The Commonwealth and the Government of Malta, together with the Governments of Mauritius, Sri Lanka and India announced a new trade financing fund to help boost trade and investment flows, particularly for small and developing countries.
The voluntary fund hopes to attract start-up capital of $20 million. It will provide member countries facing trade challenges with the finance they need to increase their trade capacity. It is estimated for every dollar invested, the fund will generate $20.
At a press conference, The Prime Minister of Malta, Joseph Muscat and Commonwealth Secretary-General, Kamalesh Sharma presented a declaration of intent to support the Commonwealth Trade Financing Facility.
“We are acting as facilitators so small traders in small jurisdictions can penetrate new markets…We are very keen to create necessary trade infrastructure for ourselves and other small Commonwealth countries,” said Dr Muscat.
The declaration was signed today by Malta’s Minister of Foreign Affairs, George Vella; Mauritius’ Minister of Foreign Affairs, Etienne Sinatambou; Sri Lanka’s Minister of Foreign Affairs Mangala Samaraweer and Indian Minister of State for External Affairs, V.K. Singh.
“Four countries have signed the declaration as anchor investors. It is now a commercial fact. We just need to get back to the banks to make it operational,” said the Secretary-General.
The Facility, structured as a guarantee fund, will cover risk for providers of trade credit in financial institutions of Commonwealth countries. It seeks to stimulate lending by major banks to smaller banks in member states and reduce risk.
Financial investment will be sought from member countries and other parties that have expressed an interest in participating. The first phase of the fund will run over three years followed by a review.
Malta will host the Facility and manage its governance structure, providing oversight for contributing member countries. It will be operated by commercial banks using existing trade finance instruments, payments arrangements and operating infrastructures.
The initiative is the result of a mandate issued at the 2013 leaders’ summit to help small and developing Commonwealth countries increase their trade capacity. Heads of government welcomed a proposal developed by the Commonwealth Secretariat and the Government of Malta to launch a pilot among interested members.
A working group carried out a scoping exercise, which took into account existing trade financing agencies and other sources of trade finance, including those offered by multilateral and regional programmes. Findings demonstrated a need for the fund.