TRADE CREDIT INSURANCE

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TRADE CREDIT INSURANCE EXIM-BACKED
COLLATERAL-FREE TRADE FINANCING SCHEMES
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EXIM BANKS BRIEF HISTORY

Ministry of Finance
Ministry of Finance
Merger

• Exim Bank (established 1995) and MECIB
  (established 1978) merged on 30th December 2005
  -
• i) To achieve economies of scale and
• ii) To enhance the availability of trade
  finance and export insurance facilities.

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EXIM BANKS BRIEF HISTORY contd

• Merged entity retained the name of Exim Bank
• Expanded its scope of support to include export
  credit insurance while maintaining lending
  activities
• Paid-up capital of RM730.5 million (equivalent to
  USD202.9 million)
• Paid-up capital to be increased by RM2 billion
  soon

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CREDIT INSURANCE

• Insurance against losses arising from non-payment
  of trade debts due to commercial and/or political
  risks

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RISKS COVERED

• Commercial / Buyer Risks
• Buyers Insolvency
• Buyers Payment Default
• Non-acceptance of Goods

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RISKS COVERED

• Political Country Risks
• Transfer Risks
• Cancellation of import license, embargo
• Occurrence of war, revolution and civil disorder
• Default by state-owned entities
• Catastrophic risks, e.g nationwide disasters

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MAJOR FACILITIES EXPORT CREDIT INSURANCE

• Short-Term Cover
• Comprehensive Policy Shipment
• Comprehensive Policy Contract
• Medium Long-Term Cover
• Specific Policy
• Investment Insurance cover
• Conversion/transfer, war civil disturbance,
  expropriation/confiscation, breach of contract by
  host government

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Expanding Export Sales

• Selling more on credit

- to existing buyers - to new buyers - in
existing markets - in new or unfamiliar markets
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MERCHANTING TRADE COVER

• Effective July, 2006 Merchanting Trade Cover is
  made available
• Malaysian Company as principal exporter sourcing
  goods and/or services from a third country to an
  overseas buyer
• Malaysian exporter insured turnover with EXIM
  BANK must be made up of least 30 of Malaysian
  goods and/or services in a year

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Comprehensive Policy

• Covers exports of goods and services against
  risks of non payment for sales made on credit
  terms not exceeding 180 days.

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Specific Policy

• Intended for exporters of capital or semi-capital
  goods involving
• Supply and installation of plant and equipment
• Building of ships and specialised vessels
• Fabricating of steel structures

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Oversea Investment Insurance

• Protection to Malaysian investors investing
  abroad from loss due to political risk (war,
  expropriation or nationalization, transfer
  restrictions or inability to repatriate profits

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BENEFITS
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BENEFIT FINANCING ASSIGNMENT OF POLICY
(5) Payment of bill
EXPORTER
(1) Credit sale contract
BANK
BUYER
(4) Discount bill
(2) Comprehensive Policy Indemnity 90/95

• (3 5a)
• Assignment of comprehensive policy
• CLD Claims payment

(6) Recourse
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TAX BENEFIT

• Double Deduction Tax Relief for premium paid

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LAST BUT NOT LEAST

• Peace of mind

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DEFINITION OF SME

• National SME Development Council

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Snap-shot of SMEs in Malaysia(census taken in
2005)

• 99.2 or 518,996 of business establishments are
  SMEs
• 80 or 411,849 are micro enterprises
• Most in service sector, retail, restaurant
  wholesale businesses
• Total employment more than 3 million or 65.1
  of total workforce
• Generated RM154 billion value-added in 2003
• Contributed 47.3 to GDP

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Giving SMEs Better Access to Financing
BNM requires commercial banks to

• Establish a dedicated unit to deal with SME
  customers
• Set up Bumiputera Development Unit
• Establish a Complaints Unit
• A Client Charter on processing of loans to be
  displayed
• - Relevant docs info for loan submission
• - Eligibility criteria for obtaining loans
• - Duration taken to process a loan
  application
• - Give reasons for rejection

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THE NEW SME TRADE FINANCING SCHEMES (IMPLEMENTED
MID. 2006)
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Types
• Multi-Currency Trade Finance Facility (MCTF)
• Indirect Exporter Financing Scheme (IEFS)
• Characteristics
• SME (regardless of ownership)
• Market Driven (no subsidy on interest rate)
• No Tangible Collaterals
• Non-Recourse Features
• Multi-Currencies Lending
• Double Tax Deduction for Premium Paid
• Standard Credit Template
• Fast Turnaround Time

