If you are an Israeli company that is thinking of exporting into new markets, Vietnam might seem like a risky choice. This is one in a series of articles where I will try to demonstrate that the Israeli government has actually made it risk-free for Israeli companies to do business with Vietnamese companies that qualify for loans under a Financial Protocol Agreement of 2007, 2011 (FPA).
In essence, the Israeli government recognizes that there are risks involved for companies who want to do business with Vietnam. It has a problems with its legal system and has opaque regulations. But, through the FPA, the Israeli government has sought to minimize these risks for exporters.
The FPA is Win-Win
In very clear language, if you own an Israeli company and do business in Vietnam with a company that has received a loan through the FPA process, the Israeli and Vietnamese governments have created a process that benefits both sides. The FPA says:
- To the Vietnamese – Up to $250 million in preferential loans for doing business with Israeli companies.
- To the Israeli – Your contracts with Vietnamese partners are guaranteed through the Israel Foreign Trade Risks Insurance Corporation Ltd., known as by the Hebrew acronym ASHR’A.
Israeli Exporters are Protected
The entire point of this post is that I want to really emphasize that the FPA sets up an institutional process where Israeli exporters are guaranteed to have their contracts fully ensured. This is the official process:
- The FPA includes signatures from the following Israeli Banks – Israel Discount Bank, BNP Paribas, Bank Hapoalim and Bank Leumi – and the Vietnamese Ministry of Finance (MOF)
- For each transaction the exporter and importer create a specific loan agreement is signed. Once signed is becomes guaranteed, as you can see in the image below, in Vietnam by the Ministry of Finance and in Israel it is guaranteed by ASHR’A. For the Israeli exporter, the most important point is that ASHR’A guarantees payment. If the Vietnamese purchaser cannot honor his contract ASHR’A will pay up to 100% if it is a wholly-owned Israeli firm.
- The actual deal is reached between the Israeli exporter and the Vietnamese importer.
- Once the partners receive official receipts of export documents by the Vietnamese buyer, the Vietnamese MOF sets up the loan.
- Once the Vietnamese MOF sets up the loan, the Israeli banks (see above) finance the exporter and cover the Vietnamese debts supported by the MOF.
- ASHR’A then covers the Israeli bank against non-repayment of the loan guaranteed by Vietnamese MOF.
- Min Israeli Content – 30%
- Min Israeli Goods and Services – 25%
- Max Profit & other expenses – 5%
- Goods – Made Entirely in Israel or Made In Israel = 100%, otherwise X%
- Services – above 75% = 100%, otherwise X%
- Declaration Form
- Down Payment – 15% of transaction amount
- Long Term Credit – 85% of transaction, Insured by ASHR’A:
- Option A: 8 years Repayment Period:
- 16 semi-annual repayments commencing on 6th month
- Floating Interest: Libor + 0.25% p.a.
- Option B: 10 years Repayment Period
- 20 semi-annual repayments commencing on 6th month
- Floating Interest: Libor + 0.35% p.a.
- Well-structured and prepared process, supported by financing facilities
- Enables the Israeli Exporters to offer long term credit with favorable terms to the Vietnamese Buyers
- Long term credit with financing terms
- Reduced risk mitigation premium
- Possibility for down payment financing
- Short timetable
- Allows the Vietnamese Buyer to benefit from Israeli goods and technologies in different sectors such as medical and health care, agricultural development, education, water treatment, energy, etc.
In other words, Israeli exporters are guaranteed payment on the loans.
FPA Credit Terms
Advantages of the Protocol for Israeli Exporters
Hoping to Increase Israel-VN Trade Relations
I write this blog because I am interested in increasing bilateral trade between Israel and Vietnam. I think many Israelis may not do business in Vietnam because they fear bad credit and unpaid contracts. The Israel-Vietnam Financial Trade Protocol of 2007, 2011 is designed specifically to protect Israeli exporters and encourage them to explore Vietnam’s full economic potential.
In terms of commerce, Israel is one of Vietnam’s major partners with bilateral trade volume swelling from US$ 375 million in 2011 to nearly US$ 1.7 billion in 2015. Prospects for co-operations have been seen in other fields such as investment, finance, services, science, technology and labor. Moreover, I believe and will discuss in future columns, that not only does Vietnam offer Israel a gateway to large investment opportunities, it also provides a way for exporters to penetrate the wider ASEAN market.