Finance+&+Credit+Mechanisms


 * __ DOMAIN PROCUREMENT & TRADE FINANCE/TRADE FINANCE __**

=** Finance & Credit Mechanisms **=

The following mechanisms are available in combination with one another to provide financial support for vendors, customers and third party intermediaries in cross-border trade. While two or more lending institutions combining resources is arguably the most popular method of private-private and public-private sector co-financing (see below), the following mechanisms are becoming increasingly popular, in part as a result of active endorsement by [|the International Financial Corporation (IFC)] and the [|European Investment Bank (EIB)].

** Collateral registries **
[|Secured lending] is the most preferred form of lending in formal credit markets, but in developing countries property valued at about $10.1 trillion in 2011 cannot be translated to productive use (“dead capital”) because of non-existing or poorly functioning collateral laws and registries. Collateral provides the basis for free-flowing credit markets, reducing the potential losses lenders face from non-payment. While land and buildings are widely accepted as collateral for loans, the use of movable collateral (such as inventory, accounts receivables, crops and equipment) is restricted because many countries do not have functioning laws and registries to govern secured transactions. Reforming the framework for movable collateral lending allows businesses — particularly SMEs — to leverage their assets into capital for investment and growth. Modern Secured Transactions Registries increase the availability of credit and reduce the cost. Information on the IFC initiatives can be accessed by [|clicking here].

** Credit bureaus **
These bureaus constitute an important element of financial infrastructure that enable financial institutions to perform the essential act of granting credit. Research has shown [|credit bureaus] are critical to the expansion of credit for both individuals and small businesses, since access to credit information is necessary in order to successfully apply technologies such as e-procurement and payment to credit decisions. Details of the UNIFC credit bureau initiative can be accessed by [|clicking here].

** Leasing **
[|Leasing] can be an effective channel for expediting procurements in certain conflict areas and regions subjected to extreme climate disturbance by supporting investments in energy efficiency, renewable energy, cleaner production, and agribusiness equipment. Leasing avoids the delays incident to ownership and disposal, and may be less expensive than financing the acquisition of capital equipment in short-term applications (less than 12 months). An IFC Leasing Guide

** Insurance and export credits **
An "export credit" is a financing arrangement that allows a foreign buyer of exported goods and/or services to defer payment over a period of time, but the expression is also often used for an insurance or guarantee. It is often authorized by governments and for this reason has sometimes been seen as a barrier to free trade as much as a type of financing. When used as an inducement for cross-border trade, the [|European Commission on Trade] considers it an effective form of government-supported financing.

Discussion of other forms of trade insurance can be accessed by __clicking here__.

** Equity investment (securities) **
Promoting private sector investment and improving corporate government standards supports the build-up of technical skills and encourages greater competition, innovation and sustainable commercial success in emerging economies. The [|Asian Development Bank invests as a shareholder] in certain trade development projects. Equity investment provides a necessary infusion of capital in lieu of an outright loan. Commercial lending institutions can also provide this service for trade partners.

[|An IFC initiative] describes how securities markets (particularly bond markets) are available to finance capital transactions, infrastructure, and housing products. Countries with deeper and more active domestic bond markets have the ability to mobilize private funds from national savings and channel them to the most productive sectors of the economy in need of local currency financing. Bond markets also provide long-term assets to rapidly growing institutional investors, such as pension funds and insurance companies. Domestic bond markets help to diversify a country’s financial sector and expand risk management tools for borrowers and investors. The joint IFC/World Bank Securities Markets Group is a global leader in fostering capital market development in emerging market countries. While we support most areas in securities markets, our primary focus is on domestic bond markets, as we see them as more urgently needed in these countries.

** Capital markets **
Capital markets permit businesses to raise long-term funds by providing a market for securities, both through debt and equity. Capital markets offer a whole range of sometimes complicated products that allow businesses and banks not just to raise capital but also to ‘hedge’ (protect) against risks. Various lending organizations including the UNIFC are involved in developing capital release products, and providing Diversified Payment mechanisms.

** Commercial co-financing from multinational banking organizations **
“Co-financing” is support from more than one lending institution where one of the institutions is a government or multinational donor organization assisting developing member country governments and private sector borrowers in securing debt financing on commercial terms through engagement with commercial financial institutions.

Multi-national lending organizations such as the [|World Bank], Asian Development Bank (ADB), and [|African Development Bank (AfDB)] may extend guarantees for eligible projects that enable financing partners to transfer certain risks that they cannot easily absorb or manage on their own. For the private sector partners, potential advantages include
 * additional financial resources to close financing gaps,
 * debt financing at improved rates and terms,
 * access to the larger organization’s resources on due diligence, financial, technical, environmental and socio-economic safeguards, and
 * a lower risk of rescheduling in the event of external debt crises in the borrowing country.

The multi-national lending institution may also be able to mobilize additional financial and credit resources through loan syndication. Examples of such assistance include:
 * formulating risk mitigation structures to attract public and private sector participation,
 * preparing invitations and soliciting financing offers from public and private market sources,
 * evaluating offers received for commercial co-financing, and
 * arranging, negotiating, executing, documenting and monitoring of commercial co-financing instruments.

As an example the [|ADB maintains an active co-financing programme] supporting it own programmes. Commercial co-financing offered by the ADB includes:
 * [|Guarantees]
 * [|Loan Syndication]
 * [|Risk Participations] and [|Reinsurance]

** Other links and references **
The World Bank’s [|Guide on Secured Transaction Systems and Collateral Registries]is available as a manual and toolkit for public and private sector users. []

The IFC List of Confirming Banks able to provide loans, financial services, guarantees and money conversion in compliance with UN/WB standards is available at []

[|The European Investment Fund] maintains a website of initiatives toward improving credit for SME investors that may be accessed at []

[|A separate] [|EIF website for microfinance sources] can be accessed at []

European Commission on Trade provides a website on pros & cons of Export Credits at []