The US Department of Agriculture (USDA) is extending its support for the country's food producers by providing coverage for exports under sight letters of credit (L/Cs) without refinancing under the Commodity Credit Corporation's Export Credit Guarantee Programme (GSM-102).

The new facility responds to US food producers' urging USDA to make the GSM-102 programme more flexible.

Benefits for exporters

Payment guarantees under GSM-102 usually back credit terms of up to 18 months, with repayment terms negotiated between the buyer's and seller's banks.

The benefit for exporters using sight L/Cs without refinancing is that they are paid immediately once the commodity is shipped abroad and all documents are approved by the US and foreign banks.

Validity period

Under GSM-102, USDA essentially guarantees payments to exporters if all documents are in order and a foreign bank defaults on its obligations.

Because sight L/Cs may not stipulate a payment date, the new facility has arrangements to establish a validity period within 45 days after a shipment. If the foreign bank fails in its obligations after that period has elapsed it will be served with a default notice.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.