The Asian Development Bank (ADB) and reinsurer Swiss Re announced an agreement Wednesday to boost regional trade by guaranteeing financing risks for exporters and importer in poor countries. The guarantee means banks can be more comfortable lending to these companies, which need short-term funds to pay for their import-export activities, boosting trade.
Under the agreement, Swiss Re will insure $250 million of financing conducted through the ADB's trade finance programme, which provides guarantees and loans - within 24 hours - through more than 200 banks. The pact is the first time that Zurich-based Swiss Re has provided insurance via a trade programme run by a multilateral development bank, while it is also the first time the ADB has offset risk with a private insurance firm.
While Asia's economy has been growing strongly, the growth was being driven largely by "the exporting prowess of a handful of countries" led by China, the Manila-based ADB said in a statement. "Many other Asian nations, by contrast, find it difficult to export or import key goods because they struggle to get the trade finance they need from international and local banks," it said.
To bridge the gap, the ADB has been providing guarantees to banks to enable them to lend to export and import firms in countries where financing is difficult to get because of perceived risks. The ADB said its agreement with Swiss Re will allow it to provide more support to countries that need it most. "More trade means jobs, higher incomes and lower poverty," said Philip Erquiaga, director general of ADB's private sector operations department.
The ADB said its trade financing programme supported 783 transactions worth $2.8 billion last year, with banks in Bangladesh, Vietnam, Pakistan, Sri Lanka and Nepal among the most active users of the facility. The programme has never suffered a default despite targeting developing countries such as Afghanistan, Azerbaijan, Mongolia and Nepal. The "ADB is a key partner for us in bringing financing solutions to support economic development in Asia across a broad spectrum of risks," said Ivo Menzinger, managing director of global partnerships at Swiss Re.
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