Originally designed as a risk management tool among banks, trade asset distribution has now transformed into an indispensable means for capital and liquidity optimisation, inviting a broad spectrum of non-bank investors. 

With the tighter regulatory capital requirements, pressure is mounting on the books of corporate banks restricting their ability to meet trade finance needs, in particular for those who need it most: SMEs. 

As a result, trade distribution has become a must-have for banks nowadays, allowing them to free up their balance sheets, enhance credit availability and create additional capital. 

The range of benefits of the originate-and-distribute model, along with the growing interest in trade finance as an asset class from non-bank investors and the rise of the trade tech sector, are converging to create the ideal setup to help bridge the SME funding gap.

At the Trade Finance Investor Day, Andre Casterman, CEO of TFD Initiative spoke with Mark Abrams, MD, Trade and Receivables Finance at Trade Finance Global (TFG) and Nils Behling, COO and Co-founder of Tradeteq. 

The rise of trade finance assets

In the aftermath of the COVID-19 recovery, the surge in trade volumes has elevated the importance of injecting liquidity into supply chains. Nevertheless, in its latest survey, the Asian Development Bank reported an increase in the global trade finance gap, reaching an estimated $2.5 trillion last year. 

Yet, as with every challenge, this gap has given rise to an enticing market opportunity for investors, especially in an environment of heightened geopolitical uncertainties, volatile bond yields and stubborn inflation. 

As an investable asset, trade finance has several attractive features, including typically low default rates, attractive yields (compared with traditional instruments), short-term tenors, and a self-liquidating nature, all of which make the asset class tick all the boxes that investors look for.  

Abrams said, “Trade finance as an asset class represents the real economy. It is real goods such as coffee, sugar, vehicles, toys, and services being traded across borders.” Together, these factors contribute to the growing appeal of the asset class. Consequently, there has been a noticeable uptick in non-bank lending by private credit investors in the trade and commodity finance sector. 

Behling said, “Trade finance is a growing asset class. There is a lot of demand.”

Moreover, with the current macroeconomic conditions and tighter regulatory requirements, banks have been moving towards the originate-and-distribute (OTD) model. Adopting the OTD model allows them to reduce regulatory capital requirements and keep a significant portion of their lending portfolio off their balance sheets while relying on third-party, non-bank liquidity from asset managers and institutional investors. 

In addition, advancements in the technology sector have facilitated the implementation of such a model on a much wider, automated scale. 

As a result, banks are now able to involve non-bank investors in the process, thereby creating the much-needed extra capacity in the market. Abrams noted, “From a macroeconomic perspective, with inflation, the regulatory burdens and changes that are going on, there’s an increased demand for capital.”

Legitimising trade finance assets: A closer look

Representing 90% of businesses and more than 50% of global employment according to the World Bank, SMEs are undoubtedly the backbone of global trade. However, these vital economic players, encounter major barriers that restrict their full integration into the global trade ecosystem. 

One of the primary challenges faced by many SMEs is the absence of the necessary collateral, typically required by banks to mitigate the risk of SME lending. 

Furthermore, many banks may be reluctant to finance SMEs. They face the increased complexity and higher costs of onboarding due to stringent know-your-customer (KYC) and anti-money laundering (AML) checks. 

Consequently, some banks have pulled out of certain markets, exacerbating the challenge for SMEs to obtain funding and subsequently widening the SME funding gap. 

Abrams highlighted, “It’s very important to understand that there’s a relatively small number of banks that are funding into a relatively large gap.” 

This gap predominantly impacts mid-sized enterprises and SMEs, which are already struggling with global economic shifts and persistent inflation. To address this funding deficit, banks have been adopting an originate-and-distribute model for their trade portfolios, to not only enhance their net interest income but also unlock additional capacity. 

As Abrams explained, “We see a scarcity of capital, a mismatch between what a borrower and an actual corporate are looking for and what’s there from a liquidity perspective. There is interest and need for finance.” 

In response, alternative lenders are emerging as a crucial force in reducing this funding gap. They extend their financial support not only to SMEs but also to large corporations. Abrams said, “Alternative lenders are stepping into that gap, and fund SMEs as well as large corporates. They provide greater capacity, smarter and faster.” 

Despite the evident need and the growing interest, more needs to be done to truly scale and legitimise this asset class. Behling emphasised two critical requirements to enable non-bank investors to effectively bridge this funding gap: standardisation and transparency.

Currently, the lack of standardised reporting leads to tailored portfolio presentations, as different non-bank investors typically ask for different risk metrics, from solvency capital consumption to payment history. 

On the other hand, since investors rarely allocate their entire investments to a single originator, they have to deal with multiple reporting styles from different originators, preventing portfolio aggregation. The missing piece to overcome such a limitation is nothing but standardisation.

Additionally, trade assets lack transparency as trade finance data is not accessible through public domains. The present process of paper documentation in trade finance limits investors’ ability to comprehensively analyse and evaluate their portfolio structure. 

As Behling stated, “Transparency is important for investors to understand what’s happening in their portfolios.” Given that data forms the foundation of transparency, the adoption of a unified digital platform like Tradeteq ensures its accurate collection. 

Such aggregated information can then be used to generate credit analytics and risk profiles, making trade finance data not only transparent but also actionable for investors. 

He underscored, “You have to bring in technology to create this transparency and the standardisation to transform trade finance assets into an investable product.” 

