The International Finance Corporation ( IFC ), the private finance arm of the World Bank, and HSBC have signed a US$1 billion risk-sharing facility that will help banks in emerging markets increase their lending to support trade.

IFC and HSBC will equally share the risk on a portfolio of trade-related assets, valued at up to US$1 billion, held by emerging market banks in 20 countries in Africa, Asia, Latin America and the Middle East. The facility has been set up under IFC’s Global Trade Liquidity Programme ( GTLP ), which was established to address the growing trade finance gap in emerging markets.

Global trade has increased over the last three decades, both parties indicate, growing by an average of 5% a year. However, demand for trade finance far outpaces supply, especially in emerging markets, with the global trade finance gap last estimated at US$2.5 trillion.

In response, the IFC, it notes, has been increasing its trade finance support through programmes like the GTLP and with key partners, including HSBC. The GTLP has supported more than US$80 billion in global trade volume, the global development institute points out, through nearly 30,000 transactions over the past 20 years.

“Trade finance is the fuel that powers the global economic engine,” says Aditya Gahlaut, HSBC’s co-head of global trade solutions for Asia-Pacific. “Reducing the trade finance gap and improving access to finance will be central to fostering growth and sustainability across Asia and the region’s supply chains.”

Mohamed Gouled, the IFC’s vice-president of industries, adds: “Trade finance drives growth and economic development in emerging markets. This facility is designed to improve the flow of trade and enable businesses to create jobs and improve livelihoods.”