TRADE FINANCE

Trade finance is the provision of any form of financing that enables a

trading activity to take place.
Trade financing can be given directly to the supplier, to enable him
procure items for immediate sale and/or for storage for future
activities. It could also be provided to the buyer, to enable him meet
contract obligations. Or it could be given to a trader, for on-lending to
his suppliers.

This training program focuses on international commodity trade

finance.

Typical forms of international trade &

commodity finance
The Transaction Chain
Flow of Goods

Trader
Producer

Consumer

Bridge Financing
Pre-shipment Financing
Post-shipment Financing

BANK

Import Financing

Trade finance requirements can be divided into two types: pre-shipment finance and post-shipment
finance. Depending on the length of credit required, financing facilities are offered for short-, medium- or
long-term period. Commodity trading normally require short-term finance which is provided for up to one
year. However, commodities' producers and traders may require medium-term (between one and five
years) or long-term (five years or longer) financing facilities for investment or installation projects and
also for working capital issues.

Evolution
Banks have been involved in international trade since, at least, medieval
times. At that time, the services provided aimed at circumventing risks,
reducing costs and effecting payment in the required currency.
This basic service has undergone remarkable changes leading to banks
now providing a wide range of trade and project finance services to their
customers, using a range of financing instruments.
Much of this change has been due to economic events such as crises in
developing countries and the bankruptcy of major trading firms. These
have, in recent times, precipitated the need for financiers to adopt
innovative, structured financing techniques to mitigate their risk of losses.
A separate chapter will emphasize the role of structured finance and will
explain the various forms of structured finance, using different
approaches.

II.

International trade finance and trade payments

International trade requires international payments, and more specifically, trade payment systems that
make such payments safer for the transaction and for both buyer and seller consequently. This is
discussed extensively in the chapter on trade payment systems. Such payment systems, including
sales on Open account, Cash in advance, Cash Against Documents (CAD) and Letters of Credit (L/Cs) (also
called documentary credits) are not in themselves financing instruments However, they can and often
are used as an element in and supports to trade financing transactions.

For example, cash in advance may be considered a payment mechanism that provide credit to the
exporter since the exporter will receive part of payment prior to shipment, which will enable him to
produce. Moreover, sales on open account may be considered as a payment mechanism that facilitate the
financing of the transaction. On one side, the buyer is receiving the goods from the seller before making
payment, which gives him time to to resell the goods and make payment. On the other side, the open
account lead to trade bills invoices sent by the seller and confirmed by the buyer, with a guarantee by
the buyers bank. These trade bills can be used to generate finance to the seller in several ways. Similarly,
CADs result in confirmations of the buyer that they will pay once they receive certain documents.
L/Cs generally show an irrevocable promise to pay by a buyer once the seller has performed as stipulated
in the L/C, and banks may feel this is sufficient comfort for them to extend a credit to a seller enabling him
to finance his local operations prior to exports. L/C can also be a simple way for importer to obtain shortterm finance where the bank can pay the buyer and keep the documents until full repayment of the loan
by importer. Letters of credit are discussed further in several sections:
1.
2.
3.
4.
5.
6.
7.
8.

Documentary credits as a trade payment system

Types of Letters of Credit
Rules and regulations governing Documentary credit
Letters of Credit as transferable instruments
How to use letters of credit as a financing support
Documents used in Documentary Credit
Guidelines to avoid discrepancies when using Documentary Credit
Standby LC

III.

Tools of international trade finance

In general terms, trade finance can be separated into

pre-shipment and post-shipment finance. Preshipment finance is for the financing of one or more of
the stages in the commodity chain before the actual
export of the commodity (for e.g. financing required to
cover the installation of plant and equipment as well as
the cost of production, packing, storage and
transportation of goods to the port of shipment). Postshipment finance is for the financing of the stages after
the good has been shipped for international transport
while awaiting payment.
For both pre-shipment and post-shipment finance,
banks (and other financiers) have a number of
financing tools in their toolkit. Some forms of finance
are fairly standardized and well-known by banks and
clients alike, others require a more creative, tailormade use of the various tools.

In this section, some of these tools are described - this

is not an exhaustive description, but just describes
some of the key terminology and building blocks for
trade finance. The next section then describes how
these tools are used in various forms of trade finance.

