EXPORT FINANCING AND EXIMBANK
1.1ABSTRACT
Millions of dollars worth of products are transported between countries and imported or exported every day around the world.The trust factor plays a big role as there are large numbers in question.
Any company is willing to send its capital or product without insuring it against a possible danger.Considering the grievances to be experienced in the event that the money you will receive in return for the product you sent cannot be paid or the obligatory company goes bankrupt, the need for an intermediary insurance institution arose.
As a result, commercial insurance institutions, which serve in many fields today, play an indispensable key role in the import export sector.
We can say that export insurance companies have a great role in the growth and acceleration of global trade.
Trade between countries is subject to many legal regulations and the process is very complicated, and in cases of conflict, there are both material and moral damages.
In such cases, it is the insurance institutions that will protect us.Export insurance institutions, which are actively used in our country, which has been used in foreign countries for a long time, provide this service.
In the project we are doing, we will look at the past, present and institutions of export insurance, and at the same time, we will touch on export insurance activities in Turkey in detail.
1.2 INTRODUCTION
Millions of dollars worth of products are transported between countries and imported or exported every day around the world.Many basic foodstuffs, textile products, raw materials, live animals and countless other products reach us through export and import.
For example, cacao trees or coffee plants are not plants that grow in our country. But we can easily reach these products from any market and buy them. Or a newly released foreign-made automobile or a technological device is offered for sale in our country in a very short time.
It is import and export that enables us to obtain all kinds of products we want. People we call exporters produce products or buy them cheaply from the manufacturer and sell them to another importer abroad, making a profit and bringing foreign currency to the country.
In this way, both employment and money flow to our country are provided. The trust factor plays a big role as there are large numbers in question.You want to be sure that the payment will be made against the product you send.No company is willing to send its capital or product without insuring it against a possible danger.
Considering the grievances to be experienced in the event that the money you will receive in return for the product you sent cannot be paid or the obligatory company goes bankrupt, the need for an intermediary insurance institution arose.
Export insurance companies will issue you an insurance fee according to the scope of the trade you have made, the shipping method, the amount and the value.
The costs of the goods damaged during transportation are covered by the insurance costs that have been issued.
Thanks to this commercial guarantee, companies can easily send valuable goods and products between continents by ships and trucks.
As a result, commercial insurance institutions, which serve in many fields today, play an indispensable key role in the import export sector. It is really an advantageous and rational way to eliminate all risks with an expense that is not even 1% of the value of the product you have sent. Insurance is frequently preferred and supported by states, especially since goods transported by ship have more risks such as sinking and damage.
Export insurance institutions, which are actively used in our country, which has been used in foreign countries for a long time, provide this service.
Especially in the 21st century, when communication and technology are constantly improving, exporting and importing has become very easy, and now we import and export to buy or sell 1 watch or earrings or 1 million sacks of seeds. We can say that export insurance companies have a great role in the growth and acceleration of global trade.
Because as the cost of the trade we do grows, the risk we take increases and it is difficult to engage in such a business without an intermediary institution to provide assurance.
The slightest problem can end your entire business life.
Trade between countries is subject to many legal regulations and the process is very complicated. You may have to deal with disputes arising from many intermediary institutions, legal procedures and various technical differences between countries.
In case of any dispute, the product you have sent may wait at the border for days or be returned, in this case both material and moral damages are in question. If there is no insurance company to protect your material interests, the consequences will probably put you and your company in a difficult situation.
Export Credit, otherwise called exchange protection a few nations,It is a typical practice in worldwide exchange.Export credit showed up in Europe in the century. While the improvement of global exchange speeds up financial development, it additionally expands the dangers looked by organizations.
Export credit protection is a significant monetary instrument to limit these dangers. The primary reason for send out credit protection is to work with worldwide exchange, to help shield exporters from long haul business dangers like default, insolvency, and political dangers like limitation of global exchange.Starting at 2016, the size of worldwide exchange upheld by trade credit protection has arrived at 2.8 trillion USD for 90,000 organizations.
It is a sort of protection that offers the chance to make financing by tolerating business and political dangers that cause the non-assortment of the expense of products and tolerating these receivables as security. Export credit insurance offers significant benefits to sending out organizations because of its highlights, for example, expanding the exporter’s piece of the pie and working with the development and assortment of receivables.