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PRODUCT DIFFERENTIATION
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• New Schemes vs. Conventional Facilities

Cost of conventional facilities 8 p.a. with
collateral Cost of MCTF lt 7 p.a. without
recourse/collateral Cost of IEFS lt 8 p.a.
without recourse/collateral
MCTF IEFS are cheaper WITHOUT COLLATERAL
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WHAT IS MULTI-CURRENCY TRADE FINANCE FACILITY
(MCTF)?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Trade finance facility provided by participating
  commercial banks to the SME exporters to finance
  the production of goods and/or rendering services
  against ILC issued by overseas Issuing Banks.

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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
Risk-Sharing Concept between EXIM COMMERCIAL
Bank
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PARTICIPATING BANKS
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
10 BANKS
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WHAT IS MULTI-CURRENCY TRADE FINANCE FACILITY OR
MCTF? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• What is the currency of Financing?
• Financing can be in any acceptable major currency
• e.g. USD, Euro, Yen, Pound Sterling, Singapore
  Dollar.

RM

S
US
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MARGIN PERIOD OF FINANCING
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Margin of Pre-shipment financing of up to 90.
• Margin of Post-shipment financing of up to 100
  of the export LC value relating to export of
  goods or services out of Malaysia.
• Pre-shipment financing period up to 120 days.
• Post-shipment financing period up to 180 days.

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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
Overview
Pre-Shipment MCTF Facility
Letter of credit
financing prior to shipment
MCTF
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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
Overview
Financing of Post-shipment MCTF Facility
Without recourse
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ILLUSTRATION 1 PREMIUM COST
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Issuing Bank Habib Bank, Pakistan
• ILC Amount USD100,000.00
• Margin of Financing 90 (pre-shipment)
• Maturity 45 days (pre-shipment)
• 90 days (post-shipment)
• Premium Payable Approx. 0.624 on ILC Value

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ILLUSTRATION 2 TOTAL FINANCING COST
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Issuing Bank Habib Bank, Pakistan
• ILC Amount USD100,000.00
• Margin of Financing 90 (pre) / 100 (post)
• Interest Rate 5.5 p.a.
• Maturity 45 days (pre-shipment)
• 90 days (post-shipment)
• Total Cost Approx. 2.6 on ILC Value

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WHO IS ELIGIBILE TO ENJOY MCTF?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
All business sectors
BASIC CRITERIA
Exporters
SME
Eligibility Criteria
Export on ILC terms
Co / Sole-Prop / Pship
gt 6 mths in op.
No adverse Credit Record
Export past 12 Mths 150 ILC
Exp. Key Personnel
Paid-Up gt RM50k
Annual Domestic Sales 5x
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IF ALL BASIC CRITERIA IS MET, WHAT IS NEXT?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• There are other criteria which you need to
  fulfill, such as
• Credit Record
• Interest Bearing Gearing
• Financial Records
• Management
• Credit Support

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WHAT ARE THE OTHER CRITERIA?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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WHAT ARE THE OTHER CRITERIA? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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WHAT ARE THE OTHER CRITERIA? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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WHAT ARE THE OTHER CRITERIA? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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WHAT ARE THE OTHER CRITERIA? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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WHAT ARE THE OTHER CRITERIA? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
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DOES ANY EXPORT ILC ELIGIBLE FOR FINANCING UNDER
MCTF?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• ILC issued by Issuing Banks in all countries are
  eligible except
• Afghanistan
• Rwanda
• Israel
• Iraq
• Serbia
• 1,500 Issuing Banks worldwide has been
  pre-approved by EXIM.
• Those outside the 1,500 banks, will be considered
  on case-by-case basis.

