WORLD TRADE  
ORGANIZATION  WT/AFT/W/24 
21 March 2007 
 
 (07-1181) 
Aid for Trade  
  
 
 
AID FOR TRADE 
 
Boosting Trade Financing to Developing  Countries and Economies in Transition
 
 
Note by the Secretariat  
 
 
1. More than 90% of international trade flows involve some kind of credit, mostly short-term.  
Simple and stand-by letters of credit, overdraft s, bills of exchange and bankers' acceptances are 
routinely used in North-North trade.  However, international banks adopted  much more stringent 
lending standards when trading with developing countries and emerging economies after the Asian 
and East European financial crises of 1997-99.  Fees and rates on what is normally inexpensive 
finance were raised, country limits were reduced by  large international banks  and tenors (maturities) 
were cut.  Following these financial crises, the IM F, World Bank, WTO, regional development banks, 
credit insurance agencies and intern ational banks formed a group of e xperts to seek solutions to the 
scarcity of trade finance during the crisis itself, and what appeared to be a more general trend of large 
international banks withdrawing from sm aller developing countries' markets. 
2. While statistics seem to show that in the p ast two years export credit and export insurance 
credit agencies have to a large ex tent filled the gap of trade fina ncing to developing countries for 
fairly large trade transactions (over $1 million), a gap still exists in the market for smaller transactions 
(generally $200,000 or lower) in countries with little access to international markets and/or no or low 
international ratings.  In such countries, even wh ere the banking system is sound, local financial 
institutions do not find partners to share the rela tively limited risk of financing or guaranteeing trade 
transactions.  In order to fill this gap, several re gional development banks (R DBs) have put in place 
"trade finance facilitation programmes" (TFFP) to pr ovide short-term guarante es to international and 
regional banks (confirming banks) to  cover both the political and commercial risks of international 
trade credit transactions emanating from local banks (issu ing banks) or to provide directly to specified 
companies and banks revolving credit facilities or cas h advances to finance trade transactions, all of 
which can be provided at relatively little cost. 
3. The first TFFP, initiated by the EBRD in 1999,  has since helped to finance 5,800 private 
international trade transactions for a total amount of credit and guarantees of some $6 billion.  The 
EBRD scheme was followed by broadly similar sc hemes developed by the Asian Development Bank 
and the Inter-American Development Bank.  These schemes are regularly reviewed to fit the demand 
from customers.  Lately the International Financia l Corporation (IFC), a subsidiary of the World Bank 
Group, has launched a successful scheme aimed mainly  at developing the trade portfolio of local 
financial institutions in Africa (Table 1).  The Execu tive Board of the IFC recently agreed to expand 
the IFC's trade finance operations for the benefit, prim arily, of producers and traders in Africa.  As far 
as it is concerned, the Asian Development Bank is adapting its scheme to further reduce bureaucracy, 
and improve productivity of processing demands, so  as to reduce pricing and increase the trade 
turnover in ADB Member countries. 
 WT/AFT/W/24 
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  TABLE 1 
 
Regional Trade Finance Facilitation Programmes
 
 
 
IFI Started 
(year) Number of 
transactions Trade credit 
lines/guarantees 
($ billion) Issuing 
banks Confirming 
banks Countries 
covered 
EBRD 1999 5,800 6.2 109 630 21
IFC 2005 700 0.7 54 400 30
IDB 2005 51 0.1 22 77 12
ADB 2004 120 0.1 21 65 12
  
4. Donor funding has been supporting the expa nsion of these programmes in two ways: 
• first by allowing some regional development ba nks to share the risk with individual donors 
(national development agencies). To this effe ct, donor funds (risk-sharing funds) are also 
being used to leverage the concessional guara ntees or credit lines provided by RDBs.  For 
example, Austria, Germany, the Netherlands, Norway, Switzerland, and Chinese Taipei are 
participating in a guarantee fund for the EBRD ' TFPP.  Funds may be earmarked for country-
specific activities.  All in all, risk-sharing funds, which are received in the form of grants (but 
which are generally recovered at the end of a country-programme if there have not been any losses) are in the area of $25 million across all institutions mentioned above.  The programme 
managers in the institutions concerned are of the view that an additional $15 to 20 million 
could be absorbed easily, due to the high  demand for these trade finance activities. 
 
• second, donor technical assistance funds are being used by all of the institutions for 
programmes to train experts in the financial sect ors in developing countries in trade finance 
through seminars or in-situ .  The EBRD alone has trained 300 personnel in 65 banks from 
15 countries in South-East Europe and the CIS free of charge on the basis of donor funding.  
Ambitious training programmes have been prepar ed also at the IFC and the ADB and these 
will require donor assistance.  While some funding already exists in the institutions' specific 
trusts (particularly the IFC and the EBRD), it does not fully cover the needs which, across all 
institutions, are in the order of $5 to 10 million.  
 
5. Relatively speaking, TFFPs are not very resour ce intensive, yet they have a proven track 
record of producing results in support, particular ly, of small and medium-scale producers and traders 
in developing countries  There is demand from developing countries for the expansion of these 
programmes and donor funding in this area has a high leverage on trade and can be measured 
effectively.   
Next steps 
 
6. At the time of the emerging markets financial crisis in 1997-98, several WTO Members raised 
their concerns with the Director General about im proving the availability of adequate trade finance 
facilities.  Since Doha, the matter has been discu ssed in the Working Group on Trade, Debt and 
Finance which, in its report to the General Counc il just prior to the Cancun Ministerial Conference, 
stated that "Further efforts are needed by c ountries, intergovernmental organizations, and all 
interested partners in the private sector, to e xplore ways and means to secure appropriate and  WT/AFT/W/24 
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  predictable sources of trade finance, in particular in exceptional circumstances of financial crises." 
(WT/WGTDF/2).   
7. The matter was also raised by WTO Members in the General Council meeting on Coherence 
in May 2003.  In response, the Director Gene ral and the Managing Director of the IMF hosted 
meetings of public and private sector experts in tr ade finance, and the Director-General reported back 
to the General Council on the outcome of these meetings in February 2004 (WT/GC/M/85 and 
WT/GC/W/527).   
8. The adoption of the Recommendations of the T ask Force on Aid-for-Trade by the General 
Council offers a new opportunity to take stock in the WTO of progress made since then in improving 
the access of developing countries to more plentif ul and secure sources of trade finance, and to 
identify areas where unfilled needs still exist.  
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