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WASHINGTON, D.C., June 21, 2000 — The International Finance Corporation and a major European bank, WestLB, will establish a US$375 million global forfaiting facility to stimulate trade in emerging markets.
Forfaiting, a trade finance product which introduces trade receivables into the secondary market, can provide deeper liquidity and longer term trade finance. WestLB will undertake forfaiting transactions that will be guaranteed by pre-selected local eligible banks. IFC will back 40 percent of West LB's exposure to each transaction. The facility will operate for five years on a revolving basis, with IFC's guarantee on each individual transaction limited to three years. IFC's partial guarantee will encourage WestLB to take on more exposure than it otherwise would have.
Under the global agreement, four facilities have already been approved and will be finalized in the coming months—the China Forfaiting Facility for China; the Middle East North Africa Forfaiting Facility for Egypt, Jordan, Lebanon, Morocco, and Tunisia; the South Asian Forfaiting Facility for India, Bangladesh, and Sri Lanka; and the Thailand & Philippines Forfaiting Facility for Thailand and the Philippines.
Javed Hamid, IFC Director for East Asia and the Pacific, said the agreement was based on the success of the Korea Forfaiting Facility, which IFC and WestLB established in early 1999 in the aftermath of the Asian crisis to ease Korea's shortfall of trade finance. That Facility increased liquidity in Korea's trade finance market and improved access for importers and exporters. The same model will be used under this agreement to promote trade in new regions, which will encourage growth in the most productive sectors of local economies, he added.
Ulrich Zierke, Managing Director of International Trade and Commodity Finance of WestLB, appreciated the recent successful cooperation with IFC in the Korea Forfaiting Facility and looks forward to implementing this concept on a global level. Margrith Lutschg, also of WestLB, added that this facility will benefit the development of trade in participating countries and promote the export sectors of those economies.
IFC has recently engaged in trade finance activities with other sponsors, including the Korea Trade Enhancement Facility with Sumitomo Bank; the Korea Trade Enhancement Facility with Bank of America; and the Pakistan Trade Enhancement Facility with ABN AMRO Bank, which rely on other instruments of trade finance, such as confirmation facilities for letters of credit and bankers acceptances. Another facility, the Indonesian Trade Credit Facility with Rabobank International, addresses the need for working capital for the import, pre-shipment, and export cycles.
WestLB is the fourth largest bank in Germany, and one of the world's largest forfaiting houses, with consolidated total assets of DM700 billion and total capital of DM15 billion.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.