In import exchanges, labor and products are by and large bought on a conceded premise. On the off chance that the merchants do not satisfy their commitments when the receivable is expected, almost certainly, the exporters will encounter challenges. Exporters who can not gather their receivables won’t pay their providers.
The present circumstance will adversely influence the business life by making a progression impact. Business and political dangers are covered by send out credit protection. Business hazard emerges when the merchant who buys the products or administrations can not address the cost of the merchandise.
In most of the practices in the world, it is seen that 70–90% of the losses caused by commercial dangers and 80–90% of the losses caused by political dangers are covered under export credit insurance.
The assurance rate is also higher, due to the increased uncertainty in political dangers. Risk sharing can be arranged differently within the framework of the contract to be made between the insured and the export credit insurance company.
All shipments to be made under export credit insurance are not guaranteed and there is always a risk of 5–20% of the exporter. The reason for this is the obligation of the exporter to choose their buyers well, not to take risks and to follow their unpaid receivables closely.
In this way, company officials pay attention to their exports, avoid making mistakes, and do not take great risks. This is a good factor for exporters who act consciously, at the same time, the fact that there is risk in the middle ensures competition and equality, and people who do inconsistent work will be defeated after a while.
Without export credit insurance programs, such a developed and grown export & import sector would not exist today.There is not the slightest doubt or hesitation in the policy, since the amounts and rates that the firm will receive and give are specified in advance.The exporter will carry out his trade safely with the convenience of transferring the risks related to him to an intermediary insurance company.
Export is a vital issue for a country, our exporters being strong and wealthy will indirectly return to our country as tax income. For this reason, every country tries to support their companies by establishing export insurance banks.
Exporters with whom they do business for a while are whitelisted and their credit limits are increased, while exporters who damage the system over time are excluded from the system as a result of their credit score falling.
Insurance companies try to make a multiple development to increase the number of exporters, their trade volume and the countries they can reach.
2.2 Commercial insurance past and present
One of the first states to start exporting and importing is Great Britain.
Naturally, the first company to implement export credit insurance was the British Commercial Insurance Company, which was established in England.
Based on the documents we have, it can be said that it started its first activities in the early 1800s.
In 1776 in Prussia, now known as Germany, Professor Wurms advised the authorities to handle maritime risks in order to minimize the risks to traders, this foresight will become an indispensable requirement in the future.
France, which previously made joint stock and limited companies legal, reducing the risks entrepreneurs take in case of bankruptcy.
In 1849, “Banque Mallet Frères et Cie” was the first French bank to implement the practice of commercial credit exposure.
Europe has started to accelerate exports and imports with the effect of geographical discoveries and industrial revolution.Four different banks operating in Paris assumed the risk of trade receivables. These banks, which had a significant success at the beginning, had to stop their activities due to the negative developments experienced in the following periods, because there are no legal regulations and regulations yet, which makes it difficult to find a solution in case of any problems.
In the 1850s, companies providing credit insurance to exporting companies began to be established one after the other in Germany, France, England and Belgium. Companies with the titles of “The Solvency Mutual Guarantee Company” and “The Commercial Debt Insurance Company”, which will generally insure commercial activities in Europe and America, started to operate in England.
The first formation of the credit insurance system, which is similar to today’s examples in the modern sense, was the “Ocean Accident & Quarantee Corporation Ltd.” which was established in 1871. It started with the company that has the title.
Ocean Accident & Quarantee Corporation Ltd, which is still operating, has continued its activities both in the UK and the USA in the past.
(Printed Revolutionary Loan Certificate, completed in manuscript by Massachusetts Treasurer Henry Gardner. Boston, September 26, 1777. Engraved by Nathaniel Hurd.)
Business activities must come first, a global economic crisis and balance of payments problems are sometimes more devastating than war.
After the restrictions and tensions that emerged between countries such as wars, political reasons and piracy, political risks were also secured, thus export credit insurance covering both commercial and political risks was implemented. Only commercial risks were covered in Switzerland in 1881; In 1934, political risks were also insured. With the export credit insurance applications, the information of both public and private buyers operating in many countries has begun to be collected in a common pool.
