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Against the backdrop of growing turmoil in the global financial system and plummeting world trade at the beginning of 2009, IFC, along with governments, development agencies, international financial institutions and global commercial banks came together to find a means of maintaining trade flows.

These discussions culminated at the G-20 meetings in April last year, where the G-20 members made a US$250bn commitment to revitalise trade. It was decided that providing a source of liquidity in a cash-strapped market was the priority, and with that in mind, the Global Trade Liquidity Programme (GTLP) was established.

The GTLP has to date disbursed over US$1bn globally, which has helped support trade flows, preserved jobs, and upheld private sector development by giving a boost to small and medium-sized businesses that were struggling to access trade finance lines needed to maintain and grow their business.

The programme was launched at the WTO’s headquarters last July, and along with the IFC, it has since signed eight partners: The Canadian and Dutch governments, the UK’s DFID and CDC, the Saudi Fund for Development, the African Development Bank, and The Swedish International Development Corporation (SIDA). Parallel arrangements with JBIC were also signed, and the Chinese government also extended support to the scheme.

A number of commercial banks signed up the programme: Standard Bank of South Africa, Standard Chartered Bank, Citibank, Rabobank, Commerzbank, JP Morgan Chase and Afreximbank.

Under the terms of the programme, GTLP aims to mobilise both private and public resources, with private sector banks providing 60% of the required funding under any particular transaction, and the GTLP public partners providing the remaining 40%.

Two investment structures under the programme were implemented – short-term loan and risk funded participation. Standard Bank received a short-term loan of US$400mn from IFC and partners, to be used by the bank to on-lend to its clients in Sub-Saharan Africa.

In Standard Chartered’s and Citibank’s case, the agreement was a US$1.25bn funded participation facility between IFC/partners (40%) and Citibank (60%).

In this programme, Standard Chartered and Citibank are originating trade finance transactions from emerging market banks, which then extend trade finance to their clients.

The IFC and partners are investing up to US$500mn equivalent to 40% participation with each bank, and Standard Chartered and Citibank will invest US$750mn each.

The aim of this scheme is not to provide liquidity to support the balance sheet of Standard Chartered or Citibank, but rather to allow both banks to incrementally expand trade finance globally by sharing some of the risk out, and channel liquidity into the local banks and regions that need it with the ultimate goal of reaching out to SMEs.

Since these first agreements, Rabobank, JP Morgan Chase, Commerzbank and Afreximbank have come on board.

The GTLP programme has an expected life span of up to three years and supports trade finance transactions with an average maturity of 180 days. In this way, each dollar has the capacity to be re-lent up to six times. By the end of the programme, up to US$50bn of trade will have been mobilised assuming full utilisation.

Georgina Baker, IFC’s director for global financial markets, comments on the early days of the GTLP: “We learnt a lot with the first deals: Standard Chartered, Standard Bank and Citibank. We knew that we had to balance the development priorities of our partners with market realities; otherwise, we would have a nice programme with no utilisation. I don’t want to claim perfection, but we have become much better at matching supply and demand,” she explains.

Remarking on the take-up of the facility, she adds: “The market reacted well to GTLP. We provided a secondary market alternative when that market had practically disappeared. Our experience in previous crises helped us anticipate a shift from global to regional solutions and from liquidity to unfunded risk mitigation.”

In particular, the Sub-Saharan Africa region has seen the greatest benefits of the scheme with a 35% share in utilisation. It is to this region that the IFC has increasingly turned its focus and it is working closely with the African Development Bank on new Africa-specific programmes.

In addition, the IFC is also working with Swedish development agency SIDA and four European banks to develop a guarantee programme to rehabilitate trade finance in Eastern and Central Europe, a region which has borne the brunt of the crisis, particularly in terms of trade finance.
Deal information

Borrower: Multiple borrowers (global liquidity scheme)
Amount: US$2.5bn
Coordinator: IFC
Participating institutions/development banks/governments: CDC, DFID, Saudi Fund for Development, African Development Bank, SIDA, JBIC, Canada, China and the Netherlands
Participating commercial banks: Standard Bank, Standard Chartered Bank, Citi, Rabobank, Commerzbank, JP Morgan Chase and Afreximbank.
Tenor: 3 years (maximum)
Date signed: June-December 2009