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by Jamaica Gleaner

Jamaica's indigenous banks are being targeted by the International Finance Corporation (IFC) to join its global programme that directs financing to businesses trading across borders.

The IFC's Global Trade Finance Programme, which facilitates the flows of goods and services between developing countries, is attempting to build an alliance with banks to deliver financing to businesses operating in markets where trade lines are constrained.

Essentially, the IFC will guarantee the credit and free the banks of some of the associated risk.

St. Lucia, the other Caribbean island that was targeted, will sign on to the programme next week.

High import profile

Banks from 18 countries in the Caribbean met with the IFC, a world bank subsidiary that offers private sector financing, at a three-day training seminar in Trinidad hosted by the IFC.

"The Caribbean region is a very interesting region for us. There's a very high import profile," said Antonio Alves, IFC's trade finance specialist for the Latin American region.

"All the islands import almost everything, from consumer goods to capital goods, so the main challenge is to help the local bank better understand this and to develop or structure import financing transactions for their clients.

Alves said such deals are currently dominated by the foreign, owned banks operating in the region. The IFC programme hopes to develop similar capacity in the locally owned banks.

Greater access to banks

A key component of the pro-gramme is the access to a network of over 115-120 confirming banks, which allows local importers to reach other export markets.

"It means you as a local bank can have your import letters of credit confirmed by one of those 120 banks that are confirming banks, have access to different markets," said Alves.

"They will contact the IFC and we make the link between issuer and confirming. We provide a guarantee to accept the risk which is an IFC risk," said the trade finance specialist.

Alves said in many cases, confirming banks don't know the Caribbean and do not have a presence in the region, which can slow down transactions.

"So our role at IFC as a multilateral institution is to present to the confirming banks those local banks in the Caribbean, so we will be taking the local bank risk but opening the doors to the international banks, " he added.

The IFC's Global Trade Finance Programme has reached a milestone of US$1 billion in guarantees issued since its inception in October 2005, benefiting a wide range of entrepreneurs in emerging markets.

It has issued 884 guarantees in support of trade transactions worth over US$1.5 billion, has promoted trade worldwide by supporting flows of goods and services to and from developing countries, and helps banks deliver finance to businesses in markets where trade lines are constrained.

The network now includes 75 issuing banks in 50 countries and 105 confirming banks in 65 countries.

Support for small business

About 70 per cent of the programme's transactions have been in frontier markets, defined as low-income or high-risk countries, including Bangladesh, Haiti, Mo-zambique and Yemen.

Around 50 per cent of transactions were in Africa, and more than a third of the guarantees were issued for South-South trade, indicating strong support for trade between emerging markets. The programme supports small and medium enterprises, with 70 per cent of transactions involving guarantees of under US$1 million.

In Latin America and the Caribbean, IFC has issued guarantees for US$426 million, which constitutes 28 per cent of the guarantees issued worldwide.

In the Caribbean, Banco Leon in the Dominican Republic and Capital Bank in Haiti have already joined the programme.

IFC also plans to expand the programme to new markets in Chile, Guatemala, Jamaica, Honduras and Paraguay. It also expects to expand the programme in countries where it already operates, including Argentina, Bolivia, Brazil, Dominican Republic, Ecuador, Haiti, Mexico, Nicaragua, and Uruguay.

Patricia Hamilton, chief executive officer of the Caribbean Association of Indigenous Banks, said some members are already engaged in trade financing, but that the IFC programme would help boost capacity to do even more business.