Introduction to the Trade Finance Gap

Global Context: The world of trade finance is facing a significant challenge. The trade finance gap, which refers to the shortfall in funding for global trade transactions, has widened alarmingly. In 2023, it reached around $2.5 trillion​​​​​​​​. 

This gap, primarily affecting small and medium-sized enterprises (SMEs), is a result of tighter financial conditions, market uncertainties, and geopolitical instability.

Impact on SMEs: SMEs, crucial for global economic growth, are disproportionately affected by this gap. They often struggle to secure the necessary funding for their import and export activities, hindering their ability to grow and contribute to the global economy.

Financely's Role in Trade Finance Distribution

Supporting Importers and Exporters: At Financely, we specialize in aiding importers and exporters to navigate these financial challenges. We create tailored financial offerings and market them to a diverse range of institutional investors. 

These investors include family offices, funds, and even banks looking to gain exposure to the trade finance sector.

Trade Finance as a Profitable Asset Class: Trade finance is not only vital for global commerce but also a lucrative investment opportunity. Some of the most profitable companies worldwide, such as Vitol, Trafigura, Gunvor, and Mercuria, are heavily involved in physical commodity trading.

Structured Commodity Finance

Structured Commodity Finance (SCF) is a sophisticated financing technique, pivotal in the trade of commodities. It refers to the financing of commodity trading where the structure of the deal is more important than the creditworthiness of the borrower. This approach is particularly beneficial for companies engaged in the extraction, production, processing, or distribution of commodities.

How It Works: SCF typically involves the use of the commodity as collateral. The financing is provided against the value of a commodity. This is structured around the supply chain and commercial terms of a company, enabling traders to secure funding based on the strength of their trade cycle rather than their balance sheet alone.

Key Elements of SCF:

Pre-export Financing: For producers, SCF often takes the form of pre-export financing, where funds are advanced to a producer before the extraction or harvest of the commodity. This financing is secured against the future production.

Inventory Financing: Traders and processors might use inventory financing, where loans are provided against stored commodities.

Receivables Financing: This involves advancing funds against future receivables, enabling traders to accelerate cash flow.

Risk Mitigation: One of the critical aspects of SCF is the focus on risk mitigation. Lenders employ various methods to reduce risk, such as insurance, hedging the price of the commodity, or using structured repayment terms that align with the cash flow of the trading cycle.

Examples:

Oil and Gas Sector: A common example can be seen in the oil and gas industry. A producer might secure pre-export financing for an oil extraction project, with the loan being repaid through the sale of the extracted oil.

Agricultural Products: In agriculture, a coffee producer might use SCF to finance the harvest and export of coffee beans. The financing is secured against the crop and repaid once the beans are sold and shipped to the buyer.

Structured Commodity Finance is essential in global trade, providing a vital lifeline for commodity producers and traders. It ensures a steady flow of capital through complex and often long supply chains, contributing significantly to the stability and growth of commodity markets worldwide.

How We Structure Import/Export Transactions

Involvement of Investment Banks and Credit Rating Agencies: Our approach involves collaborating with investment banks and credit rating agencies to ensure robust and reliable financial solutions.

Financial Instruments: Our most frequently used instrument is corporate bonds. However, we also utilize revolving credit facilities, especially when dealing with banks, and private placements for more bespoke financial needs.

Raising Debt for Collateral: In scenarios where importers or exporters lack capital, our initial step is to raise debt. This approach ensures that when we approach a bank, there is substantial collateral backing the transaction, in addition to the contracts and the underlying commodity.

Why Choose Financely?

Expertise and Network: Our expertise in structuring complex financial deals, coupled with our extensive network in the banking and finance sector, positions us uniquely to bridge the trade finance gap.

Tailored Solutions: We understand that each client's needs are unique. Our team of experts crafts customized solutions that align with your specific trade finance requirements.

Engage with Us

Request a Quote or Consultation: To learn more about how Financely can assist your business in overcoming trade finance challenges, we invite you to request a quote or book a consultation with us.

Visit Financely's Trade Finance Page for more details and to get in touch with our team.

Empowering Global Trade through Innovative Finance Solutions

Sources: 

• Global Trade Finance Gap:
• Trade finance and SMEs
• Global Trade Finance Gap Expands to $2.5 Trillion in 2022 | Asian Development Bank