Export credit agencies use the following methods to
provide funds, loans and insurance to a domestic company for its international
activities:-
(1) Direct Lending
– Various multilateral export credit agencies like Asia – Asian Development
Bank, lends money directly to the domestic organisation (importing entity) in
absence of any financial intermediary. Based on the credit rating agencies
preferably Standard & Poor’s, Moody’s or Fitch Group which categorizes
countries to be stable or not to repay its bond obligation.
(2) Financial Intermediary Loans
– In this method import – export bank like ECG (Export Credit Guarantee
Corporation of India) provide funds to a commercial bank of that country and
later channelizes the money to the deficit company. This converts the risky
investment into relatively risk – free ones because the risk is spread
among multiple borrowers.
(3) Interest rate equilization
– the borrower company gets a loan at below market interest rates from a
commercial lender and the difference of rate compared with the commercial rate is
compensated from the export credit agencies.
2 comments:
It will be a huge blow for India if S&P downgrade our rating to junk. This looks pretty probable though, looking at the downward spiral the economy is in. As open as the government is to direct lending, very few foreign entities are going to want to do business with us if we're rated BBB+ and direct lending will take a huge hit.
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