Shaping the future of trade finance asset distribution

Structural changes have set the stage for institutional investors to make their mark in the trade finance industry. The scaling back of traditional bank financing, the conventional suppliers of trade finance, has opened the door to these new participants. 

Alongside trade tech companies that have brought innovation to the industry, banks have been able to bring in institutional investors and grant them access to the transactions they service. 

Nonetheless, how banks cope with the regulatory landscape, the way they collaborate with investors and trade tech companies, and the way they develop innovative solutions and market-responsive ideas will define the course of trade finance asset distribution.

Although trade finance distribution growth, in terms of non-bank investors’ participation in funding trade finance assets, has increased, several key challenges remain for its further expansion. 

First, there is limited familiarity with trade finance assets outside the trade finance community. Therefore, engaging a wider spectrum of institutional investors requires collaborative efforts in educating potential investors and standardising industry terminology and products.

In addition, as trade asset distribution continues to increase, and a wider set of investors with multiple risk profiles involved, the focus has shifted towards increasing origination calling for closer collaborations among different stakeholders. 

Abrams illustrated this shift, noting, “There is a change of mindset from banks, funders, and institutional investors to work together and partner. We’ve done it recently at Trade Finance Global on the origination side, working to originate directly from corporates all through to SMEs.”

Besides, as a unique asset class, trade finance is characterised by its distinctive features and substantial information asymmetry. 

For instance, its self-liquidating nature may entail frequent payments, and though typically short-term, the tenor can extend based on the industry and clients’ working capital. 

Therefore, the difficulty of assessing and maintaining standards may dampen investors’ appetite to participate. This broad spectrum of trade assets drives the need to develop tailored solutions, a task that primarily relies on the wider adoption of technology and enhanced interoperability. 

As Behling pointed out, “The technology is available, but the imperative now lies in driving its adoption, ensuring seamless communication between different platforms.”

The post Video: Originate-to-distribute, the end of balance sheet lending? appeared first on Trade Finance Global.

The above Supply Chain Finance techniques have been defined by the Global Supply Chain Finance Forum (BAFT, EBA, FCI, ICC and ITFA)

The financial landscape has undergone a seismic shift in recent years. From zero or negative interest rates to the COVID-19 pandemic and geopolitical tensions, the world has seen it all. Amidst this backdrop, the role of private credit has evolved significantly. 

The question now is, has trade and receivables finance become the new home for private credit?

The shifting landscape

Two years ago, treasurers and financial directors were scrambling to find investment avenues that could yield returns, as traditional deposits were offering zero or even negative interest rates. 

Fast forward to today, and the scenario has changed dramatically. The influx of cheap capital from zero-bound rates and pandemic-era stimulus led to a looser investment standard. The industry knew this would not last, and recent market trends have shown this era has ended.

Rising inflation, stemming from the quantitative easing policies and supply chain problems has led many central banks to increase interest rates. 

The US Federal Reserve has set rates at a 22-year high, at 5.25-5.5%, and the Bank of England has set the rates at 5.25%, with expectations of another half-point rise in the future. In August, The Central Bank of the Republic of Türkiye increased rates to 25%.

All of these factors have led to a reasonable concern that the global economies will see varying levels of decline in the next few years. 

In other words, this is not a regional shift, it is a major shift in the global market. And this has led to a more cautioned, reasoned approach to investments. 

People are now looking for sensible, low-risk avenues to park their capital.

In this evolving landscape, private credit has emerged as a viable option. It involves funding real assets in a world where they are not listed, offering a unique proposition for investors. 

At Trade Finance Global (TFG), we have observed a growing interest from institutional capital, particularly in trade and receivables finance.

Trade and receivables finance: A low-risk alternative

Trade and receivables finance lines are typically low-risk, self-liquidating facilities. They involve financing the supply chain, buying at one price and selling at a higher one, typically within a short duration of 90 to 180 days. 

We are increasingly starting to see an interest in trade finance as an asset class, and this makes sense given the direction of the market. In our view, this is mainly because pricing tracks underlying rates (which are rising), along with the positive margin component; representing an attractive asset vs. US Treasuries, as an example.

Trade finance as an asset class is highly scalable and offers strong returns. It is not linked to certain market fluctuations but is tied to real, live trades. 

This has led to increased interest from mid-market banks and institutional investors looking to diversify their portfolios.

Governments and Export Credit Agencies (ECAs) are also encouraging investments in trade finance to stimulate economic activity. This has led to new players entering the market, who are attracted by the new structures of guarantees that are presenting themselves.

But it isn’t as black and white as simply investing in trade finance. 

Trade finance involves a higher level of complexity due to various factors like different jurisdictions, sectors, and more niche topics, like issues of perishability. However, it offers a level of transparency that is often missing in other asset classes. Understanding the specificities of the trade, and demands of borrowers are crucial for determining how they intend to utilise the capital, and where capital is being deployed.

TFG’s evolving role: Introducing TFG Distribution Finance

Historically, TFG has been the largest trade and receivables originator, connecting lenders with buyers, using our deep industry knowledge. 

However, the growing demand for capital in the trade and receivables financing space has led us to evolve our role. We saw a gap in the market and realised that it needed a new, innovative solution.

Enter TFG Distribution Finance.

This new project will help build asset books for existing and new funders. This allows us to match the specific requirements of borrowers with the right kind of capital, thereby creating a win-win situation for all parties involved.

