IFC Why Trade Finance matters for Trade World Trade Organization Public Forum 2014
IFC: a member of the World Bank Group IBRD IDA IFC MIGA ICSID International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment and Guarantee Agency International Centre for Settlement of Investment Disputes Loans to middle-income and creditworthy lowincome country governments Interest-free loans and grants to governments of poorest countries Solutions in private sector development Guarantees of foreign direct investment s noncommercial risks Conciliation and arbitration of investment disputes 2
IFC s vision PAKISTAN People should have the opportunity to escape poverty and improve their lives 3
IFC s purpose To promote open and competitive markets in developing countries To help generate productive jobs and deliver essential services to the underserved To support companies and other private sector partners where there is a gap To catalyze and mobilize other sources of finance for private sector development 4
IFC Investments by Industry, FY14 COMMITMENTS FOR IFC S ACCOUNT: $17.3 BILLION 5
IFC Investments by Region, FY14 COMMITMENTS FOR IFC S ACCOUNT: $17.3 BILLION 6
IFC s Global Reach 108 regional offices in 98 countries worldwide, AAA credit rating 3,879 staff (59% are based outside Washington DC) of 140 nationalities 7
What we do Integrated Solutions, Increased Impact INVESTMENT ADVICE IFC ASSET MANAGEMENT COMPANY Loans Equity Trade Finance (TF) Syndications Securitized finance Risk management Blended finance $51.7 bn portfolio (FY14) Firm-level advice PPP transaction advice In partnership w/world Bank, advice on broader market development and enabling environment for private sector 720 projects valued at $1.1 bn (FY14) Wholly owned subsidiary of IFC Private equity fund manager Invests third-party capital alongside IFC $6.4 bn under mgmt (FY14) 8
TF: Trade and Supply Chain Value Proposition Our solutions provide essential working capital to emerging market firms, propelling goods through the economic value chain. MARKET NEEDS Inputs, Harvest Storage, Transportation Raw Materials, Labor, Energy Export OUR SOLUTIONS Pre- and Post-Harvest Import Financing, i.e. GTFP, Structured Trade, GTLP Inventory and Warehouse Receipts Financing Working Capital and Supply Chain Financing Pre-Export Financing, i.e. GTFP, Structured Trade, GTLP 9
IFC s Global Trade Finance Program (GTFP) GTFP delivers risk mitigation for counterparty bank risk, in trade transactions in over 90 emerging markets globally. IFC issues its corporate guarantee for: The facilitation of confirmation of Letters of Credit and Guarantees (Bid Bonds, Performance Bonds) The facilitation of Import or Export Financing (Pre/Post) -> Herewith IFC covers country and commercial risk of trade transactions, normally difficult to materialize 10
IFC s Global Trade Finance Program (GTFP) Launched in 2005, the $5 billion GTFP provides risk mitigation by guaranteeing trade-related payment obligations of over 275 eligible financial institutions in emerging markets. PROGRAM FEATURES Cumulative Program Statistics Since 2005 (as of June 2014) Total # / USD of Gtees No. of Issuing Banks No. of Confirming Banks TOTAL CLAIMS 19,300 / $32.4B 277 in 97 countries 269 in 101 countries (1,100 with affiliates) ZERO AAA-rated Basel III benefits Coverage up to 100 percent Umbrella guarantee covers country and commercial risk Same-day issuance Three-year maximum tenor L/C applicants must be majority private sector FY14 GUARANTEES BY REGION (most active countries listed) Middle East & North Africa 1.Lebanon 2.Pakistan Europe & Central Asia 1.Turkey 2.Russia Asia & Pacific 1.Vietnam 2.Bangladesh Sub-Saharan Africa 1.Nigeria 2.Ghana Latin America & the Caribbean 1.Brazil 2.Argentina 11
IFC s Global Trade Finance Program (GTFP) Cotton from China to Vietnam confirmation Import Letter of Credit - L/C issued by Techcombank Funded by Singapore-based bank Tenor: 6 months Value: USD 500K IFC covers: 100% by issuing its corporate guarantee to the confirming bank > confirmation would be difficult to materialize without GTFP coverage China Vietnam 12
IFC s Global Trade Finance Program (GTFP) Sugar from Brazil to Japan Export funding operation - Promissory note issued by Brazilian bank Funded by U.S.-based bank Tenor: 6 months Value: USD 3.9 million IFC covers: 100% by issuing its corporate guarantee to the financing bank > operation would be difficult to materialize without GTFP coverage Brazil Japan 13
