Access to finance is critical for farmers, agricultural traders, and exporters in emerging markets. Agricultural commodities are stored in warehouses before they are shipped, and often, the farmer, trader, or exporter storing the production is forced to sell early at suboptimal prices to meet urgent financial needs. If they don’t sell, they consider other short-term solutions to meet their financing needs, such as expensive overdraft credit lines.
Warehouse financing is a lending technique that provides access to finance secured by the commodities deposited in the warehouses, through use of the warehouse receipt (WHR). It allows farmers flexibility in the timing of their sales by enabling easy refinancing for the goods in storage. Warehouse financing is particularly beneficial for small farmers and SMEs who are often unable to secure their borrowing requirements because of insufficient conventional loan collateral.
IFC has successfully applied this technique through its Global Warehouse Finance Program. The program facilitates pre-export warehouse financing through local banks by providing liquidity for on-lending or risk mitigation solutions. To strengthen warehouse financing, IFC offers advice to local banks, sensitizing them to the use of WHR as collateral for short-term loans and teaching them to value the commodities and structure appropriate financing. IFC also advises the host country governments in reviewing the existing legal environment for WHR financing, and provides recommendations including licensing systems, inspection systems, market information systems, and auction market systems.