Goods not produced yet

Producer signs export contract
Goods in up-country warehouses
Goods being processed locally

Goods in local transit

Goods in export warehouses

Pre-shipment finance

Post-shipment finance
Goods in transit through 3rd country
Goods stored in transit port
Goods at sea
Goods in import warehouses
Goods in overland transport to buyer
Goods processed by buyer
Goods already sold by buyer

Once an export
contract has been signed,
this contract itself can become
an instrument for a financing.
If it is evidenced by, in particular,
a letter of Credit which guarantees
payment if certain conditions are
met, a bank can then decide to provide
pre-export finance to enable
the seller to meet these
conditions.

Moreover, if the
producer (or processor) has
a convincing track record in
finding overseas buyers, a financier
may decide that this is sufficient
basis to give him an overdraft.
Or one could assign all future
receivables to the bank or a
Special Purpose Vehicle to
create a longer-term
financing.

Goods not produced yet

Producer signs export contract
Goods in up-country warehouses
Goods being processed locally
Goods in local transit

All these phases

can result in documents
which can support
a financing.

Goods in export warehouses

Pre-shipment finance
When goods
are loaded for
international shipment,
Post-shipment finance
the transport agent issues
a railway bill, a bill of
Goods in transit through 3rd country
ladingor a similar document.
Goods stored in transit port
This document acts as a title
Goods at sea
document: one normally
needs it to receive the goods
Goods in import warehouses
from the transport agent on
Goods in overland transport to buyer
discharge. A financier
Goods received by buyer
can thus use it
for security to provide
Goods processed by buyer
post-shipment
Goods already sold by buyer
financing.

Goods not produced yet

When goods are in

a warehouse, warehouse
receipts can be issued as evidence
of their existence. The goods can
also be inspected to ensure that they
meet the requirements of the
contract. Moreover, the
warehouse receipts can be
pledged or transferred
(sold) to the financier,
as security.

Producer signs export contract

Goods in up-country warehouses
Goods being processed locally
Goods in local transit

Goods in export warehouses

Pre-shipment finance

Post-shipment finance
Goods in transit through 3rd country
Goods stored in transit port
Goods at sea
Goods in import warehouses

Goods in overland transport to buyer

By committing proceeds
from future sale to reimbursement,
buyers can obtain finance.

Goods received by buyer

Goods processed by buyer
Goods already sold by buyer

Depending on
the details of the
sales contract, in any
of these phases the goods
need to be paid by the buyer.
The payments due from
the buyer are called
accounts receivable,
and can be assigned
to secure a
financing.

Goods not produced yet

Producer signs export contract
Goods in up-country warehouses
Goods being processed locally

Both exporter
and importer can
assign their portfolio
of account receivables to a
financier, in return for up-front
cash (invoice discounting Factoring). Or they could just
discount or sell the receivables
of specific contracts
(bill discounting Forfaiting).

Goods in local transit

Goods in export warehouses

Pre-shipment finance

Post-shipment finance
Goods in transit through 3rd country
Goods stored in transit port
Goods at sea
Goods in import warehouses

Goods in overland transport to buyer

Goods received by buyer
Goods processed by buyer
Goods already sold by buyer

Banks can
finance processing, using
so-called trust receipts
under which the
processor basically
acts as agent for
the bank.

IV.

Forms of international trade finance

This section describes in brief the traditional forms of pre-shipment and post-shipment
finance, before discussing how other forms of financing can help address particular
problems/risks in these traditional financing forms.
Pre-shipment finance

Pre-shipment finance is meant to enable the exporter the preparation of goods for export.
Banks can provide:

Bank overdrafts (it its the provision of instant credit by a lending institution, i.e. the
amount by which withdrawals exceed deposits, or the extension of credit by a lending
institution to allow for such a situation).

Term loans direct credit facilities (a business loan with a final maturity of more than
one year but normally for less than 180 days, payable according to a specified schedule).

Credit lines (a line of credit is an agreement between a financial institution and a

borrower allowing the latter to access credit up to an agreed amount).

Foreign currency denominated trade facility also referred to as 'off-shore', although

provided locally. By borrowing in the export invoice currency, the exporter creates a natural
hedge i.e. the export proceeds and the loan are in the same currency and therefore there is
no currency risk and no need for forward cover. However, this availability requires
guarantee.

