The International Finance Corporation (IFC), the private investment arm of the World Bank, is proposing a $1 billion risk sharing trade finance facility to Standard Chartered Bank to help increase the availability of trade finance in emerging markets.
In a pre-investment disclosure, the IFC said the proposed project will augment trade limits supporting trade flows in and out of emerging markets “at a time when the demand for trade financing far exceeds the limits offered by banks”.
Under the proposal, IFC and Standard Chartered will share the risk of the portfolio on a 50-50 per cent basis, supporting continuous trade flows totaling about $4 billion per year and reaching over 500 companies in emerging market.
“By promoting trade facilitation, the project will help to close the trade finance gap at a time when banks are exiting from the trade space and will help to sustains trade flows of critical goods in key sectors of emerging market economies,” the IFC disclosed.
The IFC added that by integrating new investors into emerging markets-focused trade finance, the project will help channel new sources of capital to support trade flows, allowing these co-investors to replicate similar investments in the future.
Under the proposal, IFC will mobilize necessary resources from other investors to achieve an optimal portfolio size that allows Standard Chartered to continue supporting its growing client base in emerging markets through increased credit limits while optimizing capital usage.
Standard Chartered is headquartered in London, United Kingdom, and has offices in 68 countries. The bank’s Trade Risk Distribution is managed out of its Singapore hub. The proposed project will involve a globally-diversified emerging markets trade finance portfolio, the IFC said.
The two institutions have been jointly financing development projects in emerging markets. They are also exploring other co-financing and risk participation opportunities in underserved sectors such as agriculture, gender financing, and receivable services.