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NON-RECOURSE WILL NOT APPLY IF (PRE-SHIPMENT)
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Related company transactions between the Exporter
  and Supplier (either party holds more than 50
  shareholding of the other)
• Conditional export LCs where compliance of the LC
  hinges on LC Applicants performance (unless
  otherwise approved by EXIM)
• If any credit and/or advance is overdue prior to
  the date cover commences
• The Bank has agreed to replace or discharge
  guarantors
• The Bank takes without EXIMs prior written
  consent any further security other than what is
  allowed

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NON-RECOURSE WILL NOT APPLY IF (POST-SHIPMENT)
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• ILC issued by the Issuing Bank in an off-cover
  country
• Payment with recourse or reservation to the ILC
  beneficiary
• Non-compliance of ILC terms and conditions
• Non-fulfillment of the Credit Limit conditions
  imposed in respect of an ILC
• Loss arising from Banks negligence

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WHAT IS INDIRECT EXPORTER FINANCING SCHEME (IEFS)?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• IEFS is a without recourse financing scheme
  for Small and Medium Enterprises (SMEs) who are
  Indirect Exporters. Participating Commercial
  Banks (IEFS Bank) discount commercial documents
  on Open Account or Collection basis arising from
  supply of goods and/or services to Direct
  Exporters.

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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• The financing is against EXIM Banks Indirect
  Exporter Financing Policy (IEFP), which is a
  credit insurance policy issued by EXIM Bank
  covering the IEFS Bank for 90 of its loss.

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General Features of IEFS
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

No Collateral
Post Delivery Financing
Commercially Driven
IEFS
Risk Sharing
Promotes Exports
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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
SMEs

• Who is Eligible
• for IEFS

Manufacturers
Indirect Exporters
IEFS
Agricultural Producers
Trading Companies
Service Providers
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EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• What are the
• Benefits?

No Tangible Collateral
Competitive Financing Cost
Without Recourse
Fast Approval
Stamp Duty RM10
IEFS
Legal Cost 10 or RM500 whichever higher
Remove Receivable from Balance Sheet
Credit Into Cash
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AMOUNT OF FINANCING
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Up to 100 of Invoice Value
• Minimum RM10,000.00
• Maximum Subject to approved limits

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CURRENCY OF FINANCING
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Denominated in Ringgit Malaysia only

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PERIOD OF FINANCING
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• The period of financing is from the date of
  discount up to the maturity date for payment by
  the Direct Exporter
• Minimum 21 days
• Maximum 180 days

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COST OF FINANCING
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Interest rate _at_ Ringgit COF 2.00 p.a.
• (max)
• Insurance Premium less than 1.5 (max)

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EXIM BANKS INSURANCE PREMIUM TABLE
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
TENOR
BUYER RATING
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Example
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Amount of Financing RM250,000.00
• Tenor of Financing 75 days
• Ringgit Cost of Funds 3.90 p.a.
• Margin 2.00 p.a.
• Direct Exporter Rating B3
• Calculation of Cost of Financing-
• Interest RM250,000.00 x 5.9p.a. x 75 days
• RM3,030.82
• Insurance Premium-
• Premium RM250,000.00 x 0.425 1,062.32
• Therefore total cost RM4,093.32

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WILL ALL THE CREDIT LIMIT APPLIED ON EACH OF MY
DIRECT EXPORTER BE APPROVED?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• CREDIT LIMIT for each Direct Exporter will be
  approved by Exim, and not the IEFS Bank.
• This is subject to Exims internal credit
  underwriting procedures.
• Premium Rate will depend on risk rating assigned
  by Exim on each Direct Exporter.

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AM I ELIGIBLE TO APPLY FOR IEFS?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• Are you an SME?
• Are you selling to a Direct Exporter?
• Are your sales on credit terms?
• Are your sales on Open-Account or
• Collection Basis?

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DO I QUALIFY TO ENJOY IEFS? contd
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES
IF YOUR ANSWERS TO ALL THOSE QUESTIONS ARE YES,
YOU MAY QUALIFY FOR THE IEFS SCHEME
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NOW THAT I MIGHT BE QUALIFIED, CAN I NOW START
USING IEFS?
EXIM-BACKED COLLATERAL-FREE TRADE FINANCING
SCHEMES

• NOT YET, availability is subject to the
  following-

Approval by IEFS Bank
Approval by EXIM Bank
Utilization Allowed

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2
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SUPPLIER CREDIT FACILITY
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SUPPLIER CREDIT FACILITY

• Working capital/trade financing
• Direct financing for SMEs/Corporates
• Minimum collateral, order based financing
• 4. Up to 100 margin of financing
• Available to Malaysian exporters only

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THANK YOU