 Short-Term import loans and lines of credit

An importers line of credit is an arrangement to finance one or more contracts to be subsequently entered
into by the same importer and accepted by the bank as eligible.
Lines of credit would typically be granted by local banks which would in turn obtain financing from an
international bank. The latter could be a correspondent bank, sometimes part of the same banking group
than the local bank, and would establish a line of credit available for the local bank to draw on for general
purpose or for a specific loan.
Clean lines of credit are difficult to obtain for commodity importers located in developing countries. Clean
financing is generally limited to borrowers that can be regarded as good credits and, in any case, can be
more expensive than structured finance. When the creditworthiness of the borrower is fair or poor, local
banks would only lend on a secured basis and traditional security (e.g., mortgage on fixed assets) are
typically onerous in more than one respect (for example a mortgage has to be registered or up-date for each
new short-term financing, which is in any case difficult and costly).

Short-term "export" loans and lines of credit

Exporters are more likely than importers to obtain clean line of credit to finance their marketing cycle.
Short-term lines of credit would cover post-shipment or pre-shipment financing needs. But otherwise the
same comments apply as in the case of importers.
Short-term foreign exchange lines of credit can be granted by local banks. [1] The financing can also be
directly between the international bank and the local commodity company. [2]
For example, the same international bank as above extended in 1995 a
US$10 million line of credit directly to South Africa Sugar Association at
a price of LIBOR + 0.875% (excluding commitment fees).
For example, the Zambian subsidiary of an international bank granted
in 1996 a US$1.5 mn cotton input facility to a local cotton producer at
LIBOR +1.5% (excluding arrangement fees).

Pre-shipment finance can also provide:

Open local or international letters of credit to the benefit of the borrowers local or
international suppliers;

Leasing or hire/purchase arrangements (e.g., to finance processing equipment Lease Purchase is a term which is used to describe a type of hire purchase which includes a
final or "balloon" payments at the end of an agreement, thus reducing monthly
rental/repayments).

Can, in several ways, provide advances against future export receivables, or can provide
Guarantees.

Pre-shipment finance is normally disbursed in stages. The bank evaluates the borrowers
production (or procurement, or processing) operations, and fits its financing around the
seasonality of these operations. Each tranche of financing is only disbursed when the
borrower has undertaken certain activities.
Banks prefer to structure pre-shipment finance in such a way that:
they can be sure that the funds that they advance are indeed used for preparing
goods for export; and
the liquidation of the facility is semi-automatic, from export proceeds, or through
conversion to post-shipment finance.

 with
credit/confirmed export orders
Pre-shipment

finance

or

without

letters

of

Generally, pre-shipment finance involves the opening of a L/C, or at least, an export order
that the bank is able to verify (and coming from a buyer whose credit standing he can
verify). There are then several ways to build pre-shipment finance on the basis of the L/C
e.g., it can be as a security to receive pre-financing arrangement (usually up to 80-85% of
the sales value) or through red or green clauses incorporated in the L/C.
Banks may also give pre-shipment finance on the basis of a companys past export
performance. This is called a running account facility. They can be given in the form of an
overdraft or a direct credit (as has been described previously).
One structured finance application that is typically used for pre-shipment finance is prepayment, in which a bank operates through an international trader to finance the
procurement, processing, transport and storage of commodities at origin, prior to exports.
In order to stimulate exports, many governments have programmes that either provide
direct pre-export finance to incumbent exporters, or that provide credit guarantees to banks
that provide credits.

Post-shipment finance
Post-shipment finance can be given to the buyer or the exporter:
It can be given to the buyer who then can promptly pay the seller (buyers
credit). It therefore allows the buyer not to commit his own funds to pay for the
goods until some time after they have been shipped - preferably, until after he has
already sold the goods.
Exporter operate in a very competitive buyer's market and in order to conclude an
export sale, it is critical to offer attractive credit terms to the overseas buyer. Thus,
Post-shipment finance can be given to the seller so that he can sell on deferred
payment terms to the buyer (this is sellers credit).
Post-shipment finance is generally provided against shipping documents, as proof that
the shipment has indeed been made. As the buyer normally takes possession of the
goods before he reimburses the credit, the shipping documents only provide security to
the bank for a limited period, basically while the goods are in international transit.
Post-shipment finance is normally for a short- to medium-term period.