IFC s Global Trade Liquidity Program (GTLP) GTLP partners supporting this award-winning program Volume of Trade Supported ~ $ 25.4 billion # of Trade Transactions ~ 15,150 SMEs financed (Txns <1 million) 79% Trade supported in Lower Income Countries 35% Trade supported in IDA Countries 27% Portfolio defaults None GTLP Trade Supported by Region GTLP: 50% funded or unfunded risk sharing on trade portfolio with FI s 14
Structured Trade in Mauritania (STF) Example Oil import into Mauritania Mauritania s economy is largely dependent on imports of refined oil products, which directly supply close to 80% of the electricity produced in the country. The Government of Mauritania (GoM) needs to maintain a supply of affordable petroleum products and control inflation. The deleveraging process to reach Basel III capital requirements resulted in large reductions in cross-border lending from Western European banks in Mauritania, especially with relation to USDdenominated lines. The Project: Structure: US$400 million secured revolving facility to finance the import of oil into Mauritania; Tenor: Twoyears; Lead lenders: IFC (US$127.5 million) and a Western European bank acting as facility agent (US$127.5 million); Co-lenders: other commercial banks and DFIs; Borrower: Trading house, winner of the 2012-2014 import tender. The borrower will source oil to Mauritanian oil marketing companies, a Mauritanian power company and a Mauritanian mining company. 15
Structured Trade in Mauritania Impact: 1. Ensuring availability of energy products in the local economy, critical for consumption, power and other energy needs. 2. Maintain the availability of trade finance for trade businesses in Mauritania. 3. SME Development. 16
Structured Trade in Cote d Ivoire (STF) Example Oil import and refining in Cote d Ivoire Cote d Ivoire is a post conflict country, its economy is gradually recovering from a civil war ended in 2011; The country is entirely dependent on fuel produced by one company, the only importer and refinery in the country. The company needed access to trade finance to ensure regular and adequate supply of crude oil to operate efficiently and supply fuel to the country, at a time when it had lost access to credit lines from international banks due to the political crisis. The Project: Structure: US$100 million in an uncommitted fully secured revolving facility of US$300 million, to finance crude oil imports to be refined in Cote d Ivoire; Tenor: Twoyears; Lead lenders: IFC (US$100 million), a Western European bank acting as security agent (US$100 million), and a syndicate of participant banks (US$100 million); Borrower: The only importer of crude oil and refinery in Cote d Ivoire 17
Structured Trade in Cote d Ivoire Impact: 1. Increased Access to Finance 2. Support to the borrower and downstream operators 18
Example Cotton in Mali Agriculture is one of the pillars of the Malian economy and cotton is the most important cash crop which makes the living of up to 3 million livelihoods, representing 40 % of the rural population. Mali is a post conflict country, its economy is gradually recovering from 2 years of political turmoil. Mali s largest cotton exporter needed access to international lenders offering lower interest compared to local financing, in order to pay the farmers in time (30 days from delivery) and contribute to guarantee their income. The Project: Structure: US$9.2 million participation in a committed fully secured pre-export facility, behind a Western European bank; Tenor: Oneyear; Warehouse Finance in Mali Lead arranger: A European bank and a Malian bank; Risk participants: IFC and Global Agriculture and Food Security Program (GAFSP), the latter with a subordinated risk participation of 50% of IFC s total amount; Borrower: Mali s largest cotton exporter. The borrower will collect, gin and export cotton produced by Malian farmers. 19
Warehouse Finance in Mali Impact: 1. Maintain/create jobs in the agricultural sector in Mali 2. Improve the livehoods and income of the farmers 20
Take Aways: Multilaterals Additionality Door opener: Opportunity for Issuing Banks in Emerging Markets to build working partnerships with a vast number of confirming banks via a global network. Filling the Gap: In light of the increasing regulatory constraints, on top of the higher capital standards resulting of Basel III, banks are withdrawing from the emerging markets for cost issues, particularly in fragile countries. IFC focuses on the markets where the private sector has withdrawn and is looking for other partners to co invest. Multilateral guarantees provide capital relief and risk sharing opportunities for Confirming/Funding Banks, which enhances their capacity to support trade finance transactions that would otherwise be challenging if not impossible to book. Thank you! 21