The importance of trade finance to economic growth

ADB Trade Finance Survey (4th Quarter, 2012) assessed gaps and links to production and jobs Key Findings 5% trade finance increase would equal 2% production increase 2% more jobs

Trade finance gaps Unmet global trade finance demand: $1.6 trillion of which $425 billion in developing Asia

Market Gaps in Trade Finance

1. Low country ratings/ country risk

2. Weak banks in dev. countries

3. AML/ KYC requirements/ costs

4. Capital requirements/ Basel 3

5. Shocks/ Crises

Market Gaps in Trade Finance

What are TFP Objectives?

Fill market gaps

ADB’s Trade Finance Program (TFP) provides guarantees and loans through banks to support trade.

over 200 partner banks Issuing banks Confirming banks

guarantees and loans in 24 hours

TFP and Its Objectives

Credit Guarantee Product ADB provides guarantees in 24-48 hours to confirming banks covering up to 100% of non-payment risk.

Issuing Bank –

e.g. Bhutan

Exporter -e.g. Sweden

Importer - e.g. Bhutan

Confirming

Bank – e.g. Sweden

Signs sales agreement

Requests opening of a payment obligation (such as L/C) in favor of exporter

Assumes importer risk

Issues payment obligation (such as L/C)

Assumes political/commercial risk

Requests credit guarantee issuance under TFP limit. Request can originate from either issuing or confirming bank

Issues guarantee (for up to 100%) in favor of confirming

bank

Confirms/guarantees issuing bank payment

obligation (such as L/C)

Ships goods

ADB activity

Confirming/issuing bank activity

High Development Impact

6

443

297 263

783

441

277

1,803

1,063

668

2,032

1,366

1,577

2,120

1,672

1,806

Trade transactions Intraregional trade SMEs supported

2009 2010 2011 2012 2013

90 Dev. Country Banks in 18 Countries

Azerbaijan

Afghanistan

Uzbekistan

Pakistan

Sri Lanka Bangladesh

Nepal

Mongolia

Cambodia

Indonesia

Philippines

Vietnam

Armenia

Georgia Bhutan

Kazakhstan

Tajikistan

Kyrgyzstan

TFP Geographic Overview

TFP focused on most challenging countries. Assumes no PRC, Indian, Thai, or Malay risk.

Top 5 Countries in 2013: Viet Nam

Pakistan

Bangladesh

Sri Lanka

Uzbekistan

Philippines: small gap: TFP has exited

Expand into Myanmar and Pacific Islands

Results Growth of Transactions Supported

2004 - 2013

9

TFP Works to Make Itself Redundant

‘Crowding-in’ banks and insurance: TFP attracted $2.3 billion co-financing in 2013

Providing guarantees leads banks into new markets: concrete examples

Filling data gap. ICC-ADB Trade Finance Register: proof to regulators and private sector of low risk

TFP WEBSITE: www.adb.org/tfp