IFC, Citi Launch $800M Fund To Support Trade Finance In Emerging Markets

The International Finance Corp. (IFC) and Citigroup Inc. have established an $800 million fund to boost trade finance in emerging markets.

IFC, the Washington, D.C.-based global financial institution that offers investment services to encourage private investment in developing countries, and Citi, the New York-based international investment bank, said the mission of the initiative is to support trade and help businesses cope with the devastation caused by COVID-19.

The deal, part of IFC’s emergency response to the pandemic, promises to support the flow of commodities in countries where businesses face financing challenges and the disruption of cash flows due to the outbreak of the virus, according to a Wednesday (July 1) announcement.

IFC and Citi said they will share the risk in the portfolio of trade-related assets on a 50-50 basis.

“Across the globe, the COVID-19 pandemic is disrupting supply chains, decreasing demand, and causing overall market anxiety,” said Paulo de Bolle, global director of IFC’s Financial Institutions Group, in a statement. “Many businesses, especially small and medium-sized enterprises, are being forced to close their doors. By rapidly increasing our capacity to deliver trade finance, IFC and Citi can help businesses maintain their operations during the crisis and speed their recovery when the pandemic eases.”

The signing extends an existing fund under IFC’s Global Trade Liquidity Program, bringing the total to $2 billion. Since it was launched in 2009, the monies have financed a total of $35 billion in trade, with $13 billion in low-income and lower middle-income countries and $3.5 billion directed to the world’s poorest countries.

The partnership has secured financing for 4,600 trade transactions through 185 banks in 48 emerging market countries.

Last month, PYMNTS reported the trade finance gap is estimated at $1.5 trillion. While disturbing, it presents an opportunity for FinTechs at a time when the market is ripe for banking disruption and digitization.

In recent years, FinTech innovators have latched onto cutting-edge technologies, from open banking to blockchain, in an effort to tackle some of the most pressing challenges of trade finance that hamper the flow of cash to global B2B traders. But the trade finance gap remains.

In May, Citi said use of its digital banking channels surged in the first quarter of 2020 as the COVID-19 pandemic swept the globe. The globe bank has expanded the reach of a key digital platform, making it available in 37 countries and five languages.