India pools into USD 5mn small states fund at CHOGM

London: India is among four countries to pool into an innovative USD 5 million fund for small states to obtain easier access to international trade finance to diversify their economies and achieve the sustainable development goals. 

The announcement of the Commonwealth Small States Trade Finance Facility came at the ongoing Commonwealth Heads of Government Meeting (CHOGM) in London.

The announcement came Prime Minister Narendra Modi arrived in the UK overnight. He will attend bilateral meetings today before the multilateral dialogue with 52 other heads of government as part of the 25th CHOGM on Thursday.

India joins Sri Lanka, Mauritius and Malta to inject capital into the new scheme, which has Standard Chartered Bank and the Bank of Baroda as its the facility managers.

This new scheme is an example of the innovative and collaborative approaches that are pioneered by the Commonwealth; they have a hugely positive impact on the lives and livelihoods of people in our smaller and more vulnerable member countries, said Baroness Patricia Scotland, Secretary-General of the Commonwealth.

Without such a scheme, small states find it difficult to access the funds they need to diversify their economies and build inclusive prosperity by expanding trade. This impairs their ability to achieve the Sustainable Development Goals, she said.

The Commonwealth Secretariat-backed trade finance facility guarantees 10 per cent of any loans secured to develop trade and sustain economic and social development. This guarantee could release USD 100 million of incremental trade finance over a three-year period to any of the 31 Commonwealth nations classified as small states.

The trade finance facility has taken five years to develop by a working group including the International Finance Corporation, Government of Malta, Central Bank of Malta, Export Import (EXIM) Bank of India and the Commonwealth Secretariat. 

This working group developed a mechanism, in the form of a guarantee facility, that will encourage international banks to offer higher trade finance lines to financial institutions in the small states by reducing their credit risk.

The concept is based on a highly innovative use of blended finance that seeks to achieve maximum impact with minimal levels of official assistance, the secretariat said. The facility is hosted and administered by Malta.

Pilot countries selected for the spring launch of the scheme include Bahamas, Botswana, Brunei, Dominica, Fiji, Mauritius, Namibia and Seychelles.