USDA Credit Guarantees for Commercial Financing of US Ag Exports

The US Department of Agriculture’s Export Credit Guarantee Program (GSM-102) helps ensure that credit is available to finance commercial exports of US agricultural products, while providing competitive credit terms to buyers. By reducing financial risk to lenders, credit guarantees encourage exports to buyers in countries—mainly developing countries— where credit is necessary to maintain or increase US sales, but where financing may not be available without such guarantees.

The GSM-102 program underwrites credit extended by the private banking sector in the United States (or, less commonly, by the US exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit for purchases of US food and agricultural products by foreign buyers. USDA’s Foreign Agricultural Service (FAS) administers the program on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees. GSM-102 covers credit terms of up to three years. The CCC guarantees payments due from approved foreign banks to exporters or financial institutions in the United States.

The financing must be obtained through normal commercial sources. Typically, 98 per cent of principal and a portion of interest are covered by a guarantee. Because payment is guaranteed, financial institutions in the United States can offer competitive credit terms to the foreign banks, usually with interest rates based on the London Inter-Bank Offered Rate, or LIBOR. Any follow-on credit arrangements between the foreign bank and the importer are negotiated separately and are not covered by the CCC guarantee.

The CCC selects agricultural commodities and products according to market potential and eligibility based on applicable legislative and regulatory requirements.

The fee structure for the GSM-102 program uses risk-based approach to determine the fee to cover an export credit guarantee for a specific transaction in a particular country or with a specific multilateral institution. The GSM-102 fee schedule, which contains fee rates by risk category,tenor, and repayment frequency, can be found here.

Maximum credit period for these are 36 months, principal repayments plus the accrued interest are due at 6 month intervals. Exporters’ contractual arrangements must call for exports within 90 days of the date of registration or by 30 November 2009, whichever is earlier.

Eurasian Region: Armenia, Azerbaijan, Ukraine, Georgia, Kazakhstan, Mongolia, Russia and Uzbekistan.

Source: USDA/Foreign Agricultural Service http://www.fas.usda.gov/

Further Reading

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