Credits for Sustainable Trade
The purpose of a Sustainable Trade Credit is to assist producers and exporteres in prefinancing their export contract with buyers in (primarily) Scandinavian countries.
Thus export contracts form the basis of each Sustainable Trade Credit. To be eligible for a credit the producer must be certified under one or more of the following labels/organisations:
- International Fair Trade Association (IFAT)
- Fairtrade Labelling Organisations International (FLO)
- Forrest Stewardship Council (FSC)
- Organic certification
- Biodynamic certification (according to DEMETER rules)
We offer credits to either producers in developing countries or to import firms in (primarily) Scandinavia. In both instances the aim is to alleviate poverty by enabling producers to finance their production and fair trade exports of foods, handicrafts etc.
What does it cost?
Merkur offers the Sustainable Trade Credits at a rate of interest which reflects the actual costs. At the same time we strive for transparency, so everyone can see where the money goes.
The interest rate on Sustainable Trade Credits amounts to 6-9 % per annum, calculated as follows:
Interest for the depositor: 1 % per annum (Nominel rate. The interest rate is variable.)
Administration costs: 4 % per annum
Credit risk buffer: 3-5 % per annum
The 3-5 % buffer premium from all sustainable trade credits is pooled in a credit risk buffer. If a loss should occur, the buffer carries the first risk. If the pooled sum is not sufficient to carry the loss, the depositors carry the remaining risk.
There is a 1,5 % set-up fee on the first credit granted (min. 1.000 DKK) and most often a smaller fee on subsequent credits.
The quoted interest rate is for credits in DKK or in Euro. For credits in other currencies, a premium to cover the exchange risk will normally be necessary. (All prices of 01.01.2013)
Where does the money come from?
We are able to offer this credit facility because individuals in Denmark have deposited some of their savings on special Sustainable Trade Accounts. They wish to lend some of their money to people in other parts of the world who are denied access to credit at reasonable rates. The depositors earn a fair rate of interest on their saving accounts, but also in turn accept to carry part of the risk involved. Only money deposited on sustainable trade accounts in Merkur may be used for these credit facilities.
How does it work?
The credit helps the producer finance costs during the production period, up to 80 % of a specific order. The procedure is as follows:
1. The producer applies for a credit of up to 80% of the value of the order. If Merkur has all the information needed, an answer to an application may be expected within a month.
2. If the producer is found eligible for a credit, documents concerning the credit are sent (if possible by e-mail) to the producer to be signed. The producer accepts the credit by signing.
3. When we receive the signed documents, we send a letter of undertaking to be signed by the buyer, in which he accepts to pay directly to Merkur any sum due in respect of the specific order.
4. Merkur transfers the credit sum to the producer, sometimes in rates. Interest is calculated on the basis of the actual sum borrowed at any given time, not on the total of the credit granted.
5. At the shipping date, the producer mails a copy of the shipping documents to Merkur.
6. When the payment is due (as specified in the order) the buyer pays the bill directly to Merkur.
7. Merkur recovers the amount lent plus interest and costs, and without undue delay transfers the remaining sum to the producer.
How does one apply?
To apply for a Sustainable Trade Credit please send the following documentation to Merkur in English or Danish:
- Description of the business: brief history and description, products, outlets etc.
- Description of the economic status
- Profit and loss accounts for at least two years
- Budget for the next 12 months
- Description of the specific order to be financed
- Cashflow for the production and payment of the specific order
- Copy of the specific order (it may not be available at the time of application. If so, Merkur must have it as soon as possible, and before the credit is effective)
- Copy of certification with one of the above organisations
- Copy of registration documents for the business (with registration number etc)
- Filled-in application form (You can download the form here or have it sent by e-mail or post by contacting us)
Merkur is the leading social and ethical bank in Denmark. Amongst many other services Merkur offers credit facilities against specific orders to facilitate sustainable trade exports from developing countries to primarily Scandinavia. As a member of IFAT - the global network of Fair Trade Organizations – we wish to improve the livelihoods and wellbeing of disadvantaged producers by offering trade credit facilities at reasonable rates of interest to the producer.
If you want more information about Merkur and Credit for Sustainable Trade you can contact us at:
Phone: +45 7027 2706, ask for loan officer Kirsten Arup.