International Finance Corporation’s (IFC) Global Trade Finance Program has achieved a milestone of US$100mn in guarantees and 100 transactions in less than six months since the launch of the programme last September.
Most of the trades are in Sub-Saharan Africa, a region of strategic importance to IFC, the private sector arm of the World Bank Group.
However, the programme is global and the network of banks is spreading worldwide, covering Latin America, the Middle East, North Africa, and South Asia.
Hugh Baylis, the Global Trade Finance Program’s head of operations, says, “The majority of trades are flowing to Nigeria, but activity is also picking up in Mauritania and Kenya, as well as in other parts of the world. As a development institution, we are pleased that almost half of our guarantees issued on behalf of African banks support trades between developing countries and that the majority cover transactions of less than US$1mn.”
Through the programme, IFC provides guarantee coverage of bank risk in emerging markets, where confirming banks – typically in North America, Europe, and the more advanced of the developing countries – need risk mitigation to support their export clients because of limited capacity for country and bank exposure.
To date, 22 banks have joined the programme as issuing banks, permitting IFC to provide risk mitigation in a variety of countries such as: Argentina, Bangladesh, Bolivia, Kenya, Lebanon, Malta, Mauritania, Nigeria, Pakistan, and Russia.
Further coverage is expected soon for banks in Colombia, Dominican Republic, Egypt, Jamaica, Jordan, Morocco, Philippines, Rwanda, Tanzania, Ukraine, and Vietnam. The confirming banks total 54 so far.
Interesting trends are emerging from the Global Trade Finance Program:
- Number of transactions: 112
- Average tenor: 5.5 months
- South-South transactions (trades between emerging markets): 38%
- Small and medium enterprise transactions: 74%
- Sectors covered include agriculture, pharmaceuticals, industrial machinery, dairy products, natural fibres, oil and gas, leather, edible oils, and electronics
- The volume of the guarantees ranges from US$10,000 (import of automobiles from the Czech Republic to Nigeria) to US$13.5mn (import of oil from India to Nigeria).
In Latin America, 90% of the guarantees have been issued in Brazil, for a total of US$8mn in pre-export financing. The guarantees have mainly supported exports of agricultural commodities (frozen meat, sugar, shrimp, wheat, cashew nuts, and chicken) but also paper, plastic, metals, and minerals.
The exports have gone to Europe and South Africa, and several countries in the region such as Argentina, Mexico, and Uruguay. The pipeline in this region is growing steadily and includes banks in Colombia, Dominican Republic, Ecuador, Nicaragua, and Paraguay.
In South Asia, the programme has begun well with US$5mn in commitments in Bangladesh. The majority of the guarantees issued are South-South trades such as an import of phosphoric acid from the Philippines to Bangladesh or rock phosphate from Morocco.
IFC is in active discussions with a number of banks in Indonesia, Nepal, Philippines, and Sri Lanka to join the programme.
Africa has been the main focus of the programme, particularly Nigeria, where US$95mn has been committed, followed by Mauritania with US$5mn and Kenya with US$1mn. Almost half of the guarantees issued for African banks – 46% – are South-South deals, and 80% are small and medium enterprise transactions (less than US$1mn).
The sector that has benefited the most from the programme in this region has been the automotive (including buses and spare parts), but IFC has also supported imports of resin from Thailand to Nigeria, gasoil (heating oil) to Mauritania, and industrial machinery from Singapore to Kenya, among others.
The prospects of expansion in Africa are robust, with coverage expected in the Democratic Republic of Congo, Ghana, Rwanda, Senegal, Sierra Leone, Tanzania, and Uganda.