ADB expands trade finance program, boosting global commerce

MANILA, Philippines - The Asian Development Bank (ADB) has expanded its Trade Finance Facilitation Program (TFFP) to $1 billion, a move that could generate up to $15 billion in much-needed trade support by the end of 2013. The worldwide financial downturn has caused a dramatic reduction in the availability of the financing that companies rely on to trade, exacerbating an already dire global economic situation. The shortage of trade financing has hit developing nations particularly hard as many major international banks focus on rebuilding their capital and reducing risk. “Access to trade finance in times of crisis is vital to cushioning the shock of the global downturn on international trade," says Philip Erquiaga, Director General of Private Sector Operations Department (PSOD) at ADB. “If the world is to emerge from the current economic malaise, it will require a focus on international trade which can help fuel virtually the only growth in evidence, which is in developing countries." ADB has also increased the maximum maturity permitted under the program to three years from two years to support developing member countries' (DMC) efforts to boost their trade competitiveness. The greatest gap in private sector financing lies in the longer tenor. Steven Beck, the PSOD Investment Specialist managing the TFFP, notes that the program provides significant leverage: “One dollar of TFFP exposure can attract a similar amount of private sector financing. This, plus the fact that the portfolio can roll over twice a year, means that the $1 billion program can equal as much as $3 billion in support for trade every year." The TFFP – which started operations in 2004 as a $150 million program – provides finance and guarantees through, and in conjunction with, international and DMC banks to support trade transactions in developing nations. Trade can be a key tool for boosting economic growth and reducing poverty by creating jobs and attracting private capital. By the end of 2008, the program had supported nearly 1,200 international trade transactions worth over $578 million and has been used in nine countries in Asia, without incurring any losses or problem loans. The program's volume of transactions soared by 570 percent in 2008 versus 2007 after a 78 percent increase in 2007. ADB expects the program to be used more widely in countries where it is already active and to be used in at least three more countries by the end of 2009. Currently, 72 international banks and 60 DMC banks are participating in the program. ADB expects the number of participating DMC banks to rise to 100 by the end of 2009. - GMANews.TV