The Global Warehouse Finance Program (GWFP), created in September 2010, aims to increase working capital financing to farmers and agriculture producers by leveraging their production. The program will support the agriculture sector by providing banks with liquidity or risk coverage backed by warehouse receipts, which can be used to provide financing in the form of short-term loans or guarantees to agriculture producers and traders ahead of export.
Currently, farmers need to sell commodities earlier than desired to meet urgent financial needs. Warehouse financing is a secured lending technique that allows farmers access to finance secured by commodities deposited in warehouses. It is especially beneficial for farmers and small- and medium-sized business, which are often unable to secure borrowing requirements due to lack of sufficient conventional loan collateral. Warehouse financing allows banks to shift risk from borrowers’ fixed assets to the commodities that farmers produce. It also allows farmers to enhance income by having more flexibility in timing sales to protect against price seasonality.
The program has two components:
Credit Line: IFC offers a short-term loan to a bank, which will in turn use the funds to lend to farmers, agriculture commodity producers, or traders against warehouse receipts or equivalent as collateral.
Risk-Sharing Facilities: IFC guarantees up to 50 percent of short-term loans extended to agriculture commodity producers or traders against warehouse receipts or equivalent as collateral. Banks can transfer credit risk to IFC from their own portfolio or from a new portfolio they originate. The assets typically remain on the banks’ balance sheet, and the risk transfer comes from a partial credit guarantee provided by IFC.
In countries where a legal system does not exist for banks to lend money to farmers, agriculture producers, or traders against warehouse receipts as collateral, IFC is able to work under the Collateral Management Agreement (CMA) or Stock Monitoring Agreement (SMA), which are two common agreements used by banks.
About 75 percent of the world’s poor are rural and involved in farming and agriculture. The program is part of IFC’s efforts to increase access to finance for farmers and to promote agriculture development as a means of alleviating poverty.
The GWFP will also provide advisory services to emerging market banks to help promote the acceptance of warehouse receipts as collateral for the short-term loans.
The objectives of the program are:
Promoting access to finance for farmers
Increasing market efficiency so that commodity producers will have more options to time the sale of the products and have better cash flow management
Lowering transaction cost and developing the local financial markets which can serve the agriculture sector
Mobilizing and preserving jobs
Creating an enabling environment
Interested in participating? Contact our team to express interest or get more information.