Trade finance is essential for the global trade of goods and services. It enables exporters to complete a financial transaction at any time of the year anywhere, without hesitation. The flexibility that hedging risks taken to complement international trade provides a confidence and extra cushion to exporter. A recent report published by the World Trade Organization (WTO), mentioned that 80% to 90% of world trade was done by utilizing trade finance facilities and this magnitude indicates the industry’s importance.
In times of economic crises, the availability and high cost of trade finance cannot not always ensure safety for continued operations for international businesses. The disastrous fall of the financial system in 2009 shrank trade finance availability, and to keep businesses afloat the G20 agreed to provide USD 250 billion to finance trades to avoid further crisis. Getting caught in such a situation where you cannot find a funder is slow death for the exporters, so every exporter should be prepared to diversify their sources of funding as it is crucial in avoiding damage in periods of economic fallout like the pandemic or economic crash.
In uncertain times banks’ policies and requirements become tougher to negotiate. The traditional form of funding in times of crisis is often unavailable or costs substantially more, which makes it less feasible for exporters, as a result, funding should be diversified and availed from a wide range of sources, in order to et accepted and find the best deal.
After the recent financial crises in 2008-2009, even the biggest financial institutions were not expecting the halt of economic activity we have seen thanks to the pandemic. Exporters who were reluctant to diversify their funding resources suffered immensely from the lack of funding options during COVID-19, and their inclination to stick to the conventional funding sources did not let them prepare for this situation.
To avoid new challenging deals and complex structures of negotiating in times of crisis, the exporters have to broaden their financing and