1.

Malaysia EXIM Bank Insurance Products for Investment

Export-Import Bank of Malaysia Berhad (EXIM Bank) was incorporated on 29 August 1995 as a
government owned development financial institution through a wholly owned subsidiary of the
Minister of Finance Incorporated. The Bank was established to promote reverse investment and
export of strategic sectors such as capital goods, infrastructure projects, shipping, value added
manufactured products and to facilitate the entry of Malaysian companies to new markets,
particularly to the non-traditional markets.
One of the products that EXIM Bank of Malaysia Offer is Credit Insurance for exporters and to
protect them from risks involved in their business (commercial, economic and political). Credit
Insurance is an insurance policy that covers non-payment resulting from the delivery of goods
or services due to commercial and/or politics risks. The insurance is purchased by business
entities to insure their accounts receivable from losses due to the insolvency of the overseas
buyer.
EXIM Banks credit insurance products over your non-payment against the following risks:
Commercial Risk - up to 90%

Insolvency of your Buyer or Issuing Bank

Payment default by your Buyer or Issuing
Bank
Non-Acceptance of goods

Political & Country Risk up to 95%

Transfer risk
Occurrence of war, revolution and civil
disorder
Default by public buyer (government
owned)

EXIM Bank offers you both short-term and medium/long-term credit insurance:

Short-Term Credit Insurance

Coverage up to a maximum of one (1) year

Medium/Long-term
Coverage up to a maximum of 15 years

Since the subject of matters in Article 8, subsection C of Indonesia EXIM Bank Regulation by
Government 2009, regarding Assurance in Investment, that does not exist in Indonesia EXIM
Bank yet, there will be more to discuss in medium/long-term products of EXIM Bank of
Malaysia and apply them as a benchmarking. In addition, Medium/Long-term products that
involve with Assurance in Investment:

Overseas Investment Insurance

Specific Policy (Contracts / Constructional Works / Services)
Buyer Credit Guarantee

Specific Policy (Contracts / Constructional

Works / Services)
In specific policy, it insures Malaysian exporters who undertake contracts for export of capital
goods, or turnkey project, or construction works, or rendering services abroad, against the risk
of non-payment by the overseas buyer.
Examples of contracts eligible for cover are:

Supply and installation of plant and equipment

Building of ships and specialized vessels
Fabricating of steel structures

Such contracts usually:

Are non-repetitive in nature

Are a one-off project
Are lengthy in terms of manufacturing period
May have a substantial element of on-site work
Involve medium/long-term credits or deferred credit payment terms

The Specific Policy applies to individual contracts and provides coverage either from the date of
contract or from the date of shipment. During the pre-shipment period, the exporter is covered
against loss due to the insolvency of the buyer or frustration of the contract from causes
beyond his control and that of his buyer. Whereas, after the shipment, he is covered against
loss caused by non-receipt of payments due to any of the following risks:
Commercial Risks

Economic Risks

Insolvency of the
buyer;
Failure of the
buyer to pay
within six months
after the due date
for goods
delivered to and
accepted by him.

Blockage or
delay in the
transfer of
payments to
Malaysia;
Imposition of
import
restrictions or
the cancellation
of valid import
licenses.

Political Risks

War;
Revolution or
other similar
civil
disturbances in
the buyers
country.

Unforeseeable
Events

Any other causes

of loss occurring
outside Malaysia,
which are beyond
the control of
either the exporter
or the buyer.

Where EXIM Bank is satisfied that the buyer is a Foreign Government, or that the contract has
been guaranteed by a Foreign Government and normal legal redress is not possible, EXIM Bank
will substitute for commercial risks, the risks repudiation of contract and failure or refusal to
pay. Based on the lower amount of loss or gross invoice value:

Commercial Risk 90%

Non-commercial Risk 95%

However, in order to get the assurance from EXIM Bank of Malaysia, there are some fees that
need to be done, one of it is premium. Premium rates primarily depend on EXIM Bank's grading
of the market with which the business is done and terms of payment. In general, the premium
is dependent on market risk and credit terms.
Causes of Loss
Buyers Insolvency

