Trading places

Trade finance is the lifeblood of global commerce as it provides essential financial services and instruments such as credit and guarantees. Financial institutions, including multilateral development banks, are a critical facilitator of trade, with around 40 percent of goods traded worldwide supported by bank-intermediated trade finance. 

However, despite this critical role of trade finance, merely providing trade finance products is not enough to promote healthy, efficient and sustainable trade value chains. An entire trade ecosystem is needed to contribute to lasting economic growth and stability. This involves not just financial support, but also robust policies, targeted assistance to micro, small and medium-sized enterprises (MSMEs), and the building of physical infrastructure as well as institutional and human capacity. 

In 2022, the Asian Development Bank (ADB) reported that the global trade finance gap had surged to a record US$2.5 trillion, up from US$1.7 trillion in 2020. This describes the mismatch between the much higher demand for trade finance and the much smaller available supply. In developing economies, large corporates and multinationals have access to trade finance, but for small businesses funding is a challenge, for example due to lack of collateral and credit history. A study by the International Finance Corporation (IFC) and the World Trade Organization (WTO) in 2023 noted that in regions like West Africa and the Mekong in East Asia less than 20 percent of trade was supported by trade finance compared to 60-80 percent in advanced economies. 

“We are currently facing a poly-crisis with numerous global challenges. This began during the COVID-19 pandemic, which caused a severe hit to global trade and was exacerbated more recently by geopolitical events and rising interest rates and inflation. We are witnessing a trend away from globalization while dealing with increasingly complex regulations and the retrenchment of global banks,” says Khalid Khadduri, Director, Business Development, Private Sector at the OPEC Fund. These challenges are making it harder for financing to be available where it is needed most. 

The OPEC Fund launched its trade finance operations in 2006 and has since provided over 11,000 unfunded guarantees globally for over US$12 billion, benefiting partners and issuing banks. The OPEC Fund’s operations cover various financial solutions, including import and export financing, structured commodity finance and unfunded risk-sharing programs. 

“We operate across all our product range to support the trade ecosystems in our partner countries. This includes working directly with financial institutions, providing lines to facilitate trade, supporting small and medium-sized enterprises and directly partnering with corporates,” Khadduri explains. 

Trade is center stage for the 2030 Agenda 

The 2030 Agenda for Sustainable Development recognizes international trade as an engine for inclusive economic growth and poverty reduction and a vital means of achieving the Sustainable Development Goals (SDGs). The OPEC Fund aligns its trade finance operations with strategic priorities that support the SDGs, contributing to goals such as SDG 1 – No Poverty, SDG 2 – Zero Hunger, SDG 3 – Good Health and Well-being, SDG 8 – Decent Work and Economic Growth, and others. 

“We are employing a multi-faceted approach to address these challenges in the global context and to align our trade finance operations with the SDGs on different dimensions,” says Khadduri. The approach includes working with governments on improving policy frameworks. For example, in 2022, the OPEC Fund provided a US$100 million loan to promote financial sector inclusion in Morocco. Under the Financial and Digital Inclusion Program, co-financed with the World Bank, the Moroccan government is providing households and firms with affordable, responsible and sustainable financial services to create an enabling business environment while also enlisting the private sector in support of economic and social inclusion. The main objective is to improve access to digital services for individuals and MSMEs, including start-ups. 

How does this relate to trade? Digital platforms and financial technology can streamline trade processes, reduce paperwork and enhance traceability in supply chains. The use of electronic bills and smart contracts can expedite transactions and reduce the risk of fraud. 

Another dimension is supporting SMEs through local financial institutions or directly working with corporates. The OPEC Fund’s work to date has provided support to more than 800,000 SMEs around the globe. In most successful economies, these companies are the engines of growth, innovation and jobs. 

New products such as sustainability linked loans (SLLs), tied to trade, are also under preparation by the OPEC Fund. SLLs are an innovative financial product designed to incentivize businesses to achieve environmental, social and governance (ESG) targets. Unlike traditional loans, SLLs tie the loan terms to the borrower’s performance against predefined sustainability objectives. This structure encourages companies to reduce their carbon footprints, enhance resource efficiency and promote sustainable practices across their operations and supply chains. Implementing such products in a way which will help to decrease the environmental impact of trade can have a multiplying development impact. 

Similarly, the OPEC Fund has recently approved its first SSL, which will contribute to enhancing the food value chain in sub-Saharan Africa. 

The OPEC Fund and SDGs: Boosting trade, tackling hunger 

SDG2 - In 2024, the OPEC Fund and City Bank PLC signed a US$30 million loan agreement to support international trade by providing financing to import and export companies in Bangladesh, especially in the agriculture and green energy sectors. 

SDG2 - In 2022, the OPEC Fund provided US$50 million to an ITFC syndicated trade finance facility of US$100 million to improve food security in Uzbekistan by supporting the import of wheat and other critical agricultural products. 

SDG9 - The OPEC Fund is also supporting the development of trade infrastructure, including ports and critical roads for international shipping. The OPEC Fund has financed several ports from Togo in West Africa to Pakistan in South Asia that support transportation and logistics, helping to reduce trade barriers and costs. 

ETC Group 

Country: Africa & Global 

Type: Trade & Corporate 

First transaction: 2009 

Since its establishment in Kenya in 1967, ETC Group has developed into one of the largest independent agricultural commodity supply chain managers in Africa. It owns more than 300 warehouses and operates over 70 processing plants. Several OPEC Fund loans, with the first US$30 million facility provided in 2009, have helped ETC expand its infrastructure and processing capacity. More than 350,000 smallholder farmers have benefitted and over half the funds have gone to Least Developed Countries.