Trade credit insurance is a type of insurance designed to minimize the risks enterprises face regarding their receivables. In Türkiye, the main regulations in this respect are Turkish Commercial Code No. 6102 and Insurance Law No. 5684. In this article, we will provide information on the Turkish State-Backed Trade Credit Insurance System (“SBTCI” System) for small and medium-sized enterprises (“SMEs”). The System is regulated under the Communiqué of 7 January 2023 on Tariffs and Instructions and Operating Procedures and Principles for the State-Backed Trade Credit Insurance System (“Communiqué”). The Communiqué is based on Article 33/A of the Insurance Law.
Overview of the System
The SBTCI System provides insurance to SMEs that fail to collect their receivables by covering a significant portion of and securing such receivables.
The Communiqué grants certain powers to the Special Risks Management Center, which was established as per the aforementioned legal provision and renamed as a separate legal entity in 2021. The Center has various objectives, such as: providing coverage for risks that are difficult to insure, of a special nature, or of public interest to cover; establishing insurance and reinsurance pools; and ensuring cooperation between insurance and reinsurance companies.
The System protects SMEs against the risk of non-payment by debtors for unsecured debts arising from forward sales with maturities of up to 360 days. In the Communiqué, these debtors are referred to as “buyers”, and there are buyer limits to designate the maximum amount of liability assumed by the insurer in relation to debtors of SMEs. The Special Risks Management Center performs a risk assessment of the buyers to be covered and assigns them a score between 1 and 6. Accordingly, no limit will be provided for buyers with a score of 6. Coverage rates (70% to 90%) and the maximum coverage amount depend on risk scores.
In this context, “SBTCI-Financing” refers to the State-Backed Trade Credit Insurance for the Financing of SMEs whereas “SBTCI-Business” refers to the State-Backed Trade Credit Insurance for SMEs’ Business Activities. Regulated in the Communiqué, these two types of coverage were united under the Presidential Decree of 31 March 2023 to establish the SBTCI System.
The “state-backed” part of the System’s name refers to the state’s reinsurance support for the System. In other words, the state steps in to provide support when the funds in the insurance pool are insufficient. The relevant details can be found in the above-mentioned decree.
Criteria and Coverage
SBTCI-Business can be offered to SMEs (micro/small/medium-sized enterprises under the Small and Medium-Sized Enterprises Regulation) that meet the following four criteria: The enterprise itself or another legal entity holding the majority of its capital (i) was established at least two years prior to the date of application, (ii) meets the risk assessment criteria set by the Special Risks Management Center, (iii) is a taxpayer under a scheme other than the simplified tax regime, (iv) and the turnover of the enterprise itself from domestic sales in the previous fiscal year does not exceed ₺500 million. The Special Risks Management Center is entitled to increase the amount in the fourth criteria by up to fifty percent when it deems necessary.
SBTCI-Financing is offered to credit institutions that provide financing to the above-mentioned SMEs.
Without prejudice to the General Terms and Conditions of Trade Credit Insurance, the coverage is as follows:
With SBTCI-Business, SMEs can secure their forward sales, provided that (a) “the invoice(s) are issued in Turkish lira, excluding sales covered by foreign currency-indexed invoices or contracts”, and (b) “the buyers are not public institutions and organizations, municipalities, chambers and exchanges, professional associations, foundations, state-owned enterprises, or natural persons who do not qualify as merchants”.
SBTCI-Financing covers the above-mentioned sales when an SME gets financing as a result of the transfer of the receivable arising from the sales contract between the SME and the buyer to a credit institution.
The System only applies to trade receivables arising from domestic sales or the transfer of trade receivables arising from domestic sales to credit institutions in order to provide financing to SMEs. Therefore, exports are excluded from the System.
The creditors that will benefit from coverage must meet the first and second criteria above. For SBTCI-Business, risk assessment normally takes into account all the buyers of the enterprise requesting insurance. However, if this is not possible, the assessment will consider the enterprise’s buyers that constitute at least fifty percent of its turnover from domestic forward sales, ranked in descending order by the turnover.
In SBTCI-Business, the premium is calculated based on the entire turnover declared by the enterprise requesting credit insurance and obtained from forward sales in the last fiscal year. The calculation can be made by considering the premium coefficient specified in the table depending on the relevant turnover range and maturity. The maximum coverage amount is found by multiplying the net premium obtained from the calculation by 30.
Amendments in Late 2024
The amendments to the Communiqué, which took effect on November 9, 2024, aim to expand the coverage and increase the efficiency of the System. Accordingly:
- The tariffs and limits in the Communiqué were updated. Thus, the upper limit of coverage per buyer was increased to ₺2 million. The Special Risks Management Center’s power to increase buyer limits without additional premium was preserved.
- New coverage was offered, including additional coverage for natural disasters.
- The upper limit of turnover was increased to ₺500 million, and the Special Risks Management Center’s power to increase was raised to fifty percent.
- The Special Risks Management Center was authorized to directly issue SBTCI policies.
According to the Special Risks Management Center’s 2023 Annual Report, nearly ₺16 billion was provided in coverage for buyers in 2023. With the expansion of the System’s coverage, higher amounts can be expected in the upcoming reports.
Conclusion
Trade credit insurance entails a high risk transfer from a creditor to an insurer. In this respect, effective state support is crucial to encourage insurers and reduce premiums, thereby facilitating SMEs’ access to insurance. The SBTCI System offers SMEs the predictability they need by eliminating the insecurity and uncertainty associated with the collection of receivables in forward sales.
Providing protection against risks such as disruption of cash flows and financial plans, trade credit insurance offers great benefits to SMEs, especially in times of economic fluctuations.
İdil Aşkın, Associate