Though many people are starting to acknowledge the potential of investing capital into trade finance, it can be a difficult task without a dedicated team. TFG Distribution is the emerging solution to this problem. 

Using TFG Distribution Finance, large lenders can put their capital to use without the need to create a dedicated team of trade finance experts. Lenders will see positive returns, and SMEs can access new capital.

Capital requirements: Bridging the gap

One of the biggest challenges in the trade finance market is the mismatch between what capital exists and current demand. 

TFG Distribution Finance aims to bridge this gap by understanding the granular requirements of both borrowers and lenders. This is essential for scaling trade and receivables finance and bringing new liquidity into the market.

The economic uncertainties of recent years have led to a renewed focus on sensible, low-risk investments. 

Trade and receivables finance offers a promising avenue for private credit, providing scalability, diversification, and a low-risk profile. As TFG continues to evolve, we are committed to bridging the gap between demand and capital requirements, thereby introducing more effective and transparent financing solutions.

In a world where economic stability is far from guaranteed, trade and receivables finance offers a new and promising avenue for private credit. It’s not just about financing goods flowing across borders; it’s about creating a more stable and transparent financial ecosystem for all stakeholders involved.

The post Is trade and receivables finance the new home for private credit? appeared first on Trade Finance Global.

The Trade Finance Distribution Initiative (TFDi) recently heard from Trade Finance Global’s (TFG) MD, Global Head of Trade & Receivables Finance, Mark Abrams.

TFG joined the TFDi as a non-bank originator in February this year.

The TFDi is a many-to-many ecosystem that aims to bring more liquidity from capital markets and institutional investors into trade finance as an asset class, connecting originators, brokers, banks, and financial institutions in a multilateral way.

In the interview, Abrams and host Doris Kononowicz discuss a range of topics in the trade finance world.

One such topic is just how broad and multi-faceted trade finance really is.

“Many people use the word trade finance and think it’s just one homogeneous term,” Abrams said.

“but it actually encompasses more than around 20 different structure buckets ranging from borrowing-based facilities to back-to-back letters of credit.”

Spread these legal structures out over the wide-ranging array of products that comprise global trade and it quickly becomes evident just how wide-reaching that single term can be in practice.

In addition to this, the complexity of the industry can be reflected in the number and variety of stakeholders within a single financial institution that need to be involved.

Many corporates seeking trade finance may have a strong relationship with their bank, but they may not have a relationship with the right desk at that bank in order to properly finance the deal at hand.

This is where TFG comes in.

As a leading B2B fintech in trade finance, TFG’s origination platform connects companies seeking trade and receivables finance with over 300 financial institutions. Find out more here.

The role of technology and fintech companies in trade finance

In a digital-first and data-driven world, clients are increasingly expecting greater transparency, speed, and clarity. 

“There are many fintechs in the space that are focusing on different areas of the value chain, from loan distribution to origination,” Abrams said. 

“Moving forward, I think a lot of those technologies and companies are going to come together to help tackle that lack of clarity and inject more liquidity into the system.”

The increased amount of liquidity and faster processing times will help to further elevate trade finance processes and workflow. 

In turn, these mechanisms will help to close the $1.7 trillion trade finance gap that has been hovering over the industry for some time now.

For Abrams, the most important point in the coming months and years will be for all of these technologies and fintech companies to truly come together in a collaborative environment that can break down silos and really improve efficiency throughout the entire value chain.

Mark Abram’s full interview with TFDi can be found here.

The post VIDEO: TFG’s Mark Abrams featuring on the Trade Finance Distribution Initiative (TFDi) appeared first on Trade Finance Global.

Trade Finance Global (TFG) is delighted to announce that it has partnered with Google (Market Finder) to launch a comprehensive series of trade finance guides for businesses looking to enter the international market/trade internationally.

Market Finder is a free Google service for businesses interested in expanding abroad. It provides detailed insights into which markets are best suited to your product or service, plus useful handbooks on the practicalities of financing such a move.

Trade Finance Global (TFG) is the leading B2B fintech in trade finance. TFG’s data-led origination platform connects companies with innovative trade and receivables finance solutions from over 300 financial institutions.

This is combined with TFG’s award-winning content, informing a global audience of 160k monthly readers (6.2m impressions) – across app, podcasts, videos, magazines and research.

TFG’s and Google’s trade finance guide series is divided into 3 comprehensive guides:

International trade finance guide for first-time exporters

The International trade finance guide for first-time exporters looks at the basics of trade finance, and the different types commonly available. It also explores how trade finance can help companies in real terms, and the main risk and challenges involved.

This guide contains:

• Overview
• How does trade finance help companies in real terms?
• How does trade finance work?
• Types of trade finance
• What are the main risks and challenges in trade finance?

Read guide

Methods of payment in international trade finance

In the Methods of payment in international trade finance guide, readers can get a better understanding of pre- and post-shipment finance, as well as a background to supply chain finance.

This guide contains:

• Overview
• Pre-shipment and post-shipment finance
• What is supply chain finance (SCF)?

Read guide

The process of securing international trade finance

Lastly, The process of securing international trade finance guides covers not only the different types of trade finance lenders that operate, but also the basics of how to successfully go about applying for trade finance.