Post-shipment finance the mechanisms

In much of the world trade, suppliers give credit to their

buyers. Much of this credit is negotiable, that is,
transferable from the exporter/supplier to a third party. In
most cases, the debt obligation, commonly referred to as
trade paper, is sold (discounted), enabling the
exporter/supplier to receive payment soon after
shipment.
There are many different forms of post-shipment finance,
however, the most popular is probably bill discounting or
negotiating draft, in which a bank discounts the face value
of a trade bill, paying the exporter a part of this face value.
The bank could also give an advance (a credit backed by
the trade bill), which means that the bill will be used as a
collateral to obtain finance, but because the advance may
cover a smaller part of the face value of the bill, this could
be less popular.

What is a trade bill/bill

of exchange?
In order to create a trade
bill, the following steps are
needed:
1. The exporter issues
(draws) a bill to the buyer
(basically, sends an invoice)
2. The buyer sends the
exporter a confirmation of
his acceptance of the bill
3. The exporter then
endorses the bill to the
bank
4. The bank then adds its
aval (guarantee).
Payment can be on delivery
of the goods (sight draft),
or a certain number of days
after delivery (term
draft).

Post-shipment finance Bill discounting

Bill discounting can be possible both when the exports were executed under a letter of
credit, and when they were made under a documentary collection;
In the case of L/Cs, the bank will ensure that the shipping documents that have been
delivered indeed conform to the requirements of the L/C. Then, assuming that the payment
obligations under the L/C are by a reliable bank from a country for which they have a credit
line, the bank will simply discount the face value of the L/C, applying its standard discount
rate for the time until maturity. Note: Documentary Letters of Credit whether payable upon
presentation of shipping documents or up to 360 days thereafter and other clearly defined
terms, are among the most common negotiable term debt instruments and hold a critical
function in international trade financing.
In the case of documentary collections, the bank will confirm that the export orders are
indeed firm, and that the buyer has a good credit standing. If such is the case, they will then
discount the bill. In documentary collections as with L/Cs, the bank has recourse to the
exporter in case the buyer does not pay.
But there are also other post-shipment finance mechanisms, which may provide the
exporter with non-recourse finance (in other words, the financier bears the risk of nonpayment by the buyer). The exporter could resort to factoring, which does not involve
drafts/bills of exchange; instead, the exporter hands over the full management of his debtor
book to a factoring company, which in turn gives him an advance (i.e. discounting his account
receivables). Or he could use the forfaiting market, for individual transactions/bills. In
addition to L/C, and other negotiable debt instrument, forfaiting includes bank guarantees,
bills of exchange, promissory notes.

Post-shipment finance Bill discounting in in the absence of L/C

Without the use of an L/C, the exporter (beneficiary) can also grant extended payment
terms directly to the importer and generally would issue bills of exchange addressed to, and
accepted by, the importer (drawee and acceptor) who commits to pay on demand, or at a
fixed or determinable future time, a certain sum to the exporter (drawer and, generally,
payee).
Note: Bills of exchange are similar to invoices - the exporter issues a demand for payment to
an importer (or to a guarantor). This is a trade bill, drawn by one commercial party on
another. Once it has been accepted or endorsed by the importer, it becomes a trade
acceptance, which, with a bank guarantee, becomes negotiable.
The claim may also be supported by promissory notes issued by the importer (or buyer)
once the commodity has been accepted. Promissory notes are issued by the importer
directly to the exporter, usually with a guarantee or aval from his bank. Such an aval is
generally essential for making the notes negotiable. The importer pays for this guarantee,
but its cost is in many cases more than offset by the lower interest rates on this form of
credit.
Once an exporter has issued term drafts/bills of exchange or have accepted promissory
notes issued by an importer/buyer, all of which guarantee a payment at some time in the
future from the importer/buyer, he or she can negotiate or discount (sell for less than the
face value) these instruments against cash. In other words, rather than providing credit to
importers out of their own financial resources, exporters do so after having obtained
refinancing from banks or other discounters.

Post-shipment finance Negotiable instruments

There are three major types of such trade paper that can be used as a credit
instrument : bills of exchange, promissory notes and bankers' acceptance. In the case
of bankers' acceptance, the exporter can ask his bank to discount the trade paper, in
which case it becomes a bankers acceptance (B/A).

How to qualify as a negotiable instrument?

