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03/02/ · Structured Trade Finance (STF) Structured trade finance is a type of debt finance, which is used as an alternative to conventional lending. It is regularly used in developing countries and in relation to cross border bundestagger.deted Reading Time: 15 mins. 16/12/ · Structured Trade Finance. Lending institutions and banking corporations provide a variety of services to exporters, importers and trading corporations for carrying out trade efficiently and these services are collectively referred as trade finance services. Structured finance is a heavily involved financial instrument presented to large financial institutions or companies with complicated financing needs who are unsatisfied with conventional financial. Structured trade finance is the primary means through which many of the world’s commodities exporters fund their operations. Global business is fed largely by commodities trade. Some of the most valuable assets are oil and precious metals, but lumber, textiles and agricultural products such as coffee and cocoa are important players as well.
International financial transactions are based on several financing philosophies, whose application is affected by the course of economic growth and development within an individual national economy. STCF is “ cross-border trade finance in emerging markets where the intention is to get repaid by the liquidation of a flow of commodities. To better understand the various STCF financing constructions and techniques, which are to be found with greater frequency in actual financing situations, a STCF modular system can be used.
The STCF modular system consists in several levels, which identify the typical stages of each STCF transaction: a pre-export financing, a warehouse and transport financing, a tolling financing and an accounts receivables financing. When considering a STCF financing technique, in addition to defining and categorizing the commodity type and its trading practices, a detailed analysis of the specific risks involved, including the allocation of risk and the mitigation and avoidance of such risk, as these risks might be specifically applicable and appropriate to STCF financing techniques and transactions , shall be considered.
The concentration on all aspects of risk leads to the specific STCF relevant risk themes, such as performance risk analysis, commodity hedging as well as collateral evaluation, assessment and development of an appropriate risk early warning system. From Wikipedia, the free encyclopedia. Aspects of risk [ edit ] The concentration on all aspects of risk leads to the specific STCF relevant risk themes, such as performance risk analysis, commodity hedging as well as collateral evaluation, assessment and development of an appropriate risk early warning system.
The Circle of Opportunity“, , Linz: Freya Verlag KG, ISBN Categories : International finance.
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SCF is a financing technique utilised by a number of different companies, primarily producers , trading houses and lenders. Commodity producers stand to benefit from SCF by receiving financing to ensure cash flow is available for maximum output with the intention of repaying the loan once exports begin. Trading houses employ SCF largely as a means of risk mitigation to reduce their exposure to a single country or commodity; SCF allows them to mitigate any supply, demand or price shocks.
Lenders seek out opportunities to help assist commodity producers in accessing new markets and customers, this also benefits them through gaining interest on the loan. SCF provides liquidity management and risk mitigation for the production, purchase and sale of commodities and materials. This is done by isolating assets, which have relatively predictable cash flow attached to them through pricing prediction, from the corporate borrower and using them to mitigate risk and secure credit from a lender.
If all proceeds to plan then the lender is reimbursed through the sale of the assets. If not then the lender has recourse to some or all of the assets. Volatility in commodity prices can make SCF a tricky business. Lenders charge interest any funds disbursed as well as fees for arranging the transaction. SCF funding techniques include pre-export finance , countertrade , barter , and inventory finance.
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Global business is fed largely by commodities trade. Some of the most valuable assets are oil and precious metals, but lumber, textiles and agricultural products such as coffee and cocoa are important players as well. International trade is expensive, however, even when it stands to bring in significant profit.
Traders from all socioeconomic backgrounds often require financing at the outset, which usually comes in the form of complex collateral and contractual agreements held under the umbrella of structured trade finance. Banks and banking institutions are the major lenders in structured trade finance transactions. In some ways, these transactions are similar to loans in that traders usually receive money up front, but they are set up very differently.
Rather than having a due date for repayment, banks set up ongoing repayment plans, wherein invested capital and foreign credit payments cycle money back into the structured trade instruments as the trade is completed and matures. There usually are two main structured trade finance formats. The first format centers on a working capital guarantee, which essentially is a cash payment up front for the assessed value of the commodities that are to be traded.
This kind of plan is popular for traders in developing countries or in countries that don’t have stable credit.
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Structured commodity finance encompasses several different methods of finance for producers and traders of goods and commodities, including:. Pre-export finance PXF : offering a company a means of raising money by using its export contracts as collateral. Borrowing base facilities : working capital credit facilities that are secured by current assets.
