The International Islamic Trade Finance Corporation (ITFC) has launched a new letter of credit (LC) confirmation instrument to help smaller businesses export and mitigate the trading risks they face amid the pandemic.
The new product can be used by small and medium-sized businesses in Islamic Development Bank (IsDB) member countries.
A confirmed LC affords the seller or exporter a payment guarantee from a second, or confirming, bank, protecting the exporter and the customer against issuing bank and country risk.
The ITFC’s LC confirmation product allows exporters to gain assurance from a multilateral financial institution to secure payment. It aims to manage the risks associated with trading amid the pandemic, while also helping to facilitate trade and ensuring the steady supply of goods, states the ITFC.
Enhancing international trade is key for economic development, and particularly important now as countries attempt to recover from the current crisis.
Commenting on the launch of the product, Hani Salem Sonbol, ITFC CEO, says: “ITFC is committed to supporting SMEs and private sector development in developing countries to drive global trade.
“With this LC confirmation instrument, the ITFC is demonstrating the important role that Islamic trade finance products and solutions have in levelling the playing field for developing markets that seek to participate in the global economy.”
He adds that the product offers much-needed support for exporters and the issuing banks, which means trade finance can be provided when and where it is required.
Earlier this year, the ITFC, along with the Arab Bank for Economic Development in Africa (Badea), backed a US$1.5bn pandemic response facility launched by the African Export-Import Bank (Afreximbank).
The Covid-19 pandemic response facility (COPREFA) will offer financial assistance to help African countries with the import of medical supplies, as well as agricultural equipment and fertilisers.
Speaking about the facility at the time, ITFC’s CEO Sonbol said the deal will “deliver immediate relief from the supply side restraints on personal protective equipment caused by the pandemic”.
He added that the facility “will boost economic activity when and where it is needed most and help many countries maintain food security at a time when global commodity supply chains are being challenged and import activity sharply reduced”.