As a result, the world is global and if you want to open up to all markets, you need to unite and be around the same table. Countries have established a union under the name of “International Credit Insurance Association” to increase cooperation between them.
The first application in our country was initiated by Turk Eximbank in 1989. Since the day it was opened, it continues to support our exporters.
In the years when Türk Eximbank started its operations, private insurance companies were not authorized to carry out export credit insurance transactions.
After the 2000s, private insurance companies were authorized to issue export credit insurance policies, provided that they were licensed by the Undersecretariat of Treasury.
In 2005, Garanti Sigorta A.Ş., Anadolu Anonim Türk Sigorta Şirketi, Emek Sigorta A.Ş., Güneş Sigorta A.Ş., Koç Allianz Sigorta A.Ş., Toprak Sigorta A.Ş. and Yapı Kredi Sigorta A.Ş. authorized for export credit insurance branch.
Worldwide, the insurer that issues the policy within the scope of export credit insurance, the company that insures its receivables is called the insured, and the companies that are allocated a limit are called the buyer.
Companies that want to export and benefit from credit insurance for this purpose must first apply to companies that provide export credit insurance, and if it is deemed appropriate, they must sign a policy.
The exporter, whose insurance transaction is approved, must declare the trade names, tax numbers, addresses, trade registry numbers of the buyers to whom he has made forward sales after the issuance of the policy, information on how many days he has made sales, and which country he will sell to. The amount of goods to be sent in that year, the payment method and the warranty conditions should be reported precisely and he should be held responsible for the information he gave.
The insurance company requests this information because it is required to collect information and confirm its accuracy in order to analyze the buyers of the insured in accordance with the information in the form notified to it.
As a result of the examinations, the exporter who applies is allocated a limit in line with the work he will do.Some insurance companies do not work on buyers with a limit claim below certain amounts, which varies according to the sector in which the insurance company wants to operate.
In some cases, limits are not allocated to companies, this is generally due to negative situations that the company or individuals have made before. For example ; — bad check, — protested promissory note, — execution — such as foreclosure records, lack of equity, dissolution of the company, suspension of the company’s activities, bankruptcy of the company, entering the concordat process of the company…
If one of the above-mentioned situations occurs, the insurance company shares information with the insured as to why the buyer has not been allocated a limit, and also ensures that other insurance companies and banks are aware of the situation.
The WTO’s forecast of 4.7% growth in world merchandise trade for 2014 is below the average rate of 5.3% for the last 20 years (1993–2013) and also below the pre-crisis average rate of 6.0% for 1990–2008. The average rate of trade expansion in the three years since 2010 is 3.42%. Forecasts for 2014 and 2015, if correct, would raise the average to 4%, but this rate is insufficient to narrow the existing gap.
World merchandise trade is expected to post a 4.7% increase in 2014, with developed economies growing 3.6% and developing economies and the CIS advancing 6.4%. We expect that exports from Asia will grow faster than those from any other region (6.9%). Asia should be followed by North America (4.6%), South and Central America (4.4%), Europe (3.3%), and Other regions (3.1%), an aggregate that includes Africa, CIS and Middle East.
4.1 Export insurance ın turkey
Unfortunately, Turkey started to export and gain international brand value too late. While European and American companies were supplying products all over the world for a very long time, companies operating in Turkey could not open up to the outside.
One of the main reasons for this is the economic environment and the influence of the state on business activities.Export credit insurance companies in historical development; It is divided into privately owned enterprises and publicly supported and officially supported export organizations.
Export credit insurance is provided by 4 big companies in Turkey. One of them is the state-owned Turk Eximbank. EXIM stands for Export&Import.
Apart from the state-owned Türk Eximbank, there are three large private and foreign capital insurance companies operating in Turkey and providing export credit insurance services.
These are the insurance companies Euler Hermes, Coface and Atradius.
We will briefly talk about these three foreign companies.
Turkish Eximbank:
Türk Eximbank is a semi-state subsidiary institution that provides short, medium and long-term cash loan support to exporters in Turkey, manufacturers producing export-oriented goods and contractors operating abroad.
The first application of export credit insurance in our country to support exporters started in 1989, and has provided loans and insurance to countless exporters since the day it started to serve.