Date of Ascertainment of Loss

Immediately

Default in Payment

6 months due date of payment

Non-acceptance of goods

1 month after goods are resold

Transfer Delay

4 months after buyer deposited payment

in selected currency

Others

4 months after date of occurrence

Overseas Investment Insurance

Nowadays we can see that the trend of investing that has been done by several big company in
Malaysia in the emerging market economies has been gaining momentum among Malaysian
entrepreneurs. For example, the CEO and Owner of Air Asia, Tony Fernandes, setting up
terminal 3 in Indonesia and their plan to move their HQ to Indonesia for a long term. In
addition, it is not only in emerging market, for instance Sime Derby sdn bhd., a Malaysian
Construction company has been investing in UK in these recent years. As an investor, they are
capable of evaluating the commercial aspects of doing business overseas. However, in securing
their future success, they need to feel a peace in mind if they have to move there since it
involves country risks and commercial risk of this emerging market, they may be hesitant to
commit their capital to a project especially if you perceive the long-term political stability in the
host country to be uncertain. Hence, in order to overcome your hesitation and allay your fears,
EXIM Banks Overseas Investment Insurance (OII) or known as Political Risk Insurance
programme can help to protect your investment and consequently your profits. Investments
that are eligible for coverage include:

Equity
Shareholder Loans
Shareholder Guarantees
Commercial Bank Loans
Movable Assets

EXIM Bank's Political Risk Insurance programme covers up to 90% of your losses due to the
following risks:
Transfer Restriction
Protects your losses
arising from the inability
to convert for instance,
dividends, profits, loan
repayments received in
local currency due to:

Excessive delays
Changes in law or
regulation
Lack of foreign
exchange

Expropriation
Protects your losses
due to actions
depriving an investor
of ownership or
control due to:

Direct
expropriation
Creeping
expropriation

War and Civil

Disturbance

Breach of Contract

Protects a
Concession Holder
Protect your losses
stemming from physical against losses
damage to tangible assets arising from
repudiation or
or substantial
interruption of business breach of contract
by host
due to:
government
War
authority. Cover
Revolution
can be considered
on case by case
basis.

Claims Payable
EXIM Bank will compensate you as follows:

For Transfer Restriction

Up to 6 months after attempt to convert or transfer local currency
For Expropriation
Up to 4 months after the expiry of 12 months from the onset of the expropriation
action.
For War and Civil Disturbance
Up to 4 months upon proof of damage to physical assets or up to 4 months from the
expiry
12 months after the project enterprise has been put out of operation.
For Breach of Contract
At least 2 years must elapse from the initiation of a legal proceeding by you or a final
decision by the judicial or arbitral forum, as the case may be.
Recoveries
In general, recoveries received by EXIM Bank in excess of the amount or claims paid and
expenses incurred shall be refunded to you.

However, there are some costs that the company needs to cover
1) Premium
A premium is charged annually on the Current Amount and the Standby Amount on a
case to case basis depending on the project risk profile and country risk.
2) Handling fee
A one-time handling fee of up to RM 1,000.00 is charged at the time of submitting the
Definitive Application
3) Minimum Premium
When you terminate your guarantee within a period of 3 years, a minimum premium is
payable.

Buyer Credit Guarantee

Overseas buyer rarely want to pay in cash for major transactions involving projects of high
value capital goods and services, for example, infrastructure projects or Engineering
Procurement Construction (EPC) contracts. Conversely, few exporters can cope with cash flow
consequences or the risks of extending long-term credit for these contracts.
Malaysian exporters can overcome those problems by helping the overseas buyer to secure a
long-term financing with a lender using the Buyer Credit Guarantee programme. With this
programme, the Malaysian exporter is paid as if he has a cash contract, whilst the overseas
buyer has time to pay the contract through the financing secured from the lender, which is
backed by EXIM Banks guarantee.
EXIM Banks guarantee is unconditional and irrevocable in which the lending bank is guaranteed
repayment of principle and an interest due to it under the loan. If the borrower/buyer fails to
pay any installment in full or any interest/profit due, EXIM Bank pays the bank between 3 and 6
months after the date on which the borrower was due to pay.

Eligibility Criteria
To be eligible for EXIM Banks Buyer Credit Guarantee programme, 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 minimum repayment period is 15 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 down payment prior to the start of the
start of the credit period. Nevertheless, for public buyers, 100% financing is allowed.
The commercial contract must have a minimum Malaysian content of 30% in the form of
goods and services.

Disbursement of Financing Facility.

Under the Buyer Credit Guarantee programme, disbursement is made directly to the exporter
in accordance with the supply contract.

