OREANDA-NEWS. January 23, 2009. The EBRD was the first international financial institution to establish a programme that facilitates trade with and between countries in south-eastern Europe, Central Asia, Russia and Ukraine, reported the press-centre of EBRD.

The Trade Facilitation Programme (TFP) has been the main source of trade finance for private banks in markets such as Armenia, Azerbaijan, Belarus, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan and Uzbekistan. But it is in the current financial crisis that the TFP has seen demand for its services grow beyond expectations. Rudolf Putz, Head of TFP, tells more.

How is the financial crisis affecting trade finance in the region?
Trade is suffering from the current lack of liquidity and risk taking capacity in the market. Client banks participating in the Trade Facilitation Programme have a limited capability for lending to businesses because funds from their main source of financing, foreign lenders, are drying up. Banks in the Commonwealth of Independent States in particular – in Kazakhstan, Russia and Ukraine – are hardest hit by the liquidity crisis.

In the current climate, the TFP has become the only source of trade finance for some banks. Through local lenders, it is bringing much-needed liquidity into the economy, to clients engaged in trade. The Programme has seen demand for finance rise by 50 to 100 per cent in the last months.

The TFP has already provided EUR4.8 billion in financing across 7,796 transactions since it was set up in 1999. In 2009, the programme’s budget will see a significant increase from EUR 800 million to EUR 1.5 billion to boost trade with and within eastern Europe, Central Asia, Russia and Ukraine.

How does the finance reach businesses in the region?
Through TFP's guarantee facilities and loan facilities. Through the guarantee facilities, the EBRD covers risks for banks in the countries of operations, so that they can lend to local businesses. Exporters in developed countries do not sell goods to importers in our countries of operations unless they receive a bank guarantee that the importers will pay.

It is this guarantee that the exporter uses to apply for finance in order to cover production costs of goods wanted by the importer. It works well so far because all four players, the exporter and his lender, and the importer and his lender, trust each other. But if the exporter’s lender doesn’t trust the importer’s lender, then the guarantee provided by one bank to the other that the importer will pay the exporter, means nothing. In such cases, the EBRD’s Trade Facilitation Programme covers the payment risks through its guarantee facility, thus lending its credibility to make trade flow.

And when an exporter needs liquidity instead of a guarantee or in addition to a guarantee, as many do in the current financial crisis, then the EBRD provides loans via local banks to businesses in the region so that trade keeps moving, people’s jobs are preserved and the real economy keeps working.

Do other international financial institutions have similar programmes?
The EBRD has helped the Inter-American Development Bank and the Asian Development Bank (ADB) to establish similar trade programmes. The IFC has also established a similar programme.

A conference about the impact of the financial crisis on trade finance will take place at the Bank on 29 January. What do you expect to achieve from the conference?

The EBRD will listen to banks that take risks on behalf of exporters in the developed world and importers in the emerging markets, and assess the needs of businesses in the current climate. We will gather first-hand experience of how the financial crisis is affecting trade finance in the EBRD region, take in that knowledge to best adapt the programme to our partner banks’ needs. The TFP has been instrumental in providing finance for many of our client banks lending to businesses and will remain so in the current financial climate.

You can learn more about the Taiwanese donor-funded conference on http://www.ebrd.com/apply/trade/conf/index.htm.