The International Finance Corporation (IFC) and Singapore-based DBS have signed a US$500 million facility under the IFC's Global Trade Liquidity Programme (GTLP).

The facility can support letters of credit (L/Cs) and aims to promote capital and trade flows in emerging markets across Asia, Africa, the Middle East and Latin America.

Risk sharing

The facility involves IFC and DBS, the largest bank in Southeast Asia by assets, sharing the risk equally on a portfolio of trade-related assets of up to US$500 million.

This enhances DBS' capacity to support more trade financing - such as L/Cs - with faster turnaround time to businesses trading with emerging markets counterparts, while better managing risk.

Green credentials

The facility recognises that emerging markets play an important role in achieving a low-carbon future.

So to accelerate the decarbonisation of trade flows across emerging markets, 20 per cent of the facility will be allocated to climate-eligible trade transactions, such as the trading of renewable energy equipment, energy efficient equipment and climate-smart agriculture certified commodities.

Closing the trade finance gap

The facility also aims to help bridge the record US$2.5 trillion global trade finance gap identified last year by the Asian Development Bank.

The ADB's survey is widely considered to be the world's leading barometer of trade finance health, with responses reflecting over 60 per cent of the global market for bank-intermediated trade financing. It includes data from 137 banks from 54 countries and 185 companies based in 43 countries.

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