Ebele Kemery: Trade finance is the method importers and exporters of commodities and goods use to finance their business. Basically, trade finance has been in existence for many thousands of years - and one can trace the roots of trade finance and structured trade finance right back to the early days of China and the silk route, Mesopotamia and Europe.
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Trade Finance & Structured Trade
Finance Importance for Importers
and Exporters of Commodities
Ebele Kemery: Trade finance is the method importers and exporters of commodities
and goods use to finance their business. Basically, trade finance has been in existence
for many thousands of years - and one can trace the roots of trade finance and
structured trade finance right back to the early days of China and the silk route,
Mesopotamia and Europe. Trade Finance was around long before Europeans settled
in America and long before the world's stock markets were born!
Today, trade finance is a massive, multi-billion dollar business. As the world trades
more and more goods and commodities are bought and sold, so more and more
banks and financiers are needed to lend money to finance the purchase and sale of
these goods and commodities - right across the global supply chain.
How is trade finance and structured trade finance useful?
Take an example: imagine you are a trader in cocoa beans in Cote d'Ivoire, buying
beans locally and selling them to foreign buyers. To make your purchases, you will
need to have money to buy the cocoa up-country in Africa, prior to their export.
Where will you find money to make these purchases? And supposing you are the
international buyer; the shipper, purchasing from cocoa traders all over West Africa -
how will you finance your transactions, which at any one time may exceed your cash
reserves? What might be supported by your bank who, if they are traditional lenders,
will only lend against your balance sheet?
This is where trade finance and structured trade finance is useful - your business can
grow and develop if you use the services of a specialist trade finance department who
will structure trade finance structures can be tailored to your needs, using the
collateral of the goods you are trading, rather than your own balance sheet or other
What is the basis of trade finance and structured trade
Goods and commodities have an underlying value of their own. For example, if cocoa
beans are worth many hundreds or even thousands of dollars per tonne, then once a
big pile of beans is accumulated in one place; in a warehouse or on a ship, it is worth
a lot of money. A bank may lend money against the total value of the beans, minus
some amount to take account of price and other risks.
It is the same for every commodity or trade good which is resalable. A bank will make
a loan as long as the collateral "adds up" and as long as the bank is comfortable with
the way the deal is structured between both the buyer and the seller. Of key
importance is that if something goes wrong the bank is able to take possession of the
commodities or goods and sell them to realise monies to repay any loan amounts
Basically, when we talk of structured trade finance we are talking of deals whereby
complex arrangements are put in place to ensure a bank can take possession and sell
the underlying capital used for the loan; in this example, the goods and commodities
Is trade finance complicated?
No. It is a simple business although the structures used in trade finance in more
complex deals require a lot of work for all of the parties involved. This is why the
total loan amount of a structured trade finance loans must be high enough to warrant
the involvement of highly-paid bankers, lawyers and other advisers.
Ebele Kemery is a Commodities Leader with a track record of consistently profitable
trading efforts and has expanded business through understanding of client needs and
developing customized solutions that leverage a wide variety of techniques and
market intricacies. Ebele is also a Member of the Editorial Advisory Board of the
Global Commodities Applied Research Digest, and full-tuition scholar from top-tier
University possessing a Bachelors of Engineering in Electrical Engineering.
For more details please visit: http://ebelekemery.strikingly.com/