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Trade & Commodity Finance at IFC
The Global Warehouse Finance Program (GWFP) aims to increase working capital financing available to agricultural producers or traders by leveraging their commodities in storage. GWFP supports 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 agricultural producers and traders.
About 75 percent of the world’s poor are rural and involved in farming and agriculture. The GWFP 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.
Often farmers need to sell their commodities earlier than desired to meet urgent financial needs. Warehouse financing is a secured lending technique that allows farmers to access loans secured by their own commodities deposited in warehouses, enabling them to manage the timing of the sale of their crops. It is especially beneficial for farmers and small- and medium-sized business, which are often unable to secure financing 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 their 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, agricultural commodity producers, or traders against warehouse receipts or equivalent as collateral.
Funded or Unfunded Risk-Sharing Facilities: IFC participates in up to 50 percent of short-term loans extended to agricultural 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 against warehouse receipts as collateral, IFC is able to work under a Collateral Management Agreement (CMA) to pledge stocks or Stock Monitoring Agreement (SMA) to monitor stocks, two agreements commonly used by banks.
The GWFP also provides 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 advisory programs are:
To date, GWFP has supported over $6 billion in global trade, of which more than $3 billion of trade has been in IDA countries, including sub-Saharan Africa. GWFP has supported more than 750,000 farmers in 66 emerging market countries including 29 IDA countries, 24 Sub-Saharan African countries, and 7 fragile and conflict-affected countries (FCS).
Interested in learning more about the Global Warehouse Finance Program? Contact our team to express interest or get more information.