Türk Eximbank also provides support to exporting companies with insurance and guarantee programs. Besides, Türk Eximbank is rarely among the banks that offer loan and guarantee services under one roof.
-Continuing its activities to encourage and support exports, Türk Eximbank is an important institution for exporters.
- In 2017, the export of 15.04 billion dollars was covered by Turk Exim bank.
- Türk Eximbank’s export credit insurance support increased by 38% in 2017 compared to the previous year.
- In the said year, 99.7 billion USD of Turkey’s exports were realized as goods.
-Although the support given by Türk Eximbank alone is important; The support of other financial institutions is of great importance in order to collect the receivables without any problems.
-Coface is a French company founded in 1946.
-Coface was acquired in 2006 by Natixis, part of the BPCE Group, France’s second largest banking conglomerate.
-Coface entered the Turkish market in 1997.
-Coface and Garanti Sigorta A.Ş. A cooperation agreement between Turkey and Turkey was signed in 1998.
-Coface obtained the trade receivables insurance license from the Undersecretariat of Treasury in 2007 and became Coface Sigorta A.Ş. It became the first commercial receivables insurance company with foreign, private capital operating in Turkey.
-Atradius is a Dutch company.
-Atradius was established in the Netherlands in 1925 with the title of NCM.
-The company started its activities in order to increase the credibility volumes of the companies.
-With the merger of German credit insurance group Gerling-Konzern Speziale and Dutch credit insurance company NCM in 2001, its name was changed to GERLING NCM, which operates in the field of credit insurance and receivables management.
-Operating in more than 50 countries around the world in August 2003, Atradius’ annual consolidated turnover is around 1.6 Billion Euros.
-Atradius has been operating in Turkey since 2007.
-Hermes, founded in 1917 in Germany.
-Founded in France in 1927, SFAC.
-They came together in 2002 and founded Euler Hermes.
-Euler Hermes shares have been traded on the Paris Stock Exchange since 2000.
-Today, 63% of Euler Hermes’ shares are owned by Allianz.
-Allianz is one of the largest insurance companies in the world and actively carries out a large operation in our country.
-Euler Hermes is among the largest insurance companies with a consolidated turnover of 2.6 Billion Euros and a worldwide market share of 34%.
-Euler Hermes entered the Turkish market in cooperation with Koç & Allianz Insurance.
-The company provides services for insuring domestic and international receivables against commercial and political risks
Export credit insurance is one of the substantial tools to promote export in a country. The countries subject to the analysis are Turkey and Indonesia, Malaysia, Thailand also known as IMT Countries.
This chart, which shows the change in the export amounts of the world countries between 2008 and 2018, is actually a good example for us to see in which direction the balance of power has changed.
It is one of the most important explanations of today’s wealth that the states that are considered developed today started to work for export and import credits at the beginning of 1700.
At the same time, Turkey’s start of export credit program in 1989 with Exim Bank has had a very positive impact on our exports in the last 30 years. As a result of our observations, our country entered the export sector very late and could not benefit from the developments in this field for a long time. Considering the importance of exports for the country’s economy, this is a huge loss. It can be said that the prevalence of credit insurance usage in Turkey is still low compared to European countries because rival companies have dominated this conjecture for hundreds of years, but our country’s exporters have been serving in this sector for the last 30 years.
- As you can see in the chart below, in the years where there is no intermediary insurance company for exports, our foreign deficit increases every year and our exports do not meet our imports. This situation will return to our country as a foreign debt.
As you can see in the graph below, a more stable and positive graph has emerged as a result of the improved commercial environment after the post-2001 economic crisis, as well as the positive moves made for exports.
-As a result, the assurances and incentives to be given to exporters will increase our competitiveness in the medium and long term, while at the same time, it will be a solution to the foreign debt deficit.
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- TÜİK (2015) Dış Ticaret İstatistikleri, TÜİK Yayını, Ankara
- TURK EXIMBANK, 10th Year in Foreign Trade Finance (1987–1997), Ankara: Aksoy Printing, 1997
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- https://proqc.com/blog/closing-out-world-trade-month/
- https://www.visualcapitalist.com/giant-map-top-export-every-country/
