Sustainable trade finance ?

Sustainable trade finance ?

As with all other financing, in recent years there has also been an increased focus on sustainability and green transition in relation to trade finance. An example of this is the Green Trade Facilitation Programme (GTFP), which was launched by the European Bank for Reconstruction and Development (EBRD) in 2016, and which is a variant of the bank’s Trade Facilitation Programme (TFP) from 1999. EBRD has a goal that green funding should account for more than 50% of the bank’s activities by 2025, and GTFP is – with funds earmarked for green financing – one of several initiatives to achieve this goal.

Both GTFP and TFP aim to promote and facilitate international trade in the regions where the EBRD operates, i.e. Central and Eastern Europe, CIS, and the Southeastern Mediterranean (SEMED).

And both programmes work in the way that the EBRD provides security for banks in the mentioned regions so that international commercial banks obtain security for political and commercial risks when entering into transactions with these banks. The EBRD can do this because it has more risk capacity in the mentioned regions than the commercial banks have.

Example: An exporter has a supply contract with a customer in Ukraine and the customer’s bank is willing to issue a letter of credit on behalf of the customer. The exporter’s bank is, however, not immediately willing to confirm a letter of credit from the customer’s bank. The exporter’s bank is affiliated to GTFP / TFP as a “confirming bank”, and therefore request a guarantee from the EBRD as security for payment if the customer’s bank does not pay. The customer’s bank is connected to GTFP / TFP as an “issuing bank”, and if the EBRD has available risk capacity on the customer’s bank, a guarantee can be issued to the exporter’s bank, who can then in turn confirm the letter of credit to the exporter. The exporter’s bank pays a guarantee premium to the EBRD, and  will then have no – or only limited – risk if the customer’s bank does not pay when the exporter presents documents for payment under the letter of credit.

Green Technology Selector

Under the GTFP, the EBRD can finance green technologies, products and services listed in the Green Technology Selector (GTS), which is an e-commerce platform. When a company in one of the EBRD’s regions purchases from a supplier listed in GTS, this purchase can be financed under GTFP. Products, technologies, services, suppliers and manufacturers that meet the EBRD criteria can be admitted to GTS.

An order can be financed under GTFP even if the product and the supplier is not already listed in GTS. This is done on a case-by-case basis subject to appraisal by the EBRD. Approved products and suppliers are subsequently admitted to GTS, and thus having a showcase.

How do I get started ?

As an exporter – whether sales are green or not – a good place to start is to find out which banks in your customer’s home country are participating in GTFP/TFP. It’s the same banks in both programmes, and there are presently more than 100 so-called “issuing banks“.

If the customer’s bank participates in the programme, it is “just” a matter of contacting the bank to get things going. If the customer’s bank is not participating in the programme, it should be discussed with your customer and its bank whether it is possible to either 1) route a letter of credit via a participating bank, or 2) have your customer’s bank join the programme.

The next step is to find out if the exporter’s bank participates in the programme as a “confirming bank“. There are presently more than 800 “confirming banks”, of which 3 in Denmark: Danske Bank, Nordea and Svenska Handelsbanken.

It shouldn’t be a problem for an exporter if his “house bank” does not participate in the programme. A letter of credit can easily be advised and confirmed via a participating bank even if the beneficiary (exporter) is not a customer of that bank – and the letter of credit can also allow for documents to be presented for payment via the “house bank”.

Banks who do not already participate in GTFP / TFP as “issuing bank” or “confirming bank” can contact the EBRD for being included in the programme.

MWA Trade Finance support the UN Sustainable Development Goals, and is of course able to support the full process for you in relatioin to financing via EBRD’s programmes, including the Green Trade Facilitation Programme 🙂

Learn more about EBRD’s Trade Facilitation Programme HERE

Learn more about EBRD’s Green Technology Selector HERE

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