Revolving credit facilities RCF : A type of borrowing base facility which the borrower usually a big commodity trading house can draw from and pay back as needed, benefiting from extra flexibility. Warehouse financing : A loan made to a producer or processor with goods or commodities held in a warehouse as collateral security. What is trade finance? Letter of credit Supply chain finance Export and agency finance Trade credit and political risk insurance.
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Trade Finance has been reviewing the global trade and export finance markets since and what constitutes trade finance has gone from a basic letter-of-credit product to highly structured combined bond and debt ECA financings. The following is a guide for those of you new to the market or those just looking for some clarification. The following sections have been written by our own editorial staff and include contributions from our internal trainers and other official sources.
If there are any terms that you are unfamiliar with, please refer to our Glossary. If you would like a free trial to Trade Finance, click HERE. There are various definitions to be found online as to what trade finance is, and the choice of words used is interesting. As is the nature of these things, both are accurate. In one form it is quite a precise science managing the capital required for international trade to flow.
In its simplest form, an exporter requires an importer to prepay for goods shipped. The importer naturally wants to reduce risk by asking the exporter to document that the goods have been shipped. The exporter’s bank may make a loan to the exporter on the basis of the export contract. The type of document used in the process depends on the nature of the transaction and how evidence of performance can be shown i.
It is useful to note that banks only deal with documents and not the actual goods, services or performance to which the documents may be relating to. Trade finance is used when financing is required by buyers and sellers to assist them with the trade cycle funding gap.
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Trade finance Usually refers to financial transactions involving the exports and imports. This could involve payment facilities, downpayments, hedging, guarantees, and transportation linked issues. All Rights Reserved. The institutions or transactions involved in the financing of international trade. Trade finance looks at banks , credit agencies , insurers , forfaiters , and any other person or institution who enables importers and exporters to trade across borders.
Farlex Financial Dictionary. Mentioned in? Arab Trade Financing Program. References in periodicals archive? Small and medium-sized enterprises SMEs face the biggest challenges obtaining trade finance , the report notes, and companies led by women often face additional barriers. During the EBRD will be working with the government to improve legislation and regulation in support of enhanced business environment for international trade finance products, including factoring and financial technologies.
EBRD offers new financing opportunities for Uzbek exporters and importers. What are your views on the trade finance landscape in the region and how does ADIB play a role in it? Increasing efficiency and broadening solutions.
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View all articles by James Sinclair. By James Sinclair. Structured trade finance products are used primarily in the commodity sector by traders, producers and processors. Banking corporations tailor these financing arrangements based on the needs of the client. Structured trade products are mainly warehouse financing, working capital financing and pre-export financing. Also, some institutions extend reserve based lending and finance the conversion of raw materials into products amongst other bespoke finance products.
Structured trade finance products are extended across the supply chain to facilitate trading activities. Trade Finance has been strongly complemented by recent technological advancements. Letters of credit , bank assurances, trade credit insurance , factoring and forfaiting are some of the structured trade finance products commonly used by trading companies and changed by these advances. The progress in information and communication domains have helped banking corporations to track physical risks and events in the supply chain between exporter and importer.
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Structured trade finance usually refers to the financing of cross-border commodity flows (and as such is most commonly known as structured commodity finance). Structured commodity finance encompasses several different methods of finance for producers and traders of . What is structured commodity finance? Structured commodity finance (SCF) as covered by Trade Finance is split into three main commodity groups: metals & mining, energy, and soft commodities (agricultural crops). SCF is a financing technique utilised by a number of different companies, primarily producers,trading houses and lenders. Commodity producers stand to benefit .
Who are we? What can we do for you? Where do we work? Contact Us. What is structured commodity trade finance? Structured commodity trade finance is the art of transferring financing risk from parties less able to bear such risk to those more equipped to do so in a manner that ensures automatic reimbursement of advances from underlying assets.
Such assets include inventory and export receivables. How can it help my company? Structured trade commidity finance is well suited to businesses in the commodities sector in Africa as it :. Structured trade commodity finance is particularly relevant for financing commodity companies in countries that are considered risky by financiers, such as those found in Africa.
Through traditional financing means, no company is able to receive financing from banks at a rate lower than what is paid by the country in which it is based. The sovereign risk factor will be the main determinant of the interest rates paid by companies within that country. With structured finance, companies can obtain rates better than those offered locally by shifting part of the risks abroad. Structured trade commodity finance is helpful for companies which lack well documented transaction histories and may have been turned down by traditional lenders.