap these rupee funds with GOI for dollar resources. b) The foreign exchange reserves held by RBI can be deployed for the purpose of export finance with stipulation that RBI should receive the same interest rates from Exim India as would otherwise be earned by them. c) Exim India’s authorised capital is Rs. 10,000 crores while paid up capital is Rs 6,859 crore. So, there is scope for the paid-up capital to be enhanced. Infusion of capital will enable the bank to lend many more times to support exports. d) Exim India as an institution must evolve, expand and strengthen its reach, coverage as a major international financial institution to support international trade and investment, with particular reference to project exports from India. e) State owned or supported trade finance institutions need to provide financing and insurance to exports, on a “break even” basis, with the overall objective of promoting exports of the country. Risk mitigation solutions in support of trade are also provided by international agencies such as multilateral development banks.

Better utilisation of Lines of Credit offered (LOC) by Exim Bank of India There is need to strengthen credit schemes such as bilateral lines of credit to facilitate access to target markets. This is specially a useful tool in facilitating trade with developing country markets, especially in 51 Export Finance in India: Issues and Challenges

Africa and Latin America where cost and access to credit to buyers in their own markets can be a significant barrier for them to engage in international trade. These credit lines being offered need quick disbursement and higher levels of utilisation. Presently utilisation of LOCs across countries varies enormously. In some countries in Africa utilisation is very low on account of a combination of factors attributed to regulations/ clearances in the host country and implementation agency/project exporter from India. Better utilisation of LOC incentives importers/buyers in the credit receiving country to buy from the credit providing country as opposed to buying from another country. This is widely used financing instrument by most developed and middle income countries to promote exports to developing and emerging country markets. Also there is need to ensure competition amongst Indian bidders for LOC financed projects. Here much will depend on the bidding process and eligibility conditions prevailing in the host country

Limited Portfolio and Utilisation of Export Finance Solutions The Export Finance market in India, like many other developing countries remains under-developed. The utilisation of available Export Finance instruments is low. For example, percentage of export transactions covered by export credit guarantee/insurance is much lower compared with the international average of 10-12% (The Commonwealth (2014), Building Capacity of the Export Credit Insurance Industry). The variety, availability and sophistication of Export Finance solutions available in the market remain limited. This is the combined outcome of low level of awareness, lack of policy focus and recognition given to the role Export Finance in promoting exports, lack of initiatives by the government, institutional deficiencies and the current low risk and static export structure. ****

52 Export Finance in India: Issues and Challenges

References • Export finance activities by the Chinese government, EXPO/B/INTA/FWC/2009-01/ Lot7/15,September 2011,, Policy Department DG External Policies,EU http://www.europarl.europa.eu/RegData/etudes/note/join/2011/433862/EXPO-INTA_ NT(2011)433862_EN.pdf • Asmundson, I., Dorsey, T., Khachatryan, A., Niculcea, I. and Saito, M. 2011, ‘Trade finance in the 2008–09 financial crisis: evidence from IMF and BAFT-IFSA surveys of banks’, in Chauffour, J. and Malouche, M. (eds), Trade Finance During the Great Trade Collapse, The World Bank, Washington D.C., pp. 89–116 • IMF-BAFT (2009), ”IMF-BAFT Trade Finance Survey: A Survey Among Banks Assessing the Current Trade Finance Environment,” http://baft.org/content_folders/Issues/ IMFBAFTSurveyResults20090331.ppt. • Evans, P. and K. Oye (2001), "International Competition: Conflict and Cooperation in Export Financing,” in G. Hufbauer and R. Rodriguez (eds.), “The Ex-Im Bank in the 21st Century: A New Approach?" Institute for International Economics, Special Report 14, January 2001. • Working Party on Export Credits and Credit Guarantees,OECD,2016 http://www.egap.cz/dokumenty/vliv-vyvozu-a-investic-na-zivotni-prostredi/recommendation-2016. pdf • Peter C Evans & Kenneth A Oye,International Competition: Conflict & Competition in Government Export Financing https://piie.com/publications/chapters_preview/323/8iie3004.pdf • Export Credit Araangement Text http://www.oecd.org/trade/xcred/theexportcreditsarrangementtext.htm • Business Performance & Financial Highlights, 2016-17 https://www.eximbankindia.in/Assets/pdf/default/files/pastdecadeen.pdf • Annual Report, Exim Bank of India, 2016-17 https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/AnnualReports/20file. pdf • THE CONTRIBUTION OF EXPORTS TO ECONOMIC GROWTH AND THE IMPORTANT ROLE OF THE EXPORT-IMPORT BANK,Joint Economic Committee, U.S. Congress,2014 https://www.jec.senate.gov/public/_cache/files/c8610de2-c3d8-4b12-afde-01ae22bd2f40/thecontribution-of-exports-to-economic-growth-and-the-important-role-of-the-export-import-bank. pdfInternational