This guide contains:

• Overview
• Types of trade finance lenders
• How to apply for trade finance

Read guide

This user-friendly series of guides was created to provide readers with a comprehensive understanding of trade finance by breaking down the different types of international trade finance available, outlining the steps involved in how to apply for trade finance, and addressing the main challenges and risk factors associated with global trading.

Deepesh Patel, co-founder, Trade Finance Global said: “With the USD $1.7 trillion trade finance gap just getting bigger, many companies are in desperate need of financing solutions for their exports. Add to that factors such as Brexit and rising inflation, and it’s fair to say that the international trade finance landscape continues to become increasingly complex.

“These guides are designed to help newcomers navigate their way through this maze. Their launch comes at a crucial nexus point in our economic history when information is key, and we are delighted to partner with Google on this project.”

Marco Giorgini, Google Vertical Platforms marketing lead, said: “We believe these guides will give businesses much-needed insights into the world of trade finance, and be a vital first stepping stone on their journey to securing finance for their global expansion plans.”

The post TFG x Google International Finance Series appeared first on Trade Finance Global.

Host: Mark Abrams, Director, Trade Finance, Trade Finance Global

Featuring: 

Regis Leonhard, Global Head of Treasury and STF, Alvean Sugar
Philippe Penet, CFO & Treasurer, Sucafina
Julio Varela, Head of Finance & Risk, Ameropa
Ozan Ozturk, Managing Director, Agrozan Commodities

In partnership with TXF Commodities Global, TFG spoke to an expert group of global commodity traders to look at the key developments in commodity markets over the past few months, with a focus on the agri and softs sector. The panel explored how traders are adapting to the changing consumer demands caused by the global pandemic, as well as what they are planning ahead for 2021. From grains to sugar, to coffee, this video covers the following:

COVID-19 Impact – Agribusiness

• What’s the impact of halted supply chains, the closing down of the hospitality/entertainment sector, and economic shock on sugar and coffee supply chains? 
• How have corporate end-buyers changed their buying cycles e.g. in relation to demand and purchasing commitments?
• On the trade finance side, has the pullbacks in CTF Banks and extending limits had an impact?
• In relation to suppliers, who are the net losers of any lack of financing? Have you seen the lack of liquidity has a big impact on suppliers? Where will new liquidity come from?

Access to trade finance

• Has the ‘risk-off’ attitude affected yields and appetite on pre-pays and ability to secure longer-term finance? Has this impacted the wider market?
• Given the reduction in trade finance availability and increase in yields – what impact do you see this having on CTF in the near term?
• Has there been a change in volumes traded within the agricultural and farming community? How has production and logistics been affected?
• When looking at the volatility in the coffee markets – have you seen variations in supply and demand? Also, have there been changes with traders managing their positions and issues with a loss of expertise on the trade finance side?

Sustainable Supply Chains

• We continue to see a focus on sustainability and need to keep food-related supply chains moving. How have you seen insurer and multilateral support change?

Looking forward

• With the expectation of an increase in defaults in 2021, what impact are you seeing on trading, and what do you think will happen in the market?
• Moving forwards as we see the reopening of economies, along with trade flows and supply chains, as people go back to work in phases, how are traders approaching risk management and new market opportunities?
• What are your predictions for 2021?

Don’t miss out on our next TXF Partner Conference

The post VIDEO: Spotlight On – Agribusiness – Key developments in commodity markets (agri and softs) appeared first on Trade Finance Global.

The guide is aimed at Small and Medium sized Enterprises (SMEs) which are importing or exporting, both overseas and domestically.

There are 550,000 exporting SMEs in the UK, with a potential contribution of up to £200bn to the UK’s economy (British Business Bank, February 2020). Information from ITCs UK Trade Partnerships Programme shows that emerging and developing economies trading with the UK, SMEs make up more than 70% of import supply chains. According to surveys by OECD, WTO & ITC, 74% of SMEs trading both goods and services say that access to affordable trade finance advances at the pre-invoicing stage is a top priority but also a major barrier to expanding exports. On the demand side, challenges lie around the lack of awareness of basic trade finance products. Many SMEs, on the other hand, do not think of themselves to be ‘international’ (despite having staff or assets abroad or trading in foreign currencies) and this is reflected in the quality of their preparations and financing applications.

The Covid-19 pandemic has exacerbated the challenges for SME access to trade and export finance as financing providers perceive a jump in supply chain disruptions and increased non-delivery and non-acceptance risks. However, in many countries supplying the UK, default risk on trade-related short-term financing remains relatively constant at around 2%^[1] and trade in some sectors is at levels above those of the same period in 2019. This is why we are launching the Guide now.

The guide describes the main types of trade finance structures available to SME importers and exporters, outlines the methods of payment, risks and challenges, and shows how to access trade finance from various lending sources.

FSB Vice Chair Martin McTague said, “Around 20% of UK small businesses export to overseas markets. With the right support and tools, our research shows that this could increase to 40%. As we approach the end of the UK/EU transition period, and look to open up trade with new export markets around the world, small businesses don’t tend to know about trade finance and how it works.”

Mark Abrams, Director of Trade Finance, TFG, said: “We need to break down barriers, raise awareness and promote an understanding of how SMEs can expand their trade, and supply more goods and services cross-border.”

