IFC's Working Capital Solutions (WCS) product provides short-term loans to emerging market banks in markets where macroeconomic factors have caused a reduction in the availability of U.S. dollars.
The shortage of dollar liquidity has the potential to negatively impact the timely issuance (importers) and discounting (exporters) of letters of credit by emerging market banks, particularly for its small and medium enterprise (SME) clients. By providing dollar liquidity, a WCS loan enables a local bank to meet its clients' immediate trade finance and working capital requirements. These facilities increase the number and value of short-term transactions an IFC bank partner is able to offer to finance the working capital needs of small entrepreneurs and exporters.
Structure
Under this initiative, IFC provides a standard senior "A" loan with a tenor of one year to fill the void left by international commercial banks in the foreign exchange market. These loans can be renewed twice for a maximum tenor of up to three years, providing multi-year dollar funding certainty.
Other flexible arrangements under a WCS loan may include: (i) a “B” loan component for large size loans that IFC may mobilize to ensure the required dollar funding to meet the emerging market bank’s needs; (ii) a reborrowing feature whereby the bank may repay outstanding balances and reborrow the funds upon renewal; (iii) a revolver feature where the bank may repay outstanding balances and re-draw funds within a given year.
Results
To date, WCS has supported over $2.4 billion in global trade, of which the majority of trades were for SMEs. WCS has supported nearly 12,000 firms in 18 emerging market countries, of which half are IDA countries.