Cross-border trade is one way that small businesses in developing countries grow and build their markets. Trade is crucial to development as it can help create jobs and raise incomes, particularly in countries affected by conflict.
IFC’s Global Trade Finance Program has been a key facilitator of trade in emerging markets since its launch in 2005. The $1 billion program supports imports and exports, promoting flows of goods and services between developing countries.
IFC provides guarantee coverage of bank risk, allowing recipients to expand their trade business via an extensive network of countries and banks represented in the program. This improved access to finance makes it easier for local banks to extend credit to entrepreneurs and businesses to support their trade transactions.
About 70 percent of 1,300 transactions to date are in low-income or high-risk markets, such as Bangladesh, Haiti, Mozambique, and Yemen. Nearly half are in Africa, and more than a third of the guarantees have been for "South-South" trade between emerging markets.
| Global Trade Finance Program Indicators |
FY 2006
|
FY 2007
|
FY 2008 to date
|
Amount/number of guarantees |
$267 million/320
|
$767 million/564
|
$538 million/447
|
| SME ( by number of guarantees | 81.3% | 71.0% | 81% |
| Africa (by $ amount) | 70.0% | 49.1% | 41% |
| South-South (by number of guarantees) | 38.1% | 36.0% | 34% |
| Total trade supported | $395 million | $1.16 billion | $665 million |
(IFC's fiscal year runs from July 1 to June 30)
Targeting Smaller Businesses
With SMEs accounting for about 70 percent of the total volume of trade finance provided by the local banks, the program is a key part of IFC's assistance to smaller businesses.
 Typically, a small business owner in an emerging country who wishes to import goods is asked to provide a letter of credit from a bank or other assurance that he or she will be able to pay for the goods. Usually local banks in these markets do not have the name recognition or track record necessary to have their letters of credit confirmed as required by the seller or to access the cross-border bank financing that their importing and exporting small business clients need. This is where IFC, through the Global Trade Finance Program, can act quickly to help. Beyond documentary credits, the program can support a variety of underlying instruments used to transact trade.
IFC provides guarantees in amounts as low as $10,000. These smaller transactions provide critical support for the trade of a wide range of commodities and goods, such as machinery and parts that small and medium enterprises need to operate or grow.
IFC also offers advice and training to banks to improve their ability to serve clients. In such post-conflict markets as Liberia and Sierra Leone, on-site advisory services have helped improve the handling and the volume of trade transactions. |
More than Financing
Through IFC's advice and training, LBDI, a bank in Liberia, was able to build the skills of its staff, set up more efficient processes, and expand its trade finance services.
"Under this program we were able to open a letter of credit for Morris American Rubber Company that was guaranteed by IFC. The supplier in Malaysia, who had never worked with LBDI, but knew of IFC, felt confident that they would receive payment. . . ."
James A. Boker, II, Vice President of Credit at LBDI
|
A Worldwide Growth Strategy
The Global Trade Finance Program is expanding. IFC now has 120 international banks participating and supporting trade to Angola, Azerbaijan, China, Lebanon, Mongolia, and Nicaragua, to name just a few countries. Examples of recent transactions supported include the sale of Indian solar panels to Uganda, the export of Russian sunflower seed oil to Lebanon, and Moroccan fertilizer to Bangladesh.
IFC will continue adding more banks to the program, introducing them to a network of potential bank partners that they can access initially with the support of risk mitigation provided via the guarantees. This is a significant advantage for local banks seeking to broaden their access to finance and for international banks looking to establish new bank relationships and country coverage in the emerging markets. IFC will continue to build its coverage, focusing on markets where trade finance support is needed most. Target countries to be represented next include: Benin, Cameroon, the Central African Republic, Chad, Ethiopia, Georgia, Jamaica, Mali, Senegal, and Zambia.
Read more about IFC's trade finance activities, including client testimonials, from our Outcomes Newsletter... [pdf].
For more information contact:
Thoko Moyo
Small & Medium Enterprise
Tel: (202) 458-8517
E-mail: TMoyo@ifc.org
or
Lotte Pang
Global Financial Markets
Tel: (202) 458-0952
E-mail: LPang@ifc.org
Published on December 13, 2007
