The US International Development Finance Corporation approved a $500 million trade-finance facility on 16 September. The board-backed structure will provide a counter-guarantee to the International Finance Corporation for its Global Trade Finance Program. DFC said the partnership would share risk on guarantees issued exclusively for US exports. Chief executive Ben Black told Reuters the facility could enable up to $20 billion of exports.
The transaction formed part of more than $8 billion of new investments approved by the DFC board. The agency said the trade-finance project would help foreign banks expand their capacity and facilitate purchases of US goods. It is intended to connect local companies and issuing banks with US exporters and confirming banks. DFC also projected that the programme could support as many as 10,000 US jobs.
GUARANTEES TARGET UNDERSERVED BANKS
The facility will focus on smaller banks and financial institutions in Central and South America, Southeast Asia and Africa. These lenders can face constraints when financing imports from US suppliers in markets carrying higher payment or country risk. The counter-guarantee is designed to share that risk with IFC rather than extend direct loans to importers.
DFC identified agriculture, primary metals, computers, electrical products, light vehicles and industrial machinery among the sectors expected to benefit. The facility is also intended to support smaller US companies that may be less able to absorb the risk of importer default. DFC will earn fees on the guarantees, while participating banks will retain responsibility for the underlying trade transactions.
IFC PLATFORM PROVIDES EXISTING NETWORK
IFC’s Global Trade Finance Program provides guarantees through a network of issuing and confirming banks in emerging markets. Black said the programme had supported $141 billion of trade over 20 years without losses. Using that platform allows DFC to add US export capacity without constructing a separate correspondent network.
The approval establishes the facility but does not identify the first participating banks or the timing of initial guarantees. DFC said it would begin with institutions in countries that have previously imported US goods. Disclosure of that lender list and the first supported transactions will be the next milestones for assessing whether the facility approaches its stated $20 billion potential.