New Delhi, April 7 With trade finance drying up due to the worst global economic downturn, the Asian Development Bank (ADB) has come to the rescue of exporters in developing countries. It has expanded its Trade Finance Facilitation Program (TFFP) to $1 billion.
This move could generate up to $15 billion in trade support by the end of 2013. Currently, 72 international banks and 60 developing member countries (DMC) banks are participating in the programme. ADB expects the number of participating DMC banks to rise to 100 by 2009-end.
By the end of 2008, the TFFP had supported nearly 1,200 international trade transactions worth over $578 million and had been used in nine countries in Asia, without incurring any losses or problem loans.
According to Mr Steven Beck, Private Sector Operations Department (PSOD) Investment Specialist managing the TFFP, “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 programme can equal as much as $3 billion in support for trade every year.
The Manila-based regional development bank has also increased the maximum maturity permitted under the programme to three years from two years to support the DMC efforts to improve their trade competitiveness, a ADB release said.
Short on trade funds
The TFFP, which started operations in 2004 with $150 million, provides finance and guarantees through international as well as DMC banks to support trade transactions in the developing countries. The worldwide financial downturn has caused a dramatic reduction in the availability of the financing that companies rely on to trade. This has exacerbated an already dire global economic situation. Moreover, the shortage of trade financing has hit developing countries 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,” said Mr Philip Erquiaga, Director General of PSOD at ADB. “If the world is to emerge from the current economic malaise, it will require focus on international trade that can help fuel virtually the only growth in evidence, which is in developing countries.”
ADB expects the TFFP 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.
Source : Business Line