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SPECIAL FEATURE


A ROBUST RECOVERY, BUT…


Access to trade finance remains challenging in countries that have the strongest potential for trade expansion.


The Asian Development Bank Institute reported in 2017* that trade finance shortfalls now occur regularly. Does this matter for trade expansion and economic development in developing countries? It’s true that global trade finance has resumed following the 2009 global financial crisis. But the Bank notes that the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. In contrast, access to trade finance remains challenging (not least because it’s


expensive) in countries that have the strongest potential for trade expansion. Where trade finance functions well, it allows firms to link into expanding global value chains and contribute to employment and productivity growth. Conversely, companies that have no access to trade finance will struggle to survive.


Some 80 to 90 percent of world


trade relies on trade finance, mostly of a short-term nature, according to the WTO. The WTO is seeking to encourage ‘the revival of the complex links and networks involved in the trade finance market


in order to keep finance flowing for trade.’ As recently as February this year, speaking to the Expert Group on Trade Finance at the WTO, Deputy Director-General Alan Wolff called on the trade finance community to build on the significant progress in recent years in reducing trade finance gaps in developing countries. He highlighted Director-General Roberto Azevêdo’s initiative to increase the availability of trade finance for small and medium-sized enterprises and urged participants to continue developing ways to address shortages of trade finance.


TOGETHER FOR TRADE FINANCE


“OFID and the ITFC share values – we are both


fully committed to the United Nations 2030 Agenda for Sustainable Development.“


Saud Al Rajhi


In 2007, OFID and the International Islamic Trade Finance Corporation (ITFC) – one of the world’s leading Islamic Law Shari’ah-compliant trade finance and trade development providers – began working together to restore some of those complex links and networks the WTO calls for. Together, the two organizations provide trade finance to support the socioeconomic progress of people across the Islamic world. During the 12 years since 2007, OFID has contributed more than US$2.1 billion to transactions worth many times this amount syndicated by the ITFC. The relationship is still strong – and growing. ITFC has developed key


strategic partnerships with different counterparts including governments, banks, financial institutions and multilateral development banks, to achieve its mandate in designing and implementing trade solutions and programs that serve best its member countries. One of the key partners is OFID. Eng. Hani Salem Sonbol, ITFC CEO, says “In recent years, ITFC has shifted its focus towards supporting global value chains. Today, one-third of all ITFC financing, amounting to US$ 1.7 billion in 2018, is directed


towards 14 Least Developed Countries from the Organisation of Islamic Cooperation. In 2018, ITFC provided US$750 million of financing to strategically important value chains, in key sectors such as cotton, groundnuts and coffee, which is intended to bring stability and better livelihoods to over 600,000 farmers in member countries.” “In addition to financing, emphasis is put on supporting and implementing trade-related technical assistance and capacity building programs to enhance the quality of goods and commodities for export into the global economy. In the agriculture sector, key areas of intervention must therefore include critical areas of the value chain, from farm input to processing, pre-export, and export,” says Eng. Sonbol. Saud Al Rajhi, OFID’s officer in


charge of the relationship with the ITFC says: “OFID and ITFC share values – we are both fully committed to the United Nations 2030 Agenda for Sustainable Development. We are keen to continue to strengthen this partnership to avail OFID’s resources to an even wider range of beneficiaries in more countries around the world. Working with


ITFC, we help fund a range of beneficiaries along the trade value chain, from supporting smallholder farmers in securing seeds and technical assistance to increase yields and guaranteed selling prices, to supporting the energy security of developing countries via helping sovereign states to import fuel, gas and other energy inputs. Our loan portfolio covers agriculture, banking and finance, commodities, energy, industry, health and mineral resources.” The difficulties of most developing countries in attracting development finance, from private or public sources, are acknowledged. Before the financial crisis, big banks deployed a reported US$14 trillion per year for trade finance. But new regulations and volatile commodity prices, among other obstacles, have caused that figure to drop, meaning new lenders must fill the gap. OFID and the ITFC are working hard to play their part, but big efforts are needed by all countries, intergovernmental organizations and the private sector to explore appropriate and predictable sources of trade-finance.


* https://www.adb.org/sites/default/files/ publication/236486/adbi-wp702.pdf


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