Export credit insurance (ECI)
Dutch businesses export billions of Euros in goods and services annually. With export credit insurance, exporting companies can insure their foreign transactions against the risk of doing business with foreign buyers who fail to pay.
State facility for export credit insurance
Sometimes, however, private export credit insurance cannot cover the losses. This situation may arise with extremely large transactions, for example, very long-term maturities, or exports to unstable countries. In such cases, Dutch companies can insure their operations with the Dutch State facility for export credit insurance.
ECI for high-risk exports
ECI is primarily used for the export of capital goods or capital-intensive services to non EU countries. The often high-risk sectors involved include shipbuilding, contracting, dredging, glasshouse construction, and medical equipment.
How export credit insurance works
Export credit insurance ensures that if the foreign buyer cannot pay for a shipment upon delivery, the Dutch exporter can arrange for export credit with a bank, if necessary. State insurance works as follows:
- To mitigate certain export risks, the bank or exporting company can take out export credit insurance with the Dutch State. The ECI request is processed by Atradius Dutch State Business.
- The exporter pays a market level premium based on the risks associated with the country of export, the particular buyer, and the specific transaction.
- If payment is not made, or if the exporter incurs damages of some other kind, an insured exporter or bank (the export credit lender) will be compensated by the Dutch State.
- The Dutch government then collects the amount payable. If the debtor is a foreign government, a debt settlement arrangement will be drawn up with the Paris Club. This informal group of creditor governments acts as an intermediary between lending countries and countries that are unable to repay loans.
Importance of ECI
Export credit insurance stimulates trade according to De Nederlandsche Bank (DNB). The Bank's studies of ECI show that each Euro spent on insured exports generates over €2.50 in total exports. And ECI is important for other reasons as well:
- Safeguarding the national competitive position
All highly-developed, industrialised countries have an ECI facility. The Dutch facility ensures that companies in the Netherlands can remain competitive internationally by helping create a level playing field.
- International reputation
The Netherlands has a strong position in sectors like shipbuilding, contracting, dredging, glasshouse construction, and medical equipment. It is important that the country continues to export such products and services, even when risks are high. This consolidates the international reputation of the Netherlands as an exporting country. Promoting economic activity in these sectors also means more jobs and innovation and better higher education.
- Stabilising effect on Dutch exports
In a recession, the market contracts. Commercial insurers assume fewer risks. In times of economic crisis, State ECI can bridge the gap between what risks commercial insurers are willing to insure and the level of coverage exporting companies require. This has a stabilising effect on Dutch exports.
- Sustainable lending policy
The Netherlands wants to see other countries borrow only what they can repay. In consultation with the International Monetary Fund (IMF), the World Bank, and other countries in the intergovernmental organisation for Economic Cooperation and Development (OECD), the Netherlands has devised a sustainable lending policy. Sustainable lending criteria are in place to prevent countries from defaulting on obligations arising through Dutch export credit instruments.
- Corporate Social Responsibility (CSR)
The Dutch government promotes corporate social responsibility. When submitting requests for export credit insurance, applicants must indicate their familiarity with the OECD guidelines for multinationals and agree to implement these guidelines in their own companies. This allows the government to ensure that businesses who use ECI operate in a sustainable manner. Risks to environment and society which a particular export transaction or project entails are assessed, as necessary.
Responsibility for ECI
Export credit insurance falls under the responsibility of the Ministry of Finance and the Ministry of Economic Affairs, Agriculture and Innovation, and is administered by Atradius Dutch State Business.