Technology for Transparency – filling the trade finance distribution gap

The low risk profile of trade finance assets is a reality that has forever been preached from within the sector, yet interest from the general investment community only started recently as a side-effect of the low-yield environment. For one, banks are suddenly having to adapt to the stringent capital requirements put in place to protect consumers in case of another financial crash. On the other hand, the investment community, having been burned by incredibly high default rates during the crisis, yearned for low-risk assets to diversify their portfolios.

We are pleased to bring to your attention a new white paper on this industry challenge, issued by TradeTeq – an ITFA member – in association with ITFA and GTR Ventures.

TradeTeq white paper: Technology for transparency – filling the trade finance distribution gap (login required)

In this white paper, the TradeTeq team looks at two elements that have been blocking the widespread distribution of trade finance as an asset class: one is the lack of reliable technological infrastructure to allow institutional investors to access trade finance portfolios, and the other is the need for standardised reporting to improve credit transparency. Filling these two gaps will push trade finance distribution from isolated one-off practices to an efficient, diverse and competitive marketplace.

Sean Edwards, Chair of the International Trade & Forfaiting Association (ITFA) explains: “Fear is rapidly dissipating from the bank-fintech model and a potentially beautiful relationship is in the offing as banks are increasingly seeking new investors as partners in the trade space, particularly on the funded side. This is a critical area of interest for the ITFA membership and our new ITFA FinTech committee is helping our membership navigate through those new technology propositions.”

Trade finance, which supports annual global trade of US$16tn, is an emerging niche investment area. However, some 30% of global trade, or US$5tn, is under-financed. This trade finance gap presents a growing opportunity for debt and equity investors. While returns from trade have traditionally come from providers of debt capital, the emergence of innovative trading platforms presents a new opportunity for private equity and other investors looking to diversify.

Kelvin Tan, Co-Founder and Chief Investment Officer of GTR Ventures adds: “The supply of low risk trade finance assets, coupled with institutional demand for similar assets which are uncorrelated, should have made distribution common place by now.”

Helping banks establish Trade Finance as an asset class is a market-level ambition that features high on the agenda of ITFA FinTech Committee and that we will debate during the 2018 ITFA Annual Conference taking place between the 4th and 6th of September 2018 in Cape Town, South Africa.

André Casterman, Chair of ITFA FinTech Committee adds: “FinTech companies are introducing new collaborative technology platforms for banks and investors to re-invent their relationships and achieve their respective goals. As adoption grows, banks will succeed to establish trade as an alternative asset class, thereby bringing more financing capacity to their own clients and gradually filling the trade finance distribution gap.”

The ITFA FinTech Committee is launching a roadshow to help ITFA members discover the new technology propositions such as TradeTeq and how the use of data analytics and machine learning offer increased transparency to the buy-side.

We look forward to debating this critical market development with you in Cape Town.