To qualify as a negotiable instrument, the trade paper must meet at least three
conditions:
First, the obligation that the buyer has to repay the debt to the exporter/supplier is
absolute, that is without regard to performance of the underlying commercial
transaction on the part of the exporter (or supplier). Nevertheless, the bank which
originally accepts the trade paper will want assurance that the exporter/supplier will
meet, or has met, his or her obligations under the commercial contract, and will
generally disburse funds only after shipment.
Second, the trade paper must be endorsed as non-recourse by each successive
holder, meaning that the obligor remains the importer/buyer and that neither the
exporter/supplier nor the previous holder(s) of the debt is(are) responsible for
effecting repayment at maturity.
Third and last, if the importer/buyer is not widely accepted as a highly creditworthy
counterparty, then a guarantee must be provided by a third party, usually a solid bank
with a record in international trade.

Post-shipment finance Discounting based on documentary collections, risks for the

bank
At times, post-shipment finance is on a documents against payment (DP) basis that is, the
buyer pays, and then receives the shipping documents. But as this mainly covers the financing
of the goods in transit, documents against acceptance (DA) is more common. Here, the bank
has to hand over the shipping documents to the buyer before he receives the payment. The
bank receives a draft from the buyer committing to payment at maturity of the draft. There is,
therefore, a risk of non-payment by the buyer.
To mitigate this risk, banks generally take out export credit insurance (which, however,
generally only covers up to 90% of eventual losses), or can discount the bills without recourse
(e.g., on the forfaiting market).
How can an exporter receive post-shipment finance if he sells his goods on
consignment?
Commodities such as fruits and vegetables are often sold under consignment implying
that they will only be sold once they have arrived at destination. However, exporters can
still obtain bank financing for the commodity during international transport and storage
in the destination country. They will let the bank handle the shipping documents after
shipment, and then, in order to be able to take delivery at destination, sign Trust Receipts
or undertakings with the bank in which they commit themselves to deliver the sales
proceeds to the bank by a specified time.
document against payment - the exporter will release the documents only if the
importer makes immediate payment; also known as sight draft or accept the draft.
document against acceptance - the exporter will release the documents only if
the importer accept the accompanying draft, thereby taking the obligation to pay
over a designated period of time, i.e. 30 days or 90 days; also known as term draft.

In SUMMARY, Pre- and Post- shipment Finance Compared

Pre-shipment Finance
Finance is disbursed prior to shipment
to enable collection of materials for
export.
Involves both performance and
payment risk of the exporter and buyer
respectively.
Source of repayment is proceeds of the
contract.
Relatively a higher risk with higher
costs.

Post-shipment Finance
Finance is disbursed after shipment to
keep exporter in funds pending
payment by buyers.
Involves mainly payment risk of the
buyer
Repayment comes from proceeds of
exports
Risk is lower, especially if buyer is well
known, hence financing cost is lower.

Sources of Trade Finance

Traders (importers and exporters) have over the years relied on

banks to provide them with short or medium term finance for their
operations. Often times though, when banks are not able to support
them due to portfolio or other constraints, there are other sources
of finance available. These other sources are becoming more
prominent in recent times due to the use of modern financing
techniques in trade financing which enhances the risk quality of
loans, thus enabling them meet the risk appetite of many
financiers. The various sources of trade finance are discussed in
the following slides.

Investment
management
companies

Suppliers`
credit

Banks

Governments

Multilateral
financial
institutions

Buyers
Credit
Export Credit
Agencies

1. Suppliers' Credit

A supplier may grant a buyer credit for items supplied. This is possible
especially in circumstances where both parties have had satisfactory
transactions over a reasonable period and developed some form of mutual
trust. Such arrangement, apart from lifting the buyer from the financial
limitations, provide the seller with opportunity to keep his productive capacity
engaged optimally.

2. Banks (local and international)

Much of trade finance comes from the banks either in the form of direct advances to
the traders or through issuing and/or advising of L/Cs especially when they are not
cash collateralized. Banks may also discount bills or drafts held by suppliers, thus
providing them with funding prior to maturity of their instruments.

Banks have to provision against their loans - that is to say, they have to keep a certain
percentage of their loan portfolio in safe assets which may, however, pay little or no
interest rates (e.g., deposits with the Central Bank). Under the Basel agreement, banks
now have to provision 8 percent of their outstanding loan portfolio. Under the new
Basel 2 agreement, which will become operational in 2005, provisioning rules will be
more tailored to the riskiness of individual loans. Banks may then have to provision as
much as 50 percent of their loans to non-investment grade countries. This implies, of
course, that the interest rates they need to charge on such loans will increase strongly
- unless if they find ways to mitigate the risks.

