The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has approved a US$500mn global trade finance programme, to provide financial support to small and medium importers and exporters in emerging markets.
This is IFC’s largest financing programme to date and marks a new approach for the corporation to trade finance, an area where smaller companies in developing countries are often at a disadvantage and which is of critical importance to economic growth.
IFC will offer guarantees on the payment risk of local financial institutions. In most cases this will be through domestic and international banks who confirm letters of credit issued by smaller local banks to their local client companies involved in trade.
In this way, local importers, who do not have adequate access to trade finance, can access amounts as small as US$10,000, that would otherwise be unavailable to them. The programme is designed to be commercially responsive and efficient, with a dedicated, experienced trade finance team and a rapid response time.
“This facility is designed to assist in opening trade channels and providing working capital liquidity for imports and exports. It includes a technical assistance and training component for local banks to achieve best industry standards in trade. We expect the facility to play an important role in reaching smaller, underserved clients globally and, specifically, fostering trade between developing countries,” says Jyrki Koskelo, IFC director of global financial markets.
The programme will bring together networks of local, issuing banks in emerging markets with confirming banks in the developed world. It is intended that the local banks will gain experience and learn best practice in trade finance as a result.
“The programme aims to support local banks in responding to the demand and opportunities for financing small and medium exporters and importers. Challenging markets in Asia are a major focus of this programme. IFC intends to cooperate with other international financial institutions to help create a coordinated global trade network which will benefit the development objectives we all share,” says Javed Hamid, IFC director for East Asia and the Pacific.