Steven Beck, Head of Trade Finance at ADB, discusses the importance of trade finance to economic growth and the performance of ADB's Trade Finance Program.
The TFP works exclusively through banks. The reason for this is two fold:
- Banks are important intermediaries in trade and ADB does not want to displace them. It wants to support and broaden their ability to act as intermediaries, especially in the most challenging markets;
- ADB does not have the staff and extensive branch network of banks, so from a practical perspective ADB works with financial intermediaries (banks), leveraging resources and complementing respective areas of strength.
The TFP has three main products.
Credit Guarantee
ADB provides guarantees of up to 100% risk protection against nonpayment by approved participating banks, in support of trade transactions, responding within 24 to 48 hours of receiving a request. Through this support, the Credit Guarantee (CG) product establishes new partnerships between banks and companies, therefore increasing trade and access to challenging markets.
Risk Participation Agreement (RPA)
For banks with large and consistent trade finance volumes, ADB provides a maximum 50% risk protection against nonpayment of a financial obligation issued by a bank in support of a trade transaction. Unlike the CG product, the Risk Participation Agreement (RPA) provides risk protection on a portfolio basis, rather than on a transaction-by-transaction basis. The RPA provides partners with an innovative and highly efficient vehicle to manage portfolios of trade assets, providing banks with the capacity to support more companies in challenging markets.
ADB shares country and commercial risks (up to 50% of transaction value and participation limit) on a portfolio basis with banks that have large and consistent trade finance volumes.
Revolving Credit Facility
The RCF is focused on lending to issuing banks located in ADB's developing member countries (DMCs) to fund the banks' advances to importers and exporters for pre-shipment and post-shipment financing. These loans are on-lent to exporting and importing companies in Asia's less developed emerging markets.
ADB provides pre- and post-export financing through local banks.