53 Export Finance in India: Issues and Challenges

• Expanding Exports,Role & Relevance of Export Finance file:///C:/Users/home/Downloads/file.pdf • Trade Administration,U.S. Government https://www.trade.gov/publications/ita-newsletter/0711/winning-future-through-exports.asp • Annual Report, Exim Bank of India, 2015-16 https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/AnnualReports/17file. pdf • India’s National Export Credit Agency Investor Presentation,Exim Bank https://www.eximbankindia.in/assets/pdf/public-declarations/InvestorPresentation-June-2017.pdf • Release of Mid-Tem Review of Foreign Trade Policy 2015-2020 – Annual Incentives Increased by 2 percent amounting to over Rs. 8,000 crore for labour intensive/MSME sectors,December 6,2017,PIB http://pib.nic.in/newsite/PrintRelease.aspx?relid=174117 • Export finance activities by the Chinese government, EXPO/B/INTA/FWC/2009-01/ Lot7/15,September 2011,, Policy Department DG External Policies,EU http://www.europarl.europa.eu/RegData/etudes/note/join/2011/433862/EXPO-INTA_ NT(2011)433862_EN.pdf • Indian Lines of Credit: An Instrument to Enhance India-Africa Partnership,Exim Bank,2011 http://www.indiainbusiness.nic.in/trade/presentation_loc/exim.pdf • Study of Export Trade Financing in India with Particular Reference to Commercial Banks: Problems and Prospects A. K. Sen Gupta and Pradeep Kumar Keshari 23 May 2013 https://mpra.ub.uni-muenchen.de/47159/1/MPRA_paper_47159.pdf • Competitiveness Reports,U.S. Exim Bank https://www.exim.gov/news/reports/competitiveness-reports • Export-Import Bank: Frequently Asked Questions, April 2016,U.S. Congressional Service https://fas.org/sgp/crs/misc/R43671.pdf • The Export-Import Bank of the United States: Its Impact on U.S. Competitiveness, Exports, and Jobs https://www.uschamber.com/sites/default/files/ExImBank%20Brochure_April%202014_2.pdf • THE ROLE OF THE EXPORT-IMPORT BANK July 2015 https://www.jec.senate.gov/public/_cache/files/0f7b409d-ada7-47f0-9f96-5dfdd853d3b0/jecreport----the-role-of-the-export-import-bank-report.pdf • EXPORT-IMPORT BANK OF THE UNITED STATES JUNE 2017 For the period January 1, 2016 through December 31, 2016 REPORT TO THE U.S. CONGRESS ON GLOBAL EXPORT CREDIT COMPETITION https://www.exim.gov/sites/default/files/reports/508%20compliant%20version_EXIM%20Bank%20 Competitiveness%20Report_June%202017.pdf

54 Export Finance in India: Issues and Challenges

• EXPORT-IMPORT BANK of the UNITED STATES REPORT TO THE U.S. CONGRESS ON GLOBAL EXPORT CREDIT COMPETITION JUNE 2015 For the period January 1, 2014 through December 31, 2014 https://www.exim.gov/sites/default/files/reports/EXIM%202014CompetReport_0611.pdf • The Contribution of Exports to Economic Growth and the Important Role of the Export-Import Bank https://www.jec.senate.gov/public/_cache/files/c8610de2-c3d8-4b12-afde-01ae22bd2f40/thecontribution-of-exports-to-economic-growth-and-the-important-role-of-the-export-import-bank.pdf • Export-Import Bank of the United States; Report to the US Congress on Export Credit Competition and the Export-Import Bank of the United States, June 2011. (p. 112) • “Reauthorization of the Export-Import Bank: Issues and Policy Options for Congress,” (Congressional Research Service, January 31, 2012), p. 11 • U.S.-China Economic and Security Review Commission Staff Research Backgrounder1 Export Assistance and the China Challenge April 27, 2012 By Anna Tucker https://www.uscc.gov/sites/default/files/Research/5.7.2012_ExportAssistanceandtheChinaChallenge. pdf • Trade Finance & Bilateral Economic Cooperation by KEXIM
55 Export Finance in India: Issues and Challenges

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