EFIC is Australia's export credit agency and has performed its role within various statutory frameworks since 1957. EFIC was established in its current form on 1 November 1991 under the Export Finance and Insurance Corporation Act 1991 (Cth) ("EFIC Act") as a statutory corporation wholly owned by the Commonwealth of Australia.
Under the EFIC Act, EFIC has four key functions:
- to facilitate and encourage Australian export trade by providing insurance and financial services and products to persons involved directly or indirectly in such trade
- to encourage banks and other financial institutions in Australia to finance or assist in financing exports
- to manage the Australian Government's aid supported mixed credit program (a facility which has now been discontinued, although loans are still outstanding under it)
- to provide information and advice regarding insurance and financial arrangements to support Australian exports.
EFIC is a self-funding organisation operating in accordance with commercial principles. We operate primarily in that part of the market that is not served by the private market - the ‘market gap’. The market gap mandate has been formalised in the Statement of Expectations issued by the Minister for Trade and Competitiveness and is defined as the segment of the credit and insurances services market where the capacity of commercial sector financiers and/or insurers is limited or insufficient to support the needs of Australian exporters and investors. Our role is to complement, not compete with, private financiers and insurers.
EFIC's obligations to third parties are guaranteed by the Commonwealth of Australia. This guarantee has never been called. EFIC attributes this success to the strong risk management framework that it has implemented for identifying, evaluating and managing risk.
EFIC's legislation provides for two distinct platforms from which Australian exports can be supported.
In the case of the Commercial Account, the risks underwritten are carried by EFIC as a corporation. Premiums and other fees are retained by EFIC and any losses are borne from EFIC's accumulated capital and reserves.
National Interest Account
In the case of the National Interest Account, the Minister for Trade and Competitiveness can direct EFIC to enter into a facility, or give approval for EFIC to enter into a facility, if the Minister believes that it is in the 'national interest' to do so. If a transaction is written on the National Interest Account, the Commonwealth receives the net income from EFIC and must reimburse EFIC for any losses.
National interest transactions tend to involve:
- financial commitments which are too large for EFIC's balance sheet; or
- risks which EFIC considers are too high for it prudently to accept on its Commercial Account; or
- transactions which would be commercially acceptable if EFIC did not already have significant exposures to a country or entity.