Ian Sayers, ITC’s Senior Adviser on Access to financing said: “Trade-related financing is well matched to SMEs current needs and business horizons, especially during COVID recovery when the future holds many uncertainties”

Sayers added: “For many years trade financing has been seen as the business of international buyers. It is time for SMEs to realize its potential to support a pivot into new markets, new certifications, expansion of the work force and sustainability improvements.”

The post SME Trade Finance Guide appeared first on Trade Finance Global.

LONDON, July 15, 2020. Trade Finance Global has released its latest issue of Trade Finance Talks entitled ‘Coronavirus & The Fourth Industrial Revolution’.

Foreword: Ziyang Fan – World Economic Forum

The world is in crisis. Over 12 million people worldwide are confirmed to have the Coronavirus at the time of this writing, and more than half million have died. The global economy is facing its biggest challenges in decades. Global trade has been hit hard: the WTO estimates a drop of 18.5% of merchandise trade in the second quarter of 2020, and predicts a fall of as much as 32% in 2020. 

There is one silver lining amid this crisis– the digital technologies in the Fourth Industrial Revolution have emerged to be the heroes to help fight and treat Coronavirus, keep our societies functioning, and speed up economic and trade recovery. At the same time, how to close the digital divide and deploy these technologies in a human-centred approach are just as important and challenging.

Contents

Introduction

1.1 Trade Finance Global | Editor’s Note

1.2 Foreword – Ziyang Fan – World Economic Forum

2 An Update from Global Associations and International Bodies

3 International Trade Finance Awards

4 Featured

4.1 The “key” to digital trade finance: Public key cryptography explained

4.2 How the collapse of Hin Leong Trading should accelerate the adoption of technology for trade finance

4.3 FCI perspective: 10 factoring predictions in a post-COVID world

4.4 Rejigging Africa’s trade position post COVID19: The AfCFTA option

5 Trade Goes Digital

5.1 Negotiable instruments are going through a makeover – the who, what, where, why

5.2 Innovating to close the trade finance gap

6 Global Trade

6.1 Bitter Sweet: Global trade disruption and its impact on sugar flows

6.2 OBOR – Why macroeconomic policies are needed to drive China – EU supply chains

6.3 Patience will pay off in Europe-Africa trade relations

6.4 Anti-dumping Agreements – UK prepares to impose its own duties on foreign exporters

6.5 Brexit: What duty does the EU have to offer trade preferences to the UK?

7 Short Term Trade Finance

7.1 Supply Chain Finance – An enabler for MSME growth and financial inclusion?

7.2 $5 trillion and counting – the MSME finance gap

7.3 Has trade finance pulled the plug on correspondent banking?

7.4 ICC SOS – Save Lives. Save Livelihoods. Save our SMEs

8 Women in Trade 2020

9 Export, Insurance and Long Term Finance

9.1 KYP (Know Your Policy) – Learnings from CPRI in a post-Covid world

9.2 How Trade Finance Programmes at Multilateral Development Banks are closing the trade finance gap

9.3 How can banks project losses in the current Covid-19 crisis?

9.4 How UKEF is supporting UK businesses with Export Finance throughout the pandemic

10 Upcoming Conferences and Webinars

The post RELEASED: Trade Finance Talks – Coronavirus & The Fourth Industrial Revolution appeared first on Trade Finance Global.

Research and preparation are critical elements for any business. Therefore, it is crucial for you as a business to understand the types of financing that you can avail, and which option will be beneficial for you in the long run.

Whether you are an SME or corporate entity, if your business trades internationally, buying and selling products from the global market place, a form of trade financing is the best option for you. It mainly works well for businesses with a successful trading record, a good credit score, and consistent cash flow.

Trade finance for Businesses: An Overview

What is Trade finance?

Trade finance is the representation of financial products and instruments used by companies to facilitate their international commerce and trade. It is a loan that enables exporters and importers to transact their business through trade easily. It may also facilitate the payment to exporters on behalf of the importers before the delivery of the goods.

The lending institution will loan the money to the importing business so they can pay the exporters, usually once they ship the goods for delivery. Think of trade finance as an umbrella covering many products for businesses of all sizes to ensure feasible trade transactions.

According to a report by the World Trade Organization (WTO), almost 80 to 90 percent of global trade depends on trade finance loans in some shape or form.

How Does Trade Finance Work for Business?

The core function of trade finance is to rectify supply and payment risks by introducing a third-party to transactions. Trade finance provides payment or receivables to the exporter according to an agreement, while an importer may fulfill the trade order through an extended credit facility.

Trade finance involves numerous businesses and parties, such as

• Importers and exporters
• Insurers
• Banks
• Export service providers
• Export credit agencies
• Trade finance companies

Trade finance differs from conventional credit issuance and financing. General financing options manage liquidity or solvency; whereas, trade finance does not necessarily indicate a buyer’s lack of liquidity or funds.

Trade finance may protect your business against unique inherent financial risks associated with international trade, such as political instability, issues, and conflicts of non-payment, currency fluctuation, and creditworthiness of the parties involved.

Free Guide – What is Trade Finance?

Download now

Financial Instruments for Trade finance

Here is how trade finance may operate depending on the size and type of business you run.

