Global Trade Finance in Latin America and the Caribbean
Global trade is a vital artery to economic growth. IFC’sGlobal Trade Finance Program currently includes more than 58
issuing banks, covers 21 countries in Latin America and the Caribbean, and represents a total of $1.95 billion in approved trade lines.
The most active banks are in Argentina, Brazil, Guatemala, Honduras, and Uruguay. Transactions commonly average $1.2 million for pre-export and import financing, supporting mainly agribusiness and infrastructure industries. Despite recent capital flow constrictions, IFC remains committed to keeping trade finance alive for small and medium enterprises (SMEs) in the region.
A COUNTERCYCLICAL APPROACH
As a small bank in a small market, Costa Rica-based Banco Improsa was at a distinct disadvantage when it came to providing trade finance for the SMEs that make up the bulk of its business.
“We used to lose about 15 transactions each year because we did not have relationships with banks in other parts of the world, especially in Asia and India, that were willing to bear the risk,” recalled Bernal Allen, Banco Improsa’s financial manager.
IFC’s Global Trade Finance Program (GTFP), which provides guarantees for risk mitigation in emerging markets, changed all that. After joining the program in June 2009, Banco Improsa gained access to a global network of international banks which help facilitate trade among SMEs - an essential engine of economic growth, representing approximately 70 percent of Costa Rica’s GDP. In its first transaction with the program, Banco Improsa financed a small, family-owned business in San Jose, which imported notebooks from an SME in Mumbai, India.
“Before IFC, we could not have helped the company, and we would have lost the transaction,” Allen said. “IFC’s guarantee helped us close this deal by covering the country risk and credit risk that the correspondent bank wanted to mitigate.”
Since launching the trade finance program in 2005, IFC has issued approximately $12 billion in guarantees worldwide. In Latin America and the Caribbean we have provided $1.95 billion in trade finance support since February 2006, when the program began in the region.
The GTFP links more than 360 participating confirming and issuing banks - including more than 100 in Latin America and the Caribbean - into a global network that expands access to finance for key productive sectors. It has also helped mitigate the regional impact of the financial crisis; local issuing banks have turned to IFC to facilitate trade funding in times of tight liquidity, while confirming banks have used IFC’s AAA credit-risk guarantee to diminish their risk.
“During the peak of the crisis, IFC’s trade finance program was crucial to maintaining the flow of business for local banks and, by extension, small and medium producers,” said Antonio Alves, IFC’s Trade Finance Officer for Latin America and the Caribbean. “We open doors for local banks that are limited due to their small size, their network of correspondent banks, or the political risk in their countries. Our track record shows that issuing banks don’t double their trade portfolio - they triple and quadruple it because of IFC’s support.”
For Santo Domingo-based Banco Leon, IFC’s trade guarantees came at just the right time.
“We had just acquired a bankrupt institution and had grown to ten times our size,” recalled Manuel Pena Morros, Chairman of the board of Banco Leon. “The facility gave us a boost. It opened up a network of correspondent banks and provided credibility both in the Dominican Republic and abroad.”
The guarantees help Banco Leon maintain flows of credit that facilitate imports to the Dominican Republic.
“When there is a supplier abroad who doesn’t recognize Banco Leon or doesn’t accept our letters of credit, IFC provides the guarantee and the supplier feels comfortable with the risk,” Pena Morros added. “It is an important facility for us and, at the end of the day, for our clients because they are the ones who benefit.”
EXTENDING OUTREACH Alejandro Conforte, Head of International and Financial Institutions at Nuevo Banco Comercial, the third largest bank in Uruguay, said IFC’s trade guarantees help his institution extend its reach.
“Once you have IFC as an intermediary, you get to do business with banks you don’t have a relationship with,” said Conforte, whose bank signed with IFC in 2007. “Our bank in the south of Brazil used to have trouble getting a credit line. After we were linked to IFC, we went from $1 million in credit lines to $15 million in one month in 2008. This helped us provide services to our customers and grow our business.”
Over 80 percent of the trade finance program in the region supports SMEs, and close to 45 percent is aimed at trade between developing countries. Currently, the program includes more than 58 issuing banks, covering 21 countries in Latin America and the Caribbean, and representing a total of $1.95 billion in approved trade lines. The most active banks are in Brazil, Argentina, Honduras, Uruguay, and Guatemala. Transactions commonly average $1.2 million for pre-export and import financing, which helps support mainly agribusiness and infrastructure industries.
IFC has approved at least one bank in every Central American country. We are now focusing on approving banks in the Caribbean region which might be hindered by their size or lack of international visibility.
“The IFC guarantee raises the international profile of local banks in countries with small economies,” Alves said. “We also provide technical assistance and training to improve the knowledge and capacity of the local staff. The bottom line is to empower local banks to take on bigger trade deals.”
IFC's Global Trade Finance Program (GTFP) Facts:
IFC’s Global Trade Finance Program has issued more than $3.9 billion in guarantees to facilitate trade flows in Latin America and the Caribbean since the program’s inception in the region in 2006.
IFC’s network in the region includes 58 issuing banks in 21 countries.
Nearly 70 percent of the guarantees issued benefited local small and midsize businesses and supported interregional trade flows among emerging-market nations.
The program has issued $12 billion in guarantees worldwide.
Latin America and the Caribbean has been the most active region for the past three fiscal years, representing about a third of the program’s global volume.