3. Buyer's Credit

It is not unusual for traders to request their customers to make deposits for goods
deliverable at future dates. This is mostly for items scarce in supply or those supplied
by monopolies. Such deposits made by customers enable the trader meet urgent
working capital needs.

A buyer may also grant direct advance to an exporter to enable him obtain materials
for processing and export for his favor. Such arrangement is operated under a
prepayment arrangement and may involve a lender providing funds to an exporter on
the buyers behalf. The funds enable the exporter to gather stocks for processing and
export to the buyer, who then makes direct payment to the lender up to the limit of
the loan and associated interest charges. While the facility is in place, the lender takes
a charge over the stock at the exporters place.

4. Export Credit Agencies

Export Credit Agencies (ECAs) are also very instrumental to credit availability
since they provide necessary guarantees and bonds that enable financiers to
make funds available for trade. The role of ECAs are much more relevant in the
developing economies where unstable governments tend to erode the
confidence of lenders to expose themselves to such markets. Export credit
guarantees do not involve the actual provision of funds to exporters but are
instruments offered by government agencies to safeguard export-financing
banks against losses resulting from the export transactions they finance. In this
way they facilitate exporters' access to credit and are thus powerful incentives
for exporting.
By providing guarantees, ECAs encourage local exporters to venture into difficult
environments with the hope that if payment defaults arise, they would not lose
money. ECAs are owned by governments who use them as instruments to
encourage exports and hence boosting local productive capacities. Notable
ECAs include the US - based Overseas Private Investment Corporation (OPIC)
and Multilateral Investment Guarantee Agency (MIGA), and also Export Credit
Guarantee Department (ECGD) of the United Kingdom, and COFACE of France.

4. Export Credit Agencies (cont'd)

Export credit insurance : A policy to cover one of the riskier areas faced by
exporters i.e. the non payment either due to insolvency of the importer
(commercial risk) or political events (political risk). Export credit insurance is
frequently mentioned in connection with export credit guarantees. However, while
guarantees cover bank export loans, insurance policies are issued in favour of
exporters. In many developing countries, this type of insurance is not available or
too expensive. Several types of export credit insurance are available; they differ
from country to country according to the needs of the business community.

4. Export Credit Agencies (cont'd)

The most widely used types of export credit insurance are the following:
Short-term export credit insurance : Generally covers periods not
exceeding 180 days. Pre-shipment and post-shipment export stages are
covered, and protection can be provided against political and commercial
risks.
Medium- and long-term export credit insurance : This type of insurance is
issued for credits extending for long periods - up to three years (mediumterm) or longer. It provides cover for financing exports of capital goods and
services or construction costs in foreign countries.
Investment insurance : Under this type of policy, insurance is offered to
exporters investing in foreign countries. The Multilateral Investment
Guarantee Agency (MIGA), affiliated to the World Bank, offers this type of
insurance.
External trade insurance : This type of credit insurance applies to goods
not shipped from the originating country and is not available in many
developing countries.
Exchange risk insurance : This type of insurance covers losses arising
from the fluctuation in the respective exchange rates of the importer's and
exporter's national currencies over a determined period of time.

5. Multilateral Financial Institutions

Multilateral financial institutions also play a major role financing trade

especially where such financing advances their mandates of poverty
alleviation and common good of the people. The world bank world balance of
payments support facilities provide the necessary financing window for many
countries thereby enabling trading activities between such countries and the
rest of the world.

6.

Governments

Government involvement in trade sometimes go further than providing the enabling

environment for trade to outright advances for import purposes especially where such
imports are export generative in nature. In some other instances, imports of essential
items such as food and medicines receive direct government support in the form of
advances and/or guarantees.

7. Investment Management Companies

Certain institutions managing portfolios of varying sizes and tenor occasionally

inject some funds into the trade finance market. Such institutions like
insurance companies and pension fund managers take advantage of
instruments like commercial papers to earn quick yields.
Under the Basel agreement, Banks are faced with increasingly stringent rules
on lending to risky countries and clients. In contrast, institutional investors
are not limited by any rules on provisioning, or unduly restrained by country
credit lines. It is therefore likely that the role of investors in trade finance will
increase.