Contextualising the Role of Trade Finance

What credit assessment is required for trade finance deals?

1. Performance Risk
   • For the seller, can they do what is required to meet the terms of their sales contract?
2. Logistics Risk
   • For the trader/distributor, will the goods arrive safely, intact and on time to the point of delivery?
3. Settlement Risk
   • For the buyer, will the goods be paid for in full and on time?

What is the importance of legal support?

• Many of the risks faced will involve cross-border transactions with goods moving between different jurisdictions whose laws may be different to the laws governing the underlying commercial contract
• The ability to understand the legal implications and mitigate as appropriate is a necessity. It can be achieved in-house, or by having access to established law firms with a proven specialty in the product or geography concerned

What are the benefits of establishing distribution channels?

• Provides the lender with an outlet for selling assets
• Is a tool for buying assets in the marketplace
• Tool for networking amongst trade practitioners for market information and price trends
• For deals originated by the lender but beyond their risk appetite, it provides the means to bring in participants
• For trade, a dedicated distribution team is recommended for buying into and selling of risk participations in individual LCs, or bid/performance bonds and for arranging any club deals