The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has approved a US$500mn increase to its Global Trade Finance Program, bringing the programme ceiling to US$1bn.
The programme has shown itself to be an effective risk mitigation tool by facilitating trade in the emerging markets, with a focus on small and midsize importers and exporters, claims the IFC.
This is IFC’s largest financing programme to date. It marks a vote of confidence for the initial results of the corporation’s significant engagement in trade finance. Under the Global Trade Finance Program, IFC issues guarantees on the payment risk of local financial institutions. In most cases, the underlying transaction is a documentary credit; however, a growing component of the trade support has been directed to pre-export financing.
In addition to trade finance, the programme includes technical assistance to local financial institutions that need either training to upgrade their technical skills or assistance in capacity building. This technical assistance helps local banks provide better trade solutions for their customers, which are mainly small and medium enterprises.
“This programme has delivered early on its promise to support nascent trade channels and provide liquidity for imports and exports,” says Jyrki Koskelo, IFC’s director for Global Financial Markets. He adds: “It includes a technical assistance and training component for local banks to achieve best industry standards in trade. The Global Trade Finance Program is playing an important role in reaching smaller, underserved clients globally and, specifically, in South-South trade. The programme has also shown itself to be a powerful entry product into very challenging markets, including post-crisis countries in Africa.”
The Global Trade Finance Program is continuing to build the number of participating financial institutions. To date, 48 banks in over 25 emerging markets and over 90 international banks in 62 countries have joined the programme, highlighting one of its major benefits – a network of potential partnerships that both global and local banks can access to deliver trade finance solutions. With the additional US$500mn, the programme will be able to continue expanding its coverage globally, particularly in frontier markets such as Cambodia, Nepal and Yemen. It will also provide support to banks in post-conflict countries such as the DRC, Liberia, Rwanda, and Sierra Leone
The Global Trade Finance Program is designed to be commercially responsive and efficient, with a dedicated, experienced trade finance team and a rapid response time. In its first 16 months of operation, over 600 guarantees have been issued. Some 65% of the trade transactions have supported in Africa, which is a continuing priority.
Nearly one third of the transactions have involved South-South trade (between emerging markets); and 79% have been transactions supporting small and medium sized importers and exporters.