Overseas buyers rarely want to pay in cash for major transactions involving projects of high value capital goods and services. Conversely, few exporters can cope with cashflow consequences or the risks of extending long term credit for these contracts.

These problems can be overcome with a EXIM Bank Buyer Credit Guarantee, which benefits all parties involved. The Malaysian exporter is paid as if he has a cash contract. His buyer has time to pay and can borrow to finance the contract. EXIM Bank guarantees the Malaysian lending bank both full repayment of the loan and reasonable return on its fund.

EXIM BANK BUYER CREDIT GUARANTEE

EXIM Bank’s guarantee is unconditional and irrevocable in which the lending bank is guaranteed repayment of the principal and any interest due to it under loan.

If the borrower/buyer fails to pay any installment in full or any interest due, EXIM Bank pays the bank between 3 and 6 months after the date on which the borrower was due to pay. EXIM Bank will also pay interest on the defaulted amount for the period the bank has to wait for its payment.

Eligibility Criteria

To be eligible for a EXIM Bank Buyer Credit Guarantee, the following criteria must be met: -

• The loan must be in support of a cash contract with minimum value of RM2 million or the foreign currency equivalent.
• The credit or repayment period must be appropriate to the contract concerned which should be at least 2 years and the maximum repayment period allowed is 10 years.
• The lending bank can finance up to 85% of the contract value, while the balance must be paid directly by the buyer to the exporter as downpayment prior to the start of the credit period.
• The commercial contract must have a minimum Malaysian content of 30% in the form of goods and services.

Payment from the loan

Under a buyer credit loan, disbursement is made directly to the exporter in accordance with the supply contract.

Premium

Premium is the responsibility of the exporter because the exporter is the real beneficiary of EXIM Bank Buyer Credit Guarantee, and of course, he should built it into his contract price. The premium is usually payable on signature of the premium agreement, but for larger contracts, it can be paid in installments.

Premium is calculated as a percentage of EXIM Bank’s Maximum Guaranteed Amount which is made up of the whole of the principal value of the loan and an allowance for any delay interest which EXIM Bank may have to pay the bank on the 3 months claims waiting period.

The premium percentage varies with factors such as the buyer’s country and the loan period. Besides the premium, there shall be a minimum administration fee of RM1,000.00 which is not refundable in any event, even the loan does not become effective.

Recourse

If the exporter fails to perform under the contract there is an increased risk that the buyer will not repay the loan. EXIM Bank will be liable to pay the bank for any borrower/buyer’s default.

However, it is not intended that EXIM Bank should suffer loss where the exporter is in breach of the terms of his contract or the premium agreement. EXIM Bank therefore has the right to take recourse to the exporter in such circumstances. This means EXIM Bank can claim from the exporter some or all of the money paid by EXIM Bank to the bank.

EXIM Bank needs to be satisfied that the exporter will be able to meet any recourse demand, which may be made. Occasionally, a bank or major subcontractor may be required to join the exporter’s recourse obligation.