Trade Finance Facility

At the 2006 meeting of the Ministerial Council, OFID’s highest policy-making body, a decision was taken to extend OFID’s operations to include trade financing, resulting in the establishment of a Trade Finance Facility (TFF). The main objective of the TFF is to further enhance the promotion of economic development by supporting the trade financing needs of institutions in partner countries, including governments, parastatals, banks and private enterprises.

The need to create the TFF emerged through discussions with officials from partner countries who indicated that the lack of availability of trade financing, together with its high cost, present a substantial burden. For OFID, conducting trade finance operations is seen as a natural progression, complementing its range of other development products, including long- and medium-term project financing in the public and private sectors.

International trade contributes towards economic growth and development in a number of ways: by helping to ensure that countries are not left behind as the global marketplace expands; by promoting regional integration and expanding intraregional markets; and by creating new opportunities and ultimately helping to alleviate poverty. Given the continuing trend towards globalization and the many benefits to be gleaned, many of OFID’s partner countries are actively seeking to adopt an approach that encourages trade. However, for these countries to benefit from a policy of trade liberalization, there is a need to provide suitable financial solutions.

Trade finance refers to the financial instruments developed to assist the flow of goods between countries. OFID support for trade finance will be provided through a variety of different instruments, including loans, lines of credit and guarantees. Loans will be extended directly to clients in beneficiary countries for import or export financing for a wide range of commodities. Lines of credit will be provided to financial intermediaries to finance trade related advances for pre- or post- shipment finance or for financing imports; for example, of capital equipment. Guarantees will allow international confirming banks to accept larger amounts of trade instruments issued by local banks.

In addition to preparing projects directly, OFID plans to cooperate with leading development finance institutions and commercial banks, with a view to adopting co-financing as a means of risk sharing.

The first trade finance project under the TFF, a revolving loan of $10 million
for an import program in the Seychelles, was approved in December 2006.