Global Trade Finance Programme
IFC lending has also focused on building competitiveness through investments in the productive capacity of firms, economic infrastructure and support for trade finance. Its trade and supply-chain finance programs help companies in emerging markets access much-needed financing, boosting growth and employment. In FY12, the economic downturn in developed countries continued to adversely affect businesses in Asia, Africa, and Latin America. Several European banks, traditionally major suppliers of trade finance, reined in their exposure in many developing countries. As the availability of trade finance was reduced, its cost rose.
The Global Trade Finance Program (GTFP) was able to respond to the market gap providing a measure of stability in times of credit constraints. The GTFP is a vehicle to facilitate the provision of trade finance to banks in emerging markets, with particular emphasis on IDA countries and smaller institutions which serve SME clients. The GTFP guarantees trade-related payment obligations of approved financial institutions. The program extends and complements the capacity of banks to deliver trade finance by providing risk mitigation on a per transaction basis for more than 200 banks across more than 80 countries. The GTFP has been operational for over five years, with a strong track record of development results: more than 12,500 guarantees have been issued totaling US$19 billion since 2005, over half of which went to the poorest countries (including more than 15 fragile and conflict-affected countries). Of the trade-finance guarantees issued under the program more than 80 percent have benefited SMEs. In addition, the Global Trade Liquidity Program (GTLP) has supported US$21 billion of trade in developing countries since it was launched in 2009. In FY12, the commitments of the two programs totaled US$6.1 billion— a 23 percent increase over FY11.
However, it is estimated that only 10 percent of exporters in emerging markets actually have access to supply chain finance. Most local commercial banks in emerging markets have limited or no tailored financial products for suppliers and exporters to finance sales not backed by letters of credit, and the global banks that do offer supply chain finance solutions often have little experience in emerging markets. Difficulty in reaching the sheer number of SMEs in emerging markets also has been a major constraint to the growth of supply chain finance. To help address this huge shortfall, the IFC established the Global Trade Supplier Finance (GTSF) program in 2010, a $500 million multicurrency investment and advisory program that provides short-term supply chain finance to emerging market suppliers and SMEs that are smaller than those the IFC can usually reach directly. In FY12, the IFC also became the first international financial institution to begin measuring the development impact of its work in trade finance.
Complementing these efforts by the IFC, and in close cooperation with them, Multilateral Investment Guarantee Agency (MIGA)’s support to trade has focused on building competitiveness through providing political risk insurance coverage for private sector investments in the productive capacity of firms, economic infrastructure and support to bank investment and lending (much of this has supported foreign exchange financing used for import and export financing for investment projects and working capital). MIGA has supported several conflict-affected countries in their rebuilding efforts by facilitating FDI (e.g. Afghanistan, West Bank and Gaza, Côte d’Ivoire). MIGA has also strengthened its commitment to development in sub-Saharan Africa. MIGA has supported trade-related infrastructure development, including telecommunications services in many countries throughout the Region (e.g. Benin, Cameroon, Central African Republic, Ghana, Mali, Mauritania, Nigeria, Guinea, Guinea-Bissau and Sierra Leone) as well as elsewhere (e.g. Afghanistan, Indonesia, Bangladesh and Syria); ports (e.g. Dakar, Benin) and airports (e.g. Peru) and energy. MIGA has also provided coverage for investments to help firms improve their productivity. In manufacturing, MIGA has provided guarantees boosting capacity for grain milling (e.g. Rwanda), wood chipping (e.g. Mozambique) and remanufacturing plant operations (e.g. Zambia). MIGA is increasingly providing coverage to agribusiness, such as value addition in fruits (e.g. Ethiopia), and the development of agribusiness (e.g. West Bank and Gaza, Russia).