With the banks struggling to bridge the trade finance gap that has opened up since tighter regulations were introduced post-crisis, a global shortage of funding is forcing a wave of innovation in the trade finance market. We see alternative private credit providers moving in to the space, fintech solutions now emerging and blockchain platforms taking off, all creating huge opportunities for innovators and entrepreneurs.
For the most part, the current drive for innovation falls into three categories: efforts to bring in new lenders and investors to the commodity financing space; moves to transform traditional tasks; and, advances aimed at enhancing transparency, traceability and collaboration.
In the first camp we see the emergence of private debt funds, seeking to bridge the gap between borrowers and institutional investors. Nick Makin, chief of staff of Audentia Global – an alternative credit manager – says, “our direct private lending activities create sources of capital which optimize transactions beyond current trade finance banks’ capabilities and ultimately facilitate funding between investors and physical producers.” But there are also initiatives coming out of the big trading firms in this part of the market, with one industry source pointing out that Trafigura launched an innovative funding programme at the end of 2017, for example, and not all innovation relates to technology. That US$470 million non-recourse funding programme combined receivables finance, structured commodity finance, asset finance, supply chain finance and securitisation for commodity inventories and will offer Trafigura greater liquidity, through a scalable product that will be more flexible than a straightforward borrowing base or line of credit.
When it comes to transforming traditional tasks, there are now clear signs of fintech making inroads into trade finance and treasury. Some of the most recent innovations are in online platforms such as Trade Finance Market, which can provide standard services such as receivables financing, supply chain finance and trading lines through an electronic marketplace for global non-bank SME trade finance, with a focus on emerging markets.
“The aim is to provide as much efficiency and simplicity as possible to transactions,” says the COO of an Independent Oil & Gas company. “The platform seeks to enable the applicant to provide the information to enable transparency. The cost is still high on an operational basis, but might cancel the horrendous commitment fee many trade finance funds and now banks are asking from their clients.”