The Commonwealth of Nations has launched a new trade finance facility that will provide support for letters of credit (L/Cs) in 31 smaller countries.

The scheme introduced by the intergovernmental organisation of 53 member states, most of which are former territories of the British Empire, is funded by an innovative financing mechanism that uses public money to leverage commercial finance.

Blended finance

The Small States Trade Finance Facility will provide up to US$100 million of trade finance over a three-year period to any Commonwealth nation classified as a small state.

The scheme itself is enabled by an innovative use of blended finance, a financing mechanism that uses public funds to raise finance from private sources.

Funding mechanism

In this facility, the Commonwealth Secretariat will guarantee 10 per cent of any loans secured under the facility.

This risk cover aims to encourage international banks to offer improved trade finance lines to financial institutions in the small states by reducing their credit risk.

Standard Chartered and Bank of Baroda will manage the facility and the underlying trade transactions on a portfolio basis.

L/C services

The scheme will support trade finance flows in smaller states through issuing banks in the Commonwealth by providing L/C confirmations, L/C financing and discounting.

India, Sri Lanka, Mauritius and Malta have provided US$5 million of capital to the scheme that will be hosted and administered by Malta.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.