Many exporters remain unfamiliar with export credit insurance two years after the government introduced it, according to the Vietnam Insurance Association.
Cash-in-advance and letters of credit are no longer competitive in the international marketplace, said Phung Dac Loc, the association’s general secretary and buying on credit was a common trend nowadays, especially in developing countries where importers usually had limited access to capital.
Export credit insurance would boost the country’s exports and help exporters reduce their risk, he said.
“Banks will provide loans to exporters without demanding collateral if they have export credit insurance, thus improving their borrowing capacity,” he said.
But despite these advantages, Vietnamese businesses were not keen on it, he told a conference in HCM City yesterday.
The total premium paid for the insurance last year was only VND1.3 billion (US$62,200), or just 0.1 per cent of the country’s total exports. The government targets a rate of 3 per cent next year.
Businesses on the other hand said they did not need coverage because they have managed smoothly without the insurance, with some also worrying about the high cost of the insurance and its effect on their margins.
Loc said in the current situation, when most companies have high inventories, they should get export credit insurance and explore new markets.
Seven insurance companies are part of the government’s two-year-old pilot programme – Bao Viet, PetroVietnam Insurance, Bao Minh Joint Stock Corporation, Bao Viet Tokio Marine, QBE Vietnam, Chartis Vietnam, and United Insurance Co.
Exporters of two groups of products featuring 23 items – including seafood, rice, coffee, fruits and vegetables, rubber, pepper, cashew nut, tea, garment and textile, footwear, electronics and computer components, ceramics, glass, iron and steel products, machinery and transport vehicles – are encouraged to apply for the insurance.
Nguyen Hong Ha, deputy general director of the Vietnam Chamber of Commerce and Industry’s HCM City office, said Vietnamese exporters faced high risk of losses since foreign buyers transfered money only after receiving shipments.
“Thus, even if it means lower profit margins, buying export credit insurance is imperative,” she said.