Banking

Citi: FIs' Role In Creating Resilient Global Trade Finance Initiatives

Resiliency In Global Trade Finance Initiatives

When Citigroup and the International Finance Corp. (IFC) teamed up more than a decade ago, the world remained in the midst of an economic crisis that hit small and medium-sized businesses (SMBs) in emerging markets especially hard. Their tie-up led to the creation of the IFC's Global Trade Liquidity Program. Since its 2009 debut, the fund has connected businesses to $35 billion in trade finance.

With the coronavirus pandemic creating the latest wave of global economic disruption, Citi and the IFC are once again joining forces with an additional $800 million fund aimed at connecting SMBs in emerging markets to the trade financing they need to keep the doors open and keep the economic wheels turning.

Speaking with Karen Webster, Citi Treasury and Trade Solutions Global Head of Trade Ebru Pakcan took a glimpse back at the start of the IFC collaboration and explored the strategies the partners took that set the stage for a swift response to today's economic crisis. 

Disbursing Risk

As PYMNTS recently reported, the Asian Development Bank has found that the global trade finance gap today stands at an estimated $1.5 trillion. It's too early to tell how the pandemic might lead to an expansion of that gap, but it has clearly persisted for years despite initiatives from FinTechs and banks that aimed to broaden trade finance availability.

Though these independent efforts are important, Pakcan emphasized the role of collaboration in connecting SMBs to the financing they need to conduct global trade.

In addition to working with IFC, Citi is also collaborating with several correspondent banking partners to facilitate financing. The risk is split and disbursed between these collaborators, enabling more financial institutions (FIs) to participate in the effort. Working independently can create concerns within an institution around risk exposure, Pakcan said, as well as balance sheet and liquidity constraints.

"The Global Trade Liquidity program is really a risk-sharing facility that allows us to do more business with the qualifying and emerging market FIs in the qualifying countries," she noted.

This risk disbursement model protects FIs while expanding trade finance access for the markets that need it most, and to businesses hit hardest by the pandemic. According to Pakcan, this is why collaboration is one of the key pillars of the initiative, with tie-ups also offering new opportunities to grow important data sets and connect to SMBs that aren't necessarily direct clients.

Contingency Planning

There are two other key pillars of the program that emerged from the experience Citi and the IFC had when working together in 2009, continued Pakcan: infrastructure investment and contingency planning.

Although Citi nor the IFC could have predicted the pandemic at the time, the creation of the fund in response to the global financial crisis set in place the key infrastructure and processes needed to quickly respond to the next market event. 

With the infrastructure established more than a decade ago, the tools were already in place to enable an FI like Citi to quickly inject funds for businesses in emerging markets. Investment in that infrastructure enabled the capacity and monitoring processes that are key to facilitating trade finance, noted Pakcan.

"I think in the future, especially with the continuous globalization, investments in technology and the ability to actually bring such processes to the market will continue to be very important," she said.

Finally, the role of contingency planning in lowering the barriers to launching such an initiative was also vital to the resiliency of the program. Though Pakcan acknowledged that the world continues to change — and certainly does not look the same as it did a decade ago — the ability for technology and infrastructure to adjust to shifting market needs is a critical component to success.

While the majority of the funding targets for Citi and the IFC are the same today as they were back in 2009, there are some different ways in which markets and businesses were hit hardest by the pandemic. With the ability to respond appropriately, initiatives and technology can make the greatest positive impact — not only at the local level, but also on a global scale, as supporting SMB traders in emerging markets means broader support for world trade.

The focus on resiliency should be embraced by financial service providers as well as the businesses they're helping, added Pakcan.

"We're living in a world where operational resilience is very important," she said. "It can come in different ways, so anything that anybody can do in preparation, which may end up getting leveraged for different reasons, is hugely valuable. And I think we should all learn a lesson of operational resilience and readiness."

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