What is the Premium Rate?

Premium rate primarily depend on EXIM Banks grading of the market with which the business
in done and terms of payment. In general, the premium is dependent on market risk and credit
terms.

Recourse
If the exporter fails to perform under the contract there is an increased risk that the buyer will
not service or repay the financing facility granted by the lender. EXIM Bank will be liable to pay
the bank for any borrower/buyers 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
resources 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 landing bank.
EXIM Bank needs to be satisfied that the exporter will be able to meet any resources demand,
which may be made. The lending bank or major subcontractor may be required to join the
exporters recourse obligation.

2. Advantage and Disadvantage of the Products

Benefits of Medium/Long-Term Credit Insurance

Provide indemnity of loss up to 90-95%: Reducing default risk that can arise from the
uncertainty in the future.
Enable to venture into new and unfamiliar markets: Exporter that has already reach success in
domestic level, might think to broaden their business by venturing to new market. However
since the commercial and country risks are involved here, they need a vehicle to secure their
income.
Provide credit management services to our policyholder on screening of buyers/clients leading
to fewer late payments
Provide assistance in debt recovery: The reduction of default risk is the most obvious advantage
of carrying an Export Credit Insurance policy, and it is the primary reason businesses purchase
and maintain this type of coverage.
Financial security in good and bad times: By going overseas and cross the border of nation in
doing business, even though they have research their target market, there are a lot of
uncertainty that can occurred in the market. For example Libya Crisis and Egypt, people do not
know that such crisis can affect some stock markets in the world, hence affect the economy as a
macro in a country.
Peace of mind and confidence in expending business overseas: exporters are able to conduct
their businesses without worrying about the risk of non-payments, also economical and political
risk of the country.

Disadvantage of Medium/Long-Term Credit Insurance

Inconsistent premiums: Most policies contain mandatory premiums that increase in due course.
For an insured on a budget, who desires to buy coverage adequate to profit his relations upon
his decease, this policy can be quite costly. The unstable inflation guarantees a steep climb.
Deduction of funds: While policies include conditions in which shares from cash accounts can be
used to disburse premiums, such a request practically always results in deducting funds from the
cash value / investment account.
Insufficient funds: There is a lack of assurance that ample finance will be accessible to cover
unpaid premiums when the policyholder holds inadequate funds.
Expiration of term insurance: This kind of insurance in not permanent; it is either for a fixed
number of years or until a certain age. On completion of the term or when the insured reaches a
certain age the policy expires compelling them to qualify for another insurance program, which
may require higher premium depending on the age and other factors.
Language of premium: It is usually difficult to resolve precisely how costly commissions truly
are. The cost is commonly concealed within the fine print of the terms and conditions, and it is
normally explained in language that is complex for someone who is unfamiliar to insurance
policies

3. Reinsurance Scheme
Almost all insurance companies have a reinsurance program. The objective & goal of that
program is to reduce their exposure to loss by passing part of the risk to loss to a reinsurer or a
group of reinsurers. In practice, Malaysia EXIM Bank using reinsurance scheme in order to
reduce their exposure of insurance risk in investment, by combining several Insurance
Companies that are mainly Reinsurers in Member Countries of the Organization of the Islamic
Conference and of the Arab Investment & Export Credit Guarantee Corporation (Dhaman)
known as Aman Union.
With the total members of 17 Full Membership, 1 Associate Membership and 4 Observer
Membership, Aman Union acts to raise the technical performance, knowledge and capacities of
its Members to the utmost advanced levels of commercial and non-commercial insurance
practices in the world that in return will contribute to the development of the economies of
Member Countries. Aman Union is committed to perform commercial and non-commercial risk
insurance activities in total respect of human values and business ethics.
The objective of Aman Union is to aims at promoting and developing the commercial and non
commercial risks insurance industry in Member Countries and strengthening the mutual
relationships among members through a range of activities of which we list:

Development of established National Export Credit Agencies and creation of new ones in
Member Countries.
Encouragement of exchange of information, technical assistance, expertise and consultation
among Members.
Development of credit information agencies as well as development of debt-collection agencies,
training centers and other institutions that contribute to the progress of export credit insurance
industry in Members Countries.
Carrying out studies and research, issuance of bulletins and publications and, organization of
forums and conferences relevant to the union purposes.