Structured Commodity Financing - Partnerships Required

The interest of the financial community in investing in developing countries and emerging market economies is huge. Yet, a large majority of enterprises in these countries have poor access to finance, obtaining loans with short maturities and high interest rates. The reason is simple: there are not enough appropriate investment vehicles.

International financing can often be structured around commodity flows, allowing low-cost, revolving trade finance, and medium to long-term project finance. The potential for such structured commodity finance deals is currently underexploited. The legal and regulatory framework in many countries hinders effective deals. Local banks are not able to provide sufficient support. The international development assistance community is virtually absent. New sovereign risk insurance facilities could be one answer.

Concerted action is needed on multiple fronts:

• Governments need to review their laws and regulations.

• Domestic banks, in tandem with regional development banks, need to improve their ability to engage in structured finance deals.

• The international community could reexamine the balance sheet of its actions in developing countries, in favour of the facilitation of private business.

• International banks and agencies need to support the creation of appropriate conditions.