EXIM bank is a short form for an export-import bank that provides financial services to facilitate trade activities between different countries.
The goal of such financial institutions is to equip companies with financial capabilities to generate global sales. As such, they are usually initiated by and reports to government agencies.
The big picture is that the more a country exports it’s products, the more revenue it makes and the more the country enhances itself as a global brand. This can have ripple down effects on the overall success of the nation.
For example, it can attract more tourists to the country, make global supply chain more open to doing business with other companies in the foreign country, help local companies from new markets, etc.
For instance, the export of K-Pop entertainment is one big reason that Korea has become a top holiday destination of travellers in the last 2 decades.
The role of EXIM banks is usually to help companies obtain financing for trade when they are unable to obtain them from regular lenders such as private banks.
If a business has overseas customers, it would be an opportunity cost to no conduct business dealings with them just because of a lack of financial facilities.
And because these are government-linked enterprises, they usually come with low interest rates.
But the drawback is that they might require terms relating to oversight, and approval might be quite a hassle and take more time that traditional banks usually take.
It should be noted that EXIM banks are evolving and resemble more and more like private banks these days.
EXIM banks play a prominent role in major economies such as:
The types of financing they provide to small and medium enterprises include:
- Trade facilities
- Credit lines
- Working capital term loans
Why governments get involved in trade financing?
The more a country exports to other nations, the more likely they are to generate a trade surplus against them.
This trade surplus can often result in the value of the export nation’ currency appreciating against the import nation.
This makes it cheaper for the export nation to import more products. Which can bring demand and supply back to equilibrium.
The theoretical end result is that all nations would prosper together in a win-win situation.
However, whether these theories play out in reality is up to debate.
Ultimately, the goal is to reap economic benefits for the local economy with foreign trade.
Also, the more a country is dependent on the supply of particular products from another country, the more the supplying country can have a strategic leverage in international relations.
For example, if a nation is fully dependent on the supply of energy from a neighboring country, then it could be susceptible to being bullied in trade and other areas.