C - SMIVsInsurance of Medium- and Long-term Export Supplier Credit Covering Default Risk

Case Study:

Sole trader Jan Kladívko comes home from an exhibition in Azerbaijan with the success of having found a new customer wishing to purchase nails and other materials for 20 million crowns, provided that there is a 30-month payment window for goods supplied. While this is a huge triumph for Mr Kladívko, it comes with risks attached. What if the new customer doesn’t pay for the nails? For Czech sole traders, a twenty-million-crown default could put them out of business. Because he is a sensible type, he takes the contract he has signed with the importer to EGAP. EGAP requires an upfront payment of at least 15% of the total value of the export from the Ukrainian importer. EGAP runs a solvency test on the Ukrainian importer and, if the result is favourable, enters into an insurance contract with Mr Kladívko. If the importer pays on time, everything is all right and the insurance contract ends. However, if the importer defaults, Mr Kladívko receives his money from EGAP instead.

Product description:

The export supplier's credit is a credit provided by the exporter to the importer (foreign entity) in the form of deferral of payment for the delivered goods or services (export claim).

Podmínky pojištění se řídí pravidly Konsensu OECD. The maturity of the middle-term and long-term export supplier's credit (export claim) is longer than 2 years and the importer shall pay in advance (advance payment) minimally 15 % of the total export value (price agreed in the export contract). The export supplier's credit has not a character of a bank credit. The insured entity is directly the exporter against the risk that the importer does not pay in the due date properly the whole owing sum, i.e. the price for the delivered goods and services (export claim).

• The maximum credit amount is 85% of the total value of the export1
• The insured credit/receivable is payable in 2 years or longer, up to a maximum of 5 years
• The maximum amount of the credit/receivable is CZK 50,000,000
• The evaluation of export influence on the life and social environment
• The exporter (unless a foreign company) is an exporter meeting the definition set out in Act No. 58/1995
• The exporter is not the subject of criminal prosecution, and is not a liable party in the enforcement of a ruling, in enforcement proceedings or in insolvency proceedings
• The debtor (importer) and the exporter are not interlinked economically or financially
• The export, the country of destination of the export, and the entities involved are not subject to international sanctions
• The share of the value of supplies originating in the Czech Republic in the export value – rules you can find here,
• The share of Local Costs does not exceed 40% of the Export Contract Value for category I countries, and 50% of the Export Contract Value for category II countries 2