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EXIM Jamaica offers trade insurance to explorers of new markets

Published:Sunday | March 29, 2015 | 12:00 AM

EXIM Bank Jamaica is moving to double growth in its trade credit insurance portfolio with an offer of coverage for local producers as they enter into non-traditional markets including South America, chief officer for credit Charles Lewis indicated on Friday.

EXIM has also introduced receivables coverage for local buyers. It is offering all policyholders short-term working capital loans of up to 80 per cent of receivables value, with the policy as collateral, at rates which Lewis says are "much better than using overdraft facilities" with local commercial banks.

Just about 30 companies seek coverage for shipments made abroad, the credit officer said. EXIM is hoping to double this figure for 2015 and again in the coming year.

To this end, sensitisation sessions are being held with the Jamaica Exporters' Association, a body which has a listed membership of approximately 250 business operators.

Lewis said claims are payable 180 days after premium payments if a buyer does not pay for goods supplied by the policyholder by that date.

Reinsurance for the facility is secured from companies in Europe, he said. The bank has not had a claim in five years, which Lewis points out is a sign of the effectiveness of the due diligence checks conducted by the financing agency as part of the underwriting process.

The credit line and insurance product has been offered since 1986 when EXIM Jamaica was founded.

"The idea behind credit insurance is we are promoting export as a country because we need to earn foreign exchange. There are a number or risks attached to exporting, chief of which is non-payment by the buyer upon the receipt of goods," said Lewis.

"Largely, you are exporting on credit. To be competitive, you generally have to export on credit. What export credit insurance does is that it saves the exporter from worrying about non-payment. If the borrower does not pay, the insurance covers that risk," he adds.

The credit officer noted that as Jamaica moves away from traditional markets in the United Kingdom and the United States, and adds new partners in new markets, this risk increases.

"Where we are pushing insurance as an institution ... South America is an untapped market; there is a fair amount of growth in Brazil and Chile, and those places," he said.

Trade Credit Insurance, as outlined on the agency's website, covers both foreign and domestic receivables and insures against both commercial and political risks.

"Commercial risk is automatic, however, coverage of political risk attracts an additional premium," it says. The facility is available only to companies registered in Jamaica and gets 85 per cent coverage.

The types of commercial risks covered include non-payment as a result of bankruptcy/insolvency of buyer, the buyer's repudiation of the debt, or the buyer's protracted default. Coverage for political risk includes non-payment resulting from war or civil disturbance, exchange transfer, or cancellation of import/export licences. EXIM will shoulder 90 per cent of this risk.

Lewis said that the bank uses a composite rate covering commercial risk for both the export and domestic markets. The rate is determined by buyers' creditworthiness and country risk ratings.

Basic premium rates are in the range of 0.60 cents for every J$100 of invoice value of each shipment.

The agency's website notes that political cover attracts an additional rate that may range between J$0.03 and J$1.45 per J$100 of value.

Loans taken against the policy are repayable in 120 days at a maximum rate of 12 per cent per annum.