“Trade finance is there to cater for people who want to move goods, so importers and exporters across borders would be be looking for ways to fund their businesses,” Rand Merchant Bank Holdings structured trade transactor Sarah Warren told CNBC Africa.
“Traditionally, we’ve seen that banks have been the primary player in providing this kind of financing. Slowly we’re seeing new players emerging, and there certainly is reason for people to have an interest in financing these kinds of assets.”
Export trading agencies were the traditional means importers and exporters to access funding.
While they tended to fund longer-term infrastructure projects, they were also particularly crucial during financial crises to support trade in their countries.
Opportunities for investor-driven trade finance are however materialising at a very slow pace.
“[Agencies] have certainly come up with programmes for shorter term lower-value transactions with quicker processing times. We’re also seeing hedge funds having an interest in trade finance assets, even institutional investors like pension funds are certainly looking at the advantages,” Warren explained.
“Up until now, there’s been very little data on what the default rate is, returns, who the players are. That kind of information has been lacking, even the general understanding of the products there.”
Information on the industry is however being reported upon and documented to improve investor and general interest, which has further increased interest in the industry and its finance products.
“If you go to a bank and request them to step between the importer and the exporter, it may be that the exporter doesn’t have sufficient knowledge on the person who’s importing their product, and they’re not willing to take a clean credit view on that counterparty,” Warren added.
“So they look to their bankers to intermediate the transaction and to take that risk on their books.”
There are also various ways in which the transactions can be structured in order to reduce the risk of working with and importers or exporters and their trade.
“There is a cost for structuring these kinds of transactions and the end cost would be, in some cases, filtered into the price that goes to market on that product. You really have to look at the risk-reward appetite,” said Warren.