Trade-Related Financial Services > European Bank for Reconstruction and Development (EBRD)

Trade Facilitation Programme (TFP)

The EBRD’s Trade Facilitation Programme (TFP) aims to promote foreign trade to, from and within central and eastern Europe, the Commonwealth of Independent States (CIS) and the southern and eastern Mediterranean (SEMED) region. Through the Programme, the EBRD provides guarantees to international commercial banks (confirming banks). In so doing, it takes the political and commercial payment risk of transactions undertaken by participating banks (issuing banks) in the EBRD’s countries of operations.

The Programme can guarantee any genuine trade transaction associated with exports from, imports to, and trade between the EBRD’s countries of operations. As of June 2012, over 100 issuing banks in 20 countries in the Bank’s region of operations participate in the Programme, together with over 800 confirming banks throughout the world. The TFP supports business based on the following specific selection criteria: terms and conditions must reflect sound banking risks, and private funding must not be available on reasonable terms. The project must be environmentally neutral or beneficial and socially responsible, as well as respectful of the rights and needs of communities.

The EBRD guarantees cover a wide range of goods and services, including consumer goods, commodities, equipment,machinery and power supply as well as cross-border engineering, construction, shipbuilding, technical and other services. Trade finance instruments include letters of credit, payment and other types of guarantees, bills of exchange or promissory notes, performance bonds and bid bonds. The EBRD also provides short-term loans for trade-related transactions under the TFP.

The EBRD has added factoring as a new product to its TFP in order to further support the transfer of innovative trade finance solutions and know-how to its countries of operations. Through the TFP, the EBRD also provides financing for the domestic factoring activities, including in local currencies in a number of countries. Importantly, the TFP covers the political and commercial payment risk in the international trade transactions undertaken by banks in the countries of operations (the issuing banks) in the area of international factoring.

One example of an intra-regional transaction covered under the Trade Facilitation Programme is the import of industrial equipment for the manufacture of vehicles and trailers from Turkey to Russia in 2011. In this transaction NBD Bank, Nizhniy Novgorov, issued a letter of credit, confirmed by Commerzbank Frankfurt, Germany, and the EBRD guaranteed Commerzbank up to 100 per cent of the political and commercial payment risk.

One of the benefits of the TFP is the flexible nature of the Programme and the ability of the EBRD to combine forces with commercial partners to enhance their participation: for example, in 2011 a TFP guarantee was issued to cover 100 per cent of the payment risk of an advance payment guarantee issued by a Ukrainian bank to Deutsche Bank. Credit Suisse shares 35 per cent of the EBRD’s risk. This deal facilitated intra-regional links and trade between Ukraine and Turkmenistan and was undertaken under market conditions where no commercial banks had the appetite to take risks. The EBRD successfully invited Credit Suisse to share 35 per cent of the EBRD’s risk, demonstrating that the EBRD is ready to cover risk which cannot be covered wholly by the commercial market.

For more information: http://www.ebrd.com

E-Learning school in trade finance

To ensure lasting transition impact and skills transfer to the TFP’s issuing banks, in 2010 the Bank launched its e-learning school in trade finance. Financed by the EBRD Shareholder Special Fund, the online programme was extended in 2011 and now offers seven modules with basic and advanced trade finance subjects as well as a module dedicated to the environmental and social issues in trade, with content fully approved by the International Chamber of Commerce (ICC). The programme already includes over 300 students from more than 83 banks in 17 countries. Expansion of this programme to include issuing banks in the southern and eastern Mediterranean (SEMED) region will be one of the Bank’s first activities in that region. This project is an efficient and progressive tool which has a direct impact on the quality standards of trade transactions and, as a consequence, the sector’s development in the region.

Loans

In order for the EBRD to facilitate its outreach, especially for low-income countries in the region, the Bank introduced forms of private financial tools ced to stimulate market activity, along with an existing but modified small size equity financing ability. These tools rely on a streamlined approach to finance projects, where the Bank’s participation ranges from €0.5 million to €4 million. The EBRD’s lending programmes provide individual entrepreneurs and firms with access to otherwise scarce finance. The Bank also provides complementary schemes that aim to help individual enterprises adapt to the demands of a market economy:

The Direct Loan Facility (DLF) finances expansion, modernization and acquisition projects in the private sector and provides working capital of €0.5 million to €4 million. It provides the Bank with an instrument to meet the growing demand for medium-sized loans, with medium to long-term maturities, in early transition countries which cannot be met by the EBRD’s available intermediate programmes, i.e. SME credit lines, the Trade Facilitation Programme and the Medium-sized Co-financing Facility with local banks, or by the local banks directly.

The Medium-sized Co-financing Facility (MCFF) provides co-financing alongside local banks for up to 50 per cent of the loans to selected enterprises. The MCFF with local banks was established as a regional framework to be provided to leading commercial banks in the early transition countries (ETCs) - Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Mongolia, Tajikistan and Uzbekistan. The MCFF is designed to meet the financing needs of successful medium-sized private companies in the ETCs that have begun to outgrow the countries’ financial sector. The ability of local banks to support the growth of successful companies is often constrained by single-borrower exposure limits imposed by the countries’ central banks or by the local banks’ internal guidelines introduced to avoid the risk of loan portfolio concentration.

The Direct Investment Facility (DIF) is an equity-driven programme which focuses on supporting local enterprises. DIF’s purpose is to provide financing in the form of equity and, under appropriate circumstances, quasi-equity to private sector businesses led by motivated and experienced entrepreneurs who are otherwise unable to find appropriate capital to support commercially promising activities in the Early Transition Countries (ETCs) and elsewhere in the EBRD’s countries of operations.

The EBRD’s ETC Local Currency Loan Programme, launched in 2011, helps borrowers in early transition countries (ETCs) reduce their exchange rate risk. The objective is to better match the lending currency to revenues, in order to reduce default/insolvency risk at the micro level and to reduce increasing systemic risk of dollarisation in the financial sector at the macro level. The Programme offers technical cooperation support to train central bank staff in ETCs through specially-tailored training courses on currency risk management, improving monetary frameworks to sustainably reduce inflation and dollarisation, and local currency market development. One of the first loans under the ETC Local Currency Loan Programme was signed in June 2011 in Tajikistan. The EBRD extended 13.6 million Tajik somoni (equivalent to US$ 3 million) to a micro-lending organisation, Imon International, to provide more affordable credit to small businesses.

For more information: http://www.ebrd.com