EFIC, as 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 export trade
- to encourage banks and other financial institutions in Australia to finance or assist in financing exports
- to manage the Development Import Finance Facility, 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 self funding and operates on a commercial basis, charging customers fees and premiums and earning interest on loans and investments, including the investment of its cash capital, reserves and working capital. The Commonwealth also guarantees our creditors the payment of all monies payable by EFIC. This guarantee has never been called. Regulations under the EFIC Act set upper limits on EFIC's aggregate liabilities under facilities, guarantees and insurance contracts that it may enter into on the Commercial Account, and EFIC operates within these limits.
EFIC's legislation provides for two distinct platforms from which Australian exports can be supported, the Commercial Account (under Part 4 of the EFIC Act) and the National Interest Account (under Part 5 of the EFIC Act).
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 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
- risks which EFIC considers are too high for it prudently to accept on its account
- transactions which would be commercially acceptable if EFIC did not already have significant exposures to a country or entity related to the transaction.