Untapped Potential: Export credit agencies, an insufficiently accessed source of funds

Export credit agencies, an insufficiently accessed source of funds

Globally, export credit agencies (ECAs) have played an integral role in financing infrastructure projects. In India, however, funding through this route has been less explored and not as resorted to by infrastructure developers, who have mostly relied on banks and non-banking financial companies for their debt requirements. There has been limited ECA activity in the country in the past, particularly after the downtrend in commodity and oil prices.

Some of the ECAs that have provided export cover to Indian infrastructure projects in the past are the United States Export Import [US Exim] Bank, Japan Bank for International Cooperation (JBIC), Germany-based KfW IPEX Bank, and Export Development Canada (EDC).

Spotlight on agencies US Exim Bank

The US Exim Bank has helped finance India’s purchase of US goods and services, including licensing technology, for a wide range of projects. While initially some of the biggest financing deals of the US Exim Bank have been in the oil and refinery (Reliance Industries Limited’s [RIL] refinery in Jamnagar, Gujarat) and aviation (Air India’s purchase of Boeing planes) sectors, the bank’s contribution to the power sector, particularly renewable energy, has been sizeable in the past few years.

Between 2011-12 and 2015-16, the US Exim Bank’s exposure to India peaked in 2012-13 and has been declining thereafter to reach $4.49 billion as of September 2016. India is currently the bank’s fourth largest market in terms of overall exposure, after Mexico, Saudi Arabia and China.


Over the years, JBIC has played a key role in supporting the business development of Japanese companies in India by cooperating with local financial institutions, offering various financial facilities and schemes for structuring projects, and performing the risk-assuming function. The agency has been active in the urban transport and power sectors in India.

A noteworthy move was the setting up of the Japan-India Make-in-India Special Finance Facility in 2015 to boost Japanese investment in the country. Under this, Nippon Export and Investment Insurance and JBIC will provide financial assistance of up to JPY 1.5 trillion.


The KfW IPEX Bank is another foreign institution playing an active role in offering financial packages in the infrastructure space, particularly in renewable energy. The bank, on behalf of the German Federal Ministry of Economic Cooperation and Development, has financed the construction of new power plants and the modernisation of existing ones. It has also provided financial support to developers importing equipment for airport, water and urban transport projects.

Being a strategic market for Canada, India has been partnering with Canadian companies for industrial expertise, equipment and technology for a number of years. EDC has been active in the country for more than 30 years and has a loan book of $4 billion as of 2016. In November 2016, Infrastructure Leasing and Financial Services (IL&FS) raised a Rs 3.4 billion rupee-denominated loan (masala loan) from EDC for its roads business, IL&FS Transportation Networks Limited. Earlier in 2014, RIL received a $500 million loan from EDC, the transaction being among the largest financing packages that EDC has ever extended in Asia. The ECA is now looking to increase the amount of financial assistance it offers Indian companies for their capital expenditures, whether the financing is for general corporate purposes or project finance purposes. Therefore, the agency is considering providing loans worth CAD 1.3 billion to businesses in India in 2017, and aims to increase the financing to CAD 1.5 billion by 2020. EDC had provided financing worth CAD 1.2 billion in 2016.

Shifting political dynamics

With the rising dominance of the BRICS (Brazil, Russia, India, China and South Africa) countries and the economic and financial powers shifting to the East, the world is witnessing a gradual decline of Western hegemony. A slew of factors is heralding the beginning of “easternisation”. China’s emergence as a key financier to Africa and Latin America cannot be ignored. It is vying with India and Japan in providing export credit to Southeast Asia and other developing nations in a bid to support its industries.

In recent decades, the global landscape of state-backed export credit has changed dramatically due to a surge in export credit provision by the BRICS countries. Between 2000 and 2014, they increased their official export financing from less than 3 per cent to 40 per cent of the world total. Most of this increase has come from China, which is now the world’s largest export credit provider. Although smaller in scale, other emerging economies are also using export financing strategically in key sectors – such as Brazil in construction, Russia in nuclear energy, and India in transportation and energy.

Moreover, amidst the global economic slowdown, countries in the West are laying emphasis on strengthening their own macroeconomic fundamentals, particularly after Brexit and with Euroscepticism on the rise in France, Greece and other member states of the European Union.


Though ECA funding has been an inadequately tapped avenue in India, its reach could be expanded by tailoring products specifically for smaller exporters and transaction sizes. Banks can stimulate the ECA market by extending greater credit to second-tier importers in smaller-sized transactions. Moreover, commodity and oil prices that have been declining are now bottoming out, and this is expected to improve the global trade scenario and bolster revenues of oil exporting countries.

China-led Asian Infrastructure Investment Bank and the BRICS’ New Development Bank will provide further avenues for the use of export credit to forge strategic ties with other countries. The new-found financial power of the BRICS countries, especially China, highlights both the challenges of multilateral cooperation amid current power shifts and growing multipolarity. For many countries, government-supported export credit is a core part of their industrial policy and national export strategies. Therefore, in the Indian context, a lot depends on how the country maintains political camaraderie with other nations such as Bangladesh and Nepal. Meanwhile, the opening up of Myanmar’s economy, and infrastructure push by Indonesia, the Philippines and Vietnam have made them favourable investment destinations, thereby providing an opportunity to India to expand export finance to these countries.