An innovative way for small states to obtain easier access to international trade finance has been launched at the Commonwealth Heads of Government Meeting in London.
India, Sri Lanka, Mauritius and Malta have provided $5 million of capital to the scheme, called the Commonwealth Small States Trade Finance Facility. Standard Chartered Bank and the Bank of Baroda are the facility managers.
The Commonwealth Secretariat effectively acts as a guarantor on loans secured to develop trade and sustain economic and social development. This guarantee could release $100 million of incremental trade finance over a three-year period to any of the 31 Commonwealth nations classified as small states.
The Commonwealth’s Secretary-General, Patricia Scotland, said: “This new scheme is an example of the innovative and collaborative approaches that are pioneered by the Commonwealth; they have a hugely positive impact on the lives and livelihoods of people in our smaller and more vulnerable member countries.
“Without such a scheme, small states find it difficult to access the funds they need to diversify their economies and build inclusive prosperity by expanding trade. This impairs their ability to achieve the Sustainable Development Goals.”
The trade finance facility has taken five years to develop by a working group including the International Finance Corporation, Government of Malta, Central Bank of Malta, Export Import Bank of India and the Commonwealth Secretariat.
This working group developed a mechanism, in the form of a guarantee facility, that will encourage international banks to offer higher trade finance lines to financial institutions in the small states by reducing their credit risk.
The concept is based on a highly innovative use of blended finance that seeks to achieve maximum impact with minimal levels of official assistance. The facility is hosted and administered by Malta.
Pilot countries selected for the spring launch include Bahamas, Botswana, Brunei, Dominica, Fiji, Mauritius, Namibia and Seychelles.