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Review of Fair Trade Finance

Fair Trade is an organised social movement which aims to promote greater equity in international trade, as well as sustain higher environmental, labour and social standards in production. Fair Trade's mission is to create opportunities for producers who have been economically disadvantaged or marginalised by the conventional trading system. Fair Trade organisations work with producers in order to help them move from a position of vulnerability to security and economic self-sufficiency.

This project, commissioned by DFID, led to a report looking at the financing of Fair Trade businesses, including Fair Trade producer organisations in developing countries, and buyers and retailers in developed countries. Traditional trade finance encompasses a range of services, including providing funding for companies to purchase inputs in order to produce goods or fulfill a contract for which they will be paid in future. Trade finance is a popular method of funding for companies that have potential for growth but lack the security required by conventional credit operations. The provision of trade finance, or pre-financing, is one of the key requirements of Fair Trade buyers in their relationships with producer groups. In addition to this, start-up finance and longer term loans are also needed by both producer groups and developed country Fair Trade businesses to facilitate business development. This report reviews the availability of both types of financing, and assesses the extent to which access to finance is a binding constraint to the expansion of Fair Trade.