The Multilateral Investment Guarantee Agency (MIGA) and the European Bank for Reconstruction and Development (EBRD) have announced an agreement in which MIGA will issue up to US$200 million in trade finance guarantees to EBRD to support trade transactions conducted through state-owned banks in emerging market and developing economies, with Ukraine being the first country to benefit from this support.

World Bank Group member MIGA is working with EBRD's Trade Facilitation Programme (TFP), which can be used to guarantee any genuine trade transaction to, from and within its countries of operations in central and eastern Europe, including Ukraine, and the southern and eastern Mediterranean.

Instruments issued or guaranteed by participating banks may be secured by guarantees issued under the TFP. These include documentary letters of credit (L/Cs); trade-related standby L/Cs from issuing banks; deferred payment L/Cs, and L/Cs with post-financing advance payment bonds

State-owned and international banks

The MIGA guarantees, which will be issued over a period of up to six years, will serve to increase EBRD capacity in select markets by covering the risk of non-payment by state-owned banks.

Under the TFP, guarantees are provided to international commercial banks to cover the political and commercial payment risk of transactions undertaken by issuing banks in the EBRD's countries of operations.

Ukraine a priority

A primary beneficiary of the agreement will be Ukraine, where an initial MIGA guarantee for the EBRD's TFP will be used immediately to support trade finance at a time when war has severely disrupted trade flows and supply chains, and significantly reduced the availability of trade finance by foreign commercial banks.

In Ukraine, the imports enabled by the new MIGA-EBRD partnership aim to serve humanitarian needs and help keep industries like agriculture going while providing critical imports needed for industrial production.

The EBRD says it is on track to deliver on its commitment to invest EUR 3 billion (US$3.3 billion) for Ukraine by the end of 2023 (DC World News, 27 January 2023)

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