• A bank or lending institution may issue lines of credit to help both parties, i.e., importers and exporters.
• A letter of credit helps reduce the risks associated with international trade. It is a guarantee from a buyer’s bank that the seller will receive payment for the shipped goods. This letter also protects the buyer’s interest because the payment will not go through unless the seller meets the terms mentioned in the LC. Both buying and selling parties will have to honour the terms and conditions of the agreement for a smooth transactional process.
• Trade finance may also include factoring options; it is when a business gets a loan depending on the percentage of its accounts’ receivables.
• Exporters can avail offers of working capital or export credit.
• Insurance may apply for shipment and delivery of the goods. It can also protect the seller against non-payment from the buyer.

Types of Trade finance

Here are five types of trade finance that can help your business as per your requirements.

Cash Advances

It is a payment of unsecured funds to the exporting company prior to shipment. Trust in the exporter plays a vital role for a lending institution to issue cash advances. This type of trade financing can favour the exporter to produce or manufacture goods for an order.

Trade Credit

Usually, sellers expect payments against an order, or after 30 to 60 days of shipping the goods. However, trade credit is the cheapest and easiest payment arrangement based on mutual trust between a buyer and a seller. If both parties are new to each other or the buyer’s creditworthiness is unknown, in such instances, the buyer’s bank will issue a bill of exchange, Letter of Credit or other form of guarantee of payment to the seller.

Receivables Discounting

Receivables mainly cover financial and commercial documents. This is mostly provided by banks and alternative lenders, but finance marketplaces also allow the selling of such documents on a discounted price in return for immediate cash. Post-dated checks, invoices, and bills of exchange are some of the documents that a business can sell on reduced rates, usually 10 to 30 percent less than their actual value, with the remainder (minus fees) received when full collection is made from the debtor.

Straight receivables purchase is also used, where there is a purchase of the receivables or invoices (minus a discount) and the purchaser takes the receivables completely off the seller’s balance sheet.

Higher discount advances are always favoured by SMEs or mid-market businesses. Also, it usually correlates that the smaller the company, the higher the interest rate that will be paid. Find out more here.

Term Loans

Companies sometimes also favour long term debts that are seen more as a constant source of funding, such as a commercial mortgage, loans, and overdraft facilities. Although obtaining term loans usually has a higher burden of security or guarantees from the borrowing party.

Asset and Leasing Finance

Another type of finance that does not fit under the trade finance banner, but is frequently used by SMEs, mid-market and large corporate companies is leasing. This is the borrowing of money against an asset, such as property, equipment, and machinery, etc. Several financial mechanisms allow SMEs to have access to assets repayable via small (usually) tax-deductible contractual payments.

SMEs and middle-market businesses can buy assets and equipment over a period through asset finance.  Businesses do not have to worry too much about maintenance, plus this financing option is favourable for tax treatment in several markets. Finance leases, operating leases, and hire purchase are some examples of leasing/asset financing. Find out more here.

Benefits of Trade Financing

Some of the benefits of trade financing are:

• Trade finance helps businesses run their operations and general trading, even when capital costs run high.
• Trade finance loans may help increase your profit margins of domestic trade, import, and export. It is because your profitability will usually go up with larger volumes.
• Trade financing mitigates risks for both buying and selling parties.
• It is an excellent way to improve your cash flow and operational efficiency.

Read more about the benefits of trade finance here.

An Informed Decision

Now that you know what trade finance is and how it can help businesses of all types and sizes, you can make an educated decision. However, it is important to understand whether a trade finance related facility will suit the financial and operational requirements of your business.

The post Is Trade Finance Suitable For My Business (SMEs, Mid-Markets & Corporates)? appeared first on Trade Finance Global.

Dubai. The TFG International Trade Awards 2020, in cooperation with BAFT, recognise those who have provided an outstanding contribution to global trade and finance.

Now in its 5th year running, the annual TFG Awards are presented to businesses and service providers in the trade, supply chain and receivables space.

This year, Trade Finance Global are announcing the winners at the BAFT MENA Bank to Bank Forum in Dubai.

The TFG awards logo is used as a badge of excellence in both the intermediary (B2B) and direct (B2C) markets.

Categories

In cooperation with

Steering Committee for Awards Announced

The TFG Steering Committee is made up of subject matter experts and leaders across all areas of trade, including finance, technology, policy and governance. Members of the steering committee will provide their impartial views and input into TFG’s leading annual awards campaign around promoting inclusive trade as a force for good.

• Sean Edwards, ITFA
• Cecile Andre Leruste, Accenture
• Peter Mulroy, FCI
• Rudolf Putz, EBRD
• Alisa DiCaprio, R3
• Erik Timmermans, WOA
• Johanna Wissing, Lloyds Bank
• Robert Besseling, ExxAfrica
• Silja Calac, SwissRe
• Harri Rantanen, Standardised Trust
• Emmanuelle Ganne, WTO
• David Bischof, ICC Banking Commission
• Vinco David, Berne Union
• Stacey Facter, BAFT
• Ian Sayers, International Trade Center

The post TFG International Trade Awards 2020 in Cooperation with BAFT – Open for Nominations, Steering Committee Announced appeared first on Trade Finance Global.

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Season 1, Episode 32

Host: Deepesh Patel, Editor, Trade Finance Global

Featuring: Sean Edwards, Chairman, ITFA & Head of Legal at SMBC

Peter Sargent, Head of Transaction Banking at DNB Bank

Rudolf Putz, Head of the Trade Facilitation Programme at the EBRD

TXF Political Risk & Trade Credit Insurance is a uniquely interactive forum where banks, corporates and traders meet the CPRI market to forge new and deeper partnerships for distribution, capital relief and risk mitigation. 

TFG are delighted to be Media Partners of the TXF Political Risk & Insurance conference in London on the 4th December, and to ensure you’re up to speed with this ever-changing environment, we caught up with leading experts in CPRI ahead of the conference.

Mark Abrams: I’m Mark Abrams have trade a Trade Finance Global. 2019 continues to be a roller coaster for the credit and political risk insurance market. Capital relief, distribution and credit risk mitigation is different from where it was just 12 months ago. TFG delighted to be media partners of the TXF Political Risk and Insurance Conference in London on the 4th December, and to ensure you speed with this ever-changing environment, we caught up with the leading experts in CPRI, ahead of the conference. Today I’m joined by Sean Edwards, Chairman of ITFA and Head of legal as SMBC, Peter Sargent, Head of Transaction Banking at DNB Bank. Rudolf Putz, Head of the Trade Facilitation Programme at the EBRD. Quite the panel and thank you for joining us on Trade Finance Talks!

Mark Abrams: So in a short elevator pitch and no more than 20 seconds, please can you tell us who you are, where you’re from and what you do? Starting with you, Sean? 

Sean Edwards: Okay, so good morning. I don’t know if it’s a great pitch actually because I’m the guy who has three jobs and only gets paid for one. The job I do get paid for his Head of Legal at SMBC as you mentioned Mark, the other job I have within SMBC is as a contributor to the supply chain finance department within our larger trade finance department. The idea there is that I help with structuring and what have you, and the job I really enjoyed the most, of course, is being Chair of the International Trade and Forfaiting Association, which covers a lot of different things including credit risk insurance, and increasingly FinTech and not forgetting our traditional market of short term trade. 

Mark Abrams: Thank you very much, Peter?

Peter Sargent: Good morning. I’m Peter Sargent. I am Head of Transaction Banking for EMEA for DNB, the Norwegian bank, and a little bit like Sean, I’m the newest member of the ITFA. So we both have mutual interest there. My aim at the moment is to steer customers away from secured, towards an open account approach to their working capital needs.

Rudolf Putz: Good morning I am Rudolf Putz. I am the Head of the Trade Facilitation Programme for European Bank for Reconstruction and Development, and under our Trade Facilitation Programme for EBRD supports the development of trade finance in EBRD’s countries of operation – in Eastern Europe for CIS, and for Southern and for Eastern Mediterranean countries.

Mark Abrams: Sean at SMBC, and having a background as a lawyer, similar to myself, you understand the complex structural and security issues around this changing landscape. Are you seeing a change in sectors being financed and structures being requested? 

Sean Edwards: Well, it would be nice to think that we have a future as inventors of complex and very expensive structures actually funnily enough rather like deceptively easy book to read, the demand for most types is to have structures that are straightforward and simple and that paradoxically can actually be sometimes quite hard to structure. So if I look, let’s take Supply Chain Finance first, for example, on the receivables and I’ll divide into receivables and payables. On the receivables side, it’s remaining a lot more traditional, where the changes are coming there are from the FinTechs, actually, they are platformising some of this business, commoditising it a lot more, and the banks need to compete with that to some extent. In some cases, of course, they’re the conduits – the originators of that kind of flow for the platforms. So for the moment, it’s a fairly mutually beneficial relationship. But those structures tend to be fairly straightforward.

On the payable side. So there we’ve seen a lot more change – a party that’s been driven by some controversies that have been raised by the rating agencies, and quite a lot of lack of clarity around the accounting treatment for some of these structures. And what we’re finding there increasingly, especially at SMBC is that for us, even as a global bank, this payables finance or what some people call reverse factoring is dominated by the high volume end. It’s dominated by a couple of the big banks, Citi, Bank of America, and so on. We’ve got huge platforms to do this sort of business. And you do put in place these sorts of arrangements for some of the world’s biggest corporate buyers. So what we’re having to do and if we’re doing it our level, I’m sure it’s even more difficult for some of the smaller banks, is actually to find niche opportunities. So we’re structuring deals, to give people advantages and benefits beyond the traditional ones associated with payables finance, which is normally ensuring the security of your supply chain, making sure that your suppliers have access to lower-priced finance and we’re having to go into really the balance sheets of our customers, the buyers, and find where their pain points are and deal with those. So we’ve done one deal recently with a satellite manufacturer where we managed to push out face payable outstanding from three months to three years. And that was because there was an issue with OPEX, which meant they had a very large OPEX budget, it was payable, it was very chunky and very short-dated, they needed to move that out. So we managed to do that’s where we’re seeing for us the opportunities. For the market more generally, and within ITFA, it’s a bit of a split between people like ourselves, trying to find those opportunities, and people who are trying to go for the big commodity business, again, by commodity, I mean commoditised business, the flow business, that is again for the smaller banks being facilitated by Fintechs because they can do that now much more easily than they ever could. So you don’t have to be at Citi Bank now to have actually a pretty good tech platform. But you do need the clients, so that’s difficult. On the bank to bankside again, what we find, and I know we’re going to talk about this later, is banks being very careful about outgoing capital benefits from their lending. So a lot more even on the trade finance side, we’re finding a lot of even relatively short-dated, small-ticket deals being structured to get, for example, NSFR relief. So all banks are being very careful about that.

EBRD’s Digitalisation Agenda

Mark Abrams: And so now we’ll move on to the digitalisation agenda. And Rudolf, I’d like you to talk about digitalization from multilateral development bank perspective. How is EBRD already promoting FinTech programmes that might help correspondent banks reach out to their customers and we heard from EBRD at the WTO Public Forum last month, about EBRD’s app, Klik, please could you explain?

Rudolf Putz: Under our Trade Facilitation Programme, we support our partner banks in the digitization of their trade finance business. And we organise conferences and forums in our countries of operation, mostly in Eastern Europe and in CIS countries but also in the Meditteranean countries. And at these forums, we offer providers of FinTech solutions and technology to present your solution to the applications of the programmes, to our partner banks. And once our partner banks have decided for specific solutions and providers, we provide them with technical assistance, which means we employ consultants and organise training courses for our partner banks. So that they can familiarise themselves with internationally used applications, and become also part of the international network of digitised operations in trade finance.

EBRD’s Trade Facilitation Programme

Mark Abrams: As a confirming bank under EBRD’s TFP, how can technologies such as this, as well as others, help you work with issuing banks to facilitate trade?

Peter Sargent: Thank you, I think there are two things to say about this. The first one is that EBRD is reflecting the move in international trade away from secured terms and perhaps towards open account terms. To do that, to have the ability to move documentation, for example, online makes the environment in which you operate quicker, more accurate, in the sense that it’s more difficult to get the documentation wrong, and easier and more transparent for individuals involved. Now, the second part about that, of course, is to do that you have to have the knowledge. And this is where I think EBRD’s programme comes in particularly well, which is this whole question of training, coaching, mentoring in the international trade environment. And so I would see the online move by EBRD in those two specific environments.

Trends in the Pre-Export Finance Industry

Mark Abrams: Thank you. And let’s move on to the appetite and actually underlying financing structures now. In particular, how have they changed this year? Peter being an industry veteran, do you see much evolution use and demand in the area of pre-export finance and if so, in what industries?

Peter Sargent: I’m not sure I like the phrase industry veteran, that implies I’m ancient! The use of pre-export finance is raw material is against raw materials and largely at the beginning of the supply chain. So I think that one of the things I’ve seen a change in the last 12 months has been that pre-export finance is becoming part of the longer supply chain forms of finance and not as a separate animal by itself. By that for example, if you look at cocoa, for example, there are longer terms now but you can get co-producing countries and you can do that by using pre-export finance. This is all wrapped up in this whole idea of cash conversion cycles and accelerating short term cash flow earned – pre-export finance is seen as part of that and not as a separate animal by itself. And you know, you do have to remember, 90% of firms who go bankrupt go bankrupt because they run out of cash. And that’s what pre-export finance is aiming to try to help us.

Trends in the Insurance Market

Mark Abrams: We’ve certainly seen a change in appetite in some of the TFG Supply Chain Finance lenders, and also programmes we have originated. Sean with your ITFA hat on, have you seen or heard of any changes in appetite within the insurance market?

Sean Edwards: Yeah, I mean, so credit insurance has really been transformative for the trade finance market over the last five years, provided a huge amount of capacity to the banks, but it also means that the banks are looking for their insurance cover to be as efficient as possible, capital-efficient as possible. So credit risk, obviously, number one priority, and that’s taken care of. But there’s a need to evolve those policies in a way which actually is beneficial for the bank, people looking at it from a common-sense point of view. But the driver for this really is again, capital efficiency, Basel efficiency.

Geopolitical Unrest, Trade Wars and the “normal” functioning of the Supply Chains

Mark Abrams: And relating to supply chain insurance on a portfolio basis, for exporters and the effect of trade wars and geopolitical events, such as Brexit on the ability of supply chains to actually function, Rudolf, what effects do you find that trade wars and geopolitical unrest is having on the mid-market financial institutions that you work with?

Rudolf Putz: So far trade wars have not had a strong impact on trade and trade finance in EBRD’s countries of operation, because historically most trade between EBRD’s countries of operations for rest of the world, we are focused on trade between European Union and Eastern Europe and CIS countries and for Mediterranean countries. We have seen that exporters in our countries of operation that had previously exported also to the United States are increasingly also looking for new markets in Asia, Africa or in the Middle East. And they’ve been quite successful in finding these new markets. On the other side, we see increasing imports from Asia, particularly from China, but also from Korea and Japan, which shows that EBRD’s countries of operation become more and more integrated into the international trade. Concerning geopolitical events, there have been some impacts on EBRD’s country’s of operation due to conflict between Russia and Ukraine. But also we have seen some impact on recent events in Turkey and in Lebanon, where we have seen prices increase, and international correspondent banks are becoming more cautious in taking own risk, particularly for longer tenors and larger amounts in Lebanon but also in the Ukraine and in Turkey.

Mark Abrams: Thank you, and what a great update from EBRD and also from a bank perspective on some of the key changes within the CPRI market in 2019. Lots of taking in and a reminder that I’ll be discussing some of these topics with this panel in much more detail in a few weeks time at TXF London on the 4th of December, Sean, Peter and Rudolf, Thank you very much for joining us on Trade Finance Talks. See you on the 4th.

The post PODCAST: Life In the Fast Lane for Short Term Trade and Supply Chain Finance: TXF Political Risk & Trade Credit Insurance (S1 E32) appeared first on Trade Finance Global.