Although the Doha round of world trade talks may have failed to achieve multilateral trade liberalization, it is fair to say that international trade flows have altered dramatically in the past decade or so with the opening up of new markets in China, India, Latin America, central Asia and the Middle East.
However, when it comes to financing the exporting and importing of goods in a number of these emerging markets, banks are often reluctant to bear the brunt of the risk of entering relatively new and undeveloped markets. In an effort to plug the gap in those markets where international commercial bank involvement in trade is limited, the World Bank’s commercial lending arm, the International Finance Corporation (IFC), established the Global Trade Finance Program in late 2005. The program provides partial or full guarantees for international “confirming banks” seeking to mitigate payment risk in order to support their export clients doing business in emerging markets.
In the first 14 months, the program has assisted almost 600 transactions valued at approximately $559 million in “frontier countries.” More than 60% of the program’s portfolio of trades are in sub-Saharan Africa. In a further boost for the program, last month Japan contributed approximately $1 million to the Trade Finance Program, becoming its first “donor country.”
While Japan’s donation will help fund technical assistance and training for local banks in emerging markets looking to develop trade finance operations, Makoto Hosomi, World Bank group executive director for Japan, notes, “Japan’s contribution is appreciated not only by frontier markets but also by the Japanese private sector.”
According to the IFC, 79% of the transactions it guarantees benefit small and medium-size exporters and importers in developing countries. The program’s target countries include sub-Saharan Africa, the CIS countries, Latin America, the Middle East and North Africa, as well as east and south Asia.