Export credit agency to cover trade loans made to e-commerce SMEs

Hong Kong Export Credit Insurance Corporation (HKECIC) launched its first trade credit insurance cover based on alternative data underwriting in a bid to support cross-border e-commerce trade.

Cross-border e-commerce trade has been growing tremendously worldwide in the past decade, largely fueled by technological advancements and changing consumer behaviour. The outbreak of COVID-19 significantly accelerated the trend. The global B2C cross-border e-commerce market was estimated at approximately USD 4.8 trillion in 2023 in terms of Gross Merchandise Volume (GMV) according to recent market research, and projections suggest this figure could soar to around USD 7.7 trillion by 2028. Hong Kong has also witnessed remarkable growth in cross-border e-commerce. Its strategic location as a gateway to Mainland China and as a “super-connector” bridging the Mainland and global markets, alongside its robust infrastructure, have positioned it as a key hub for digital commerce.

Supporting SMES with financing for cross-border e-commerce

This presents a great opportunity for small and medium-sized enterprises (SMEs) in Hong Kong to explore and expand into international markets. However, these SMEs often struggle to secure financing or working capital from traditional financial institutions to support their cross-border e-commerce ventures. This is due to established lending criteria, lack of collateral, and insufficient credit history, among other factors. To assist these SMEs with securing financing and to bolster the development of cross-border e-commerce trade, HKECIC has partnered with reinsurer SCOR to launch market-first insurance cover for the trade loan portfolio granted by a fintech start-up, FundPark, for Hong Kong-based e-commerce businesses in 2024. FundPark has developed a digital platform to provide funding solutions to cross-border merchants with over USD 2 billion in disbursements since its inception in 2016.

This new insurance solution introduces export credit cover to the ecosystem of cross-border e-commerce financing with the aim of establishing a more sustainable and risk-mitigated financing environment that caters to the needs of SMEs in the digital age, where real-time responses are required. The collaboration combines HKECIC's innovative insurance cover, SCOR's expertise in algorithmic underwriting, and FundPark's data-driven assessment model, offering SMEs an alternative funding solution backed by the credit insurance cover. It also encourages financial institutions to pursue more e-commerce loan-related business.

Innovative, data-driven underwriting

One of the key innovations in this new insurance solution is the use of alternative and operating data on specific e-commerce platforms for underwriting. Traditional credit assessments heavily rely on the borrowers' financial statements, which poses a significant challenge for SMEs that may lack financial track records. HKECIC, FundPark, and SCOR adopt a forward-looking approach, leveraging real-time transaction data in the e-commerce marketplaces to evaluate creditworthiness. This enables a more precise and prompt assessment of a business's current standing and future potential, particularly for SMEs involved in cross-border e-commerce trade. Real-time assessment is crucial in e-commerce, which is characterised by rapid growth and cyclical sales patterns.

The robust development of e-commerce provides new opportunities for many exporters in Hong Kong, allowing them to capture new customers in overseas markets without operating physical shops, which can be both costly and logistically challenging. The Hong Kong Special Administrative Region Government has actively supported the growth of the e-commerce sector, establishing the interdepartmental E-commerce Development Task Force. HKECIC is honoured to be a member of the Task Force, which is responsible for coordinating and formulating policies and measures for the development of e-commerce, assisting Hong Kong enterprises in expanding their businesses, and enhancing their competitiveness. It engages with various stakeholders to identify key market opportunities and challenges within the e-commerce ecosystem. By providing comprehensive trade credit insurance solutions, HKECIC is committed to supporting local enterprises in mitigating risks associated with cross-border transactions, helping them secure financing and expand their market reach by identifying relevant business partners, and providing valuable market insights.

It is important to note that the pursuit of innovation does not imply relaxing risk management standards. The rigorous methodology yields benefits accrued to future funders, enhancing confidence in both algorithms and insurance policies, thereby addressing the working capital liquidity gap holding back the growth of many SMEs. The insurance solution is expected to encourage companies to venture into e-commerce with financing support while prudently maintaining a strong track record in model predictability regarding defaults. HKECIC will further explore extending the cover to additional e-commerce platforms and sectors in order to provide SMEs with a broader range of support.

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