About 75 percent of the world’s poor live in rural areas and are involved in farming and agriculture. The goal of IFC’s Global Warehouse Finance Program (GWFP) program is to expand access to finance for farmers, producers, traders, and importers and to promote agriculture development as a means of alleviating poverty. The program provides banks with liquidity or risk coverage backed by warehouse receipts, which can be used to provide financing in the form of loans or guarantees to agricultural producers and traders.
The Global Warehouse Finance Program is designed to increase working capital financing to agricultural producers and traders. Often farmers need to sell their commodities earlier than desired to meet urgent financial needs. Warehouse financing is a secured lending technique that allows them to access loans secured by their own commodities deposited in warehouses, enabling them to manage the timing of the sale of their crops. It is especially beneficial for small and medium-sized business, which are often unable to secure financing due to lack of sufficient loan collateral.
Warehouse financing allows banks to shift risk from borrowers’ fixed assets to the commodities that farmers produce. It also allows farmers to enhance their income by having more flexibility in timing sales to protect against price seasonality.
Program Structure
The GWFP has two components:
Credit Line: IFC offers short-term loans to banks, which will in turn use the funds to lend to farmers, agricultural commodity producers, or traders against warehouse receipts or equivalent as collateral.
Funded or Unfunded Risk-Sharing Facilities: IFC participates up to 50 percent in short-term loans extended to agricultural commodity producers or traders against warehouse receipts or equivalent as collateral. Banks can transfer credit risk to IFC from their own portfolio or from a new portfolio they originate. The assets typically remain on the banks’ balance sheet, and the risk transfer comes from a risk participation agreement signed with IFC. IFC can also be a direct lender under a syndicated facility implemented by banks to agricultural commodity players against warehouse receipts or equivalent as collateral.
In countries where a legal system does not exist for banks to lend money against warehouse receipts as collateral, IFC is able to work under a Collateral Management Agreement (CMA) to pledge stocks or Stock Monitoring Agreement (SMA) to monitor stocks, two agreements commonly used by banks.
Advisory Services
IFC can provide advisory services to emerging market banks to help create an enabling environment for warehouse financing. The objectives of the advisory programs are:
- Promote access to finance for farmers and producers.
- Increase market efficiency so that commodity producers have more options to time the sale of the products and have better cash flow management.
- Lower transaction costs and develop the local financial markets to better serve the agriculture sector.
- Mobilize and preserve jobs.
Results
To date, GWFP has supported over $12 billion in global trade, of which more than $5 billion has been in IDA countries, including sub-Saharan Africa.
