Loan facility provided to an exporter by a bank in the exporter’s country. Export credit agencies (ECAs) provide three basic functions.
- They help exporters meet officially supported foreign credit competition. (When foreign governments subsidize their companies’ exports by offering buyers below-market, fixed-rate financings, exporters often find it difficult to offer financing that matches those subsidized rates.)
- ECAs provide financing to foreign buyers when private lenders cannot or will not finance those export sales, even with the risks removed.
- ECAs assume risks beyond those that can be assumed by private lenders. ECAs do not compete with private financial institutions. To the contrary, they enhance the ability of their country’s lenders to compete internationally. It should also be noted that they do not offer development assistance to other countries; other agencies typically fulfill this role.
Interest rates on export credits have been subject to a ceiling with a view to encouraging exports from India. These rates have been uniformly lower than those applicable to domestic creditors. Term credits and those of deferred payments arrangements are kept still further lower.
In India, many of these interest rates are fixed by the government. The banks’ deposits and lending rates and those of financial institutions are fixed by the RBI, while the rates on P.O. instruments, PSU bonds and those on government securities are all fixed in consultation with the RBI.
The rationale of regulating interest rates in India is as follows:
- It keeps the interest cost low for the government borrowings and their investment.
- It promotes the socio-economic objectives of providing cheaper finance to weaker section and priority sectors of the economy.
International interest Rates
The rate of interest may vary from country to country due to differing rates of inflation, government policies and regulations, foreign exchange rates etc.
