The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has approved a largely letter of credit (L/C) based US$500 million global trade finance programme (GTFP).

The programme aims to provide financial support to small- and medium-sized importers and exporters in emerging markets, improve banking services in developing countries and complement other development-oriented trade finance programmes.

New approach

This is largest financing programme so far launched by the IFC. It says it marks a new approach for the corporation to trade finance, an area in which the IFC says smaller companies in developing countries are often at a disadvantage and which is of critical importance to economic growth.

Under the GTFP the IFC will provide guarantees on the payment risk of local financial institutions. In most cases this will be through domestic and international banks that confirm L/Cs issued by smaller local banks to their local client companies involved in trade.

Rapid response

The GTFP aims to provide local importers hitherto without adequate access to trade finance with access to amounts as small as US$10,000.

The IFC says the programme is designed to be commercially responsive and efficient and is supported by a dedicated, experienced trade finance team capable of providing a rapid response time.

Capacity building

As well as helping to open trade channels and providing working capital liquidity for imports and exports, the GTFP aims to improve banking services in developing countries.

"It includes a technical assistance and training component for local banks to achieve best industry standards in trade," according to IFC director of global financial markets, Jyrki Koskelo.

The programme aims to bring together networks of local issuing banks in emerging markets with confirming banks in the developed world. It is intended that the local banks will gain experience and learn best practice in trade finance as a result.

Fostering trade

The IFC says challenging markets in Asia are a major focus of this programme and it expects the facility to play a particularly important role in fostering trade between developing countries.

The private sector arm of the World Bank Group also says it intends to co-operate with other international financial institutions to help create a co-ordinated global trade network.

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