Project Description: The Global Trade Liquidity Program (GTLP) is a temporary crisis-response initiative among DFIs and donors (the Participants) to support trade finance in the developing world. The GTLP will pool resources from Participants and will use 2 primary investment structures:
A risk-sharing structure whereby funding will be channeled to local trade finance banks through international banks and
Direct dedicated lines of credit to local banks with regional coverage.
Sponsor: The IFC is the sponsor of the GTLP and will act as Agent on behalf of the participants. The IFC has a strong track record in the trade finance sector with its guarantee program that was started in 2005.
Cost Structure and Financing Plan: The GTLP aims to mobilize USD 5 billion of resources from the Participants. This will be used to catalyze up to USD 50 billion of trade finance operations over 3 years, of which USD 15 billion will be targeted for Africa. Each Participant will each pay a one-off, upfront fee of USD 250,000, plus an annual administrative fee equal to 0.3% of committed amounts.
Role of the AfDB:The Bank will make an initial investment of USD 500 million into the GTLP that will be used exclusively to finance trade in Africa.
Implementation Arrangements: A Co-Investment and Administration Agreement will govern the implementation of the GTLP and all funds will be channeled through a master account that is administered by the IFC as Agent. The IFC will identify and appraise the banks that will qualify for the GTLP on behalf of the Participants.
Market: The global financial crisis has precipitated a sharp slowdown in trade financewhich is negatively affecting the real economies of developing countries. The estimated global funding gap for documentary trade is USD 100-300 billion p.a., of which as much as USD 90 billion is for Africa. The GTLP is a timely response to the crisis that will help to offset some of this slowdown by providing liquidity and sharing risks with banks actively involved in the trade finance sector.
Justifications for the Bank’s Involvement:
Strategic Alignment: The promotion of trade and commerce underpins the development strategies of RMCs. The Bank’s Trade Finance Initiative is a temporary strategy to respond to the request by Africa’s finance ministers to address current market constraints. Therefore the GTLP aligns well with both RMC and Bank priorities.
Commercial Viability: Trade finance is considered one of the lowest-risk asset classes with historicalloss rates less than 0.1%. The IFC, which has a 0% loss rate in trade finance, has the experience and capacity to successfully take on the role of Agent on behalf of the Participants. The risk-adjusted returns of the GTLP are attractive.
Development Outcomes: By providing liquidity and sharing risk with African financial institutions, the GTLP will facilitate Africa’s exports and imports at a time when the global financial crisis is cutting off critical funding. The projected USD 15 billion of GTLP resources for African trade finance will support African economies and reduce job losses. The GTLP is expected to have a strong demonstration effect to catalyze African and international banks back into the trade finance sector.
Additionality and Complementarity: An initial USD 500 million investment by the Bank will make it the GTLP’s singlelargest contributor to African trade finance. The Bank’s presence in the transaction has also helped to increase the share of GTLP resources targeted for Africa. By using the IFC’s trade finance platform to achieve economies of scale, the GTLP demonstrates strong complementarity among the Participants.