As the world’s largest development finance institution, the International Finance Corporation (IFC) is uniquely placed to help commercial banks bring trade finance facilities to some of the world’s most challenging markets. Nathalie Louat has spent nearly two decades at IFC, and today acts as its director of trade and supply chain finance. 

Speaking to GTR in Barcelona ahead of IFC’s Global Trade Partners Meeting in May, Louat discusses how the institution’s global trade finance programme helps lenders bring trade finance to companies whose risk profiles lie beyond the reach of the private sector. She also highlights IFC’s efforts in facilitating south-south trade, promoting climate-friendly transactions and supporting the growth of alternative solutions such as supply chain finance. 

The interview has been edited for length and clarity. 

 

GTR: We’re speaking on the eve of IFC’s Global Trade Partners Meeting for 2024. Could you tell us what IFC hopes to achieve at this event, and how it fits into the institution’s wider priorities? 

Louat: Let’s start with the big picture. The global trade finance gap was estimated by the Asian Development Bank to be about US$2.5tn in 2022. We also know that if we are not able to reduce that gap – and because the gap is widest in lower-income countries – the 2030 Sustainable Development Goals are at risk of not being met, and that is a major concern for us. 

Our priority at this event is to bring clients together, and introduce issuing banks to confirming banks, in order to facilitate transactions and ultimately reduce that gap, especially in the world’s poorest and most fragile economies. 

 

GTR: You mention lower-income countries have the greatest difficulty obtaining trade finance. How prevalent is this issue in markets where you’re active, and what is causing that? 

Louat: We’re seeing that it’s getting harder for SMEs to access trade finance. Our studies indicate that 50% of SMEs in emerging markets are not able to access trade finance; that number is less than 10% if you look at developed markets. 

In our regional studies, for example in West Africa and the Mekong, we see that if we can increase trade finance availability in countries like Nigeria, Côte d’Ivoire or Vietnam – and reduce its cost – we could see an increase in trade between 5% to 9% annually, and we know that trade contributes to economic growth. 

The problem is, it’s more and more difficult for global banks to do business in emerging markets, in general. There are more requirements in terms of compliance, and less risk appetite. That combination explains why many smaller confirming banks are withdrawing or reducing their activities in emerging markets. 

We can help fill in this gap by offering more support to banks and companies. The more we can help on the trade finance side, the more we will generate trade and income, and that will help to achieve the Sustainable Development Goals. 

 

GTR: In practical terms, how does IFC help institutions manage risks in challenging markets, and in the longer term, how does that support improve their confidence in doing business in lower-income economies? 

Louat: We have a deep knowledge of our clients, and long-standing relationships. It’s important to remember this programme was established 20 years ago, so we have built up a strong track record and direct knowledge that give us comfort when assessing the reliability and safety of transactions. 

We review every single transaction individually, looking at which goods are going from where to where, who is shipping, who is exporting and who is importing. That detailed knowledge of the underlying trade makes our experience in risk valuable, and that gives comfort to our partners as well. This is a low-risk and short-term product. 

To give an example, last year in Pakistan, IFC was the only multilateral continuing to be active. Most others put their programmes on hold, but we kept working to keep that market open during a really difficult period for the country. Now most of those other entities are back. 

Looking longer term, we’ve seen countries evolve from relying heavily on our guarantees, to getting more and more trade lines from the confirming backs. We monitor these situations, because it can get much better at one point but deteriorate again later on, and we adjust our support accordingly. 

 

GTR: We have seen several IFC deals involving supply chain finance over recent months. To what extent is this product an area of focus? 

Louat: In some countries, we are moving much more to support supply chain finance, and it is a very significant area of growth for IFC. Right now, supply chain finance is concentrated among a few global banks that are very familiar with the product and have invested in the software to make it efficient. 

We try to encourage local banks that have been in our programmes for a while to start developing a supply chain finance programme locally.  

We also work on the regulatory aspects in countries where there might not be a framework for reverse factoring or invoice discounting, for example. This is important work, because we see that even in countries where trade is widely done on a purely commercial basis, there is a great need to develop new products. 

 

GTR: Looking more at trade flows themselves over the next few years, what are the most pressing topics on the agenda at IFC? 

Louat: One is south-south trade. Relative to the numbers around global trade, it’s a small proportion, and we’re trying to grow that. We’re keen on moving away from trades that are mainly one way, from an emerging market to a developed market, or vice versa. That’s very dependent on free trade agreements between countries or within a continent.  

Another area is green trade. We have established a taxonomy of everything that can be classified as climate-smart trade, and we encourage our banks to focus on these transactions. That means looking at the nature of the goods and whether the goods are certified by third parties, and the taxonomy should facilitate this.  

It’s also vital that we all agree on definitions around climate-friendly transactions. As well as sharing this with our banks, who can help us implement this agenda with us, we’ve shared our criteria with the other multilateral development banks so that we are all aligned.