Volumes of business and the total value of business written each year are increasing under the European Bank of Reconstruction and Development's (EBRD's) Trade Facilitation Programme (TFP), which guarantees letter of credit (L/C) business in the former Soviet states.

But even though the scheme is widely available in 27 countries where commercial trade finance is hard to find, importers and exporters are still reluctant to use the scheme according to a senior official at EBRD.

Banks involved

Appetites for emerging market risks have declined amongst commercial banks for several reasons over recent years, but according to operation leader for the TFP, Dr Rudolf Putz, the EBRD scheme is making a real difference in 27 countries in the former Soviet Union and eastern and central Europe.

"Over 442 banks in 65 countries are signed up as confirming banks and 73 issuing banks are now accredited" in the TFP he told delegates at a recent trade finance conference in London.

More inter-trading

Essentially EBRD provides guarantees through the TFP to international confirming banks thus the development bank takes the political and commercial payment risk of transactions undertaken by issuing banks in the countries where the bank operates.

Putz says a large volume of TFP business has been written for exporters and banks selling into the former Soviet states but he would like to see the scheme support more exports and imports within EBRD's countries of operations. The programme can guarantee any genuine trade transaction associated with exports from, imports to, and between those countries.

L/C usage

Guarantees may be used to secure payment of several types of documentary credits - includingL/Cs and standby L/Cs from the issuing bank; deferred payment and "red clause" L/Cs - issued or guaranteed by issuing or confirming banks for trade transactions to, from or between the EBRD's countries of operations:The scheme may also support advance payment guarantees and bonds and other payment guarantees as well as bills of exchange and trade-related promissory notes, bid and performance bonds and other contract guarantees. According to Putz, the TFPmay also consider guarantees of other types of trade finance instruments.

Volumes and values

In a presentation in October of TFP's performance since it started in 1999 to June 2003 Putz said that the number of TFP transactions has risen steadily from just over 200 deals in 2000 to nearly 700 deals in 2002. The TFP hopes to guarantee around 900 deals this year he said.

The value of business has increased more steadily and is expected to reach a figure slightly short of Euro 400 million this year.

If Putz's estimates for this year are broadly correct, this will be the third year in which the value of business will have been between Euro300-400 million, indicating that the TFP is supporting an increasing volume of lower-value deals.

No claims

While transaction sizes range from Euro 10,000 to Euro 30 million, Putz says that the average deal size is now Euro 0.62 million and more than half of all transactions are below Euro 100,000.

Remarkably, he says that there have been no claims to date since the inception of the scheme.

Local bank development

Apart from promoting trade, the scheme is instrumental in stimulating and developing trade finance departments in local banks in EBRD's countries of operation.

"We want three, four or five banks in each country [because] we want to spread our support across the sector," says Putz. "We prefer private banks but we don't exclude state-run banks," he adds.

Awareness

The scheme is becoming better known amongst banks than traders because EBRD focuses its attention on financial institutions rather than importers and exporters, thinks Putz.

He would be very pleased if more international traders became aware of and used a scheme that the EBRD official thinks is much quicker and easier to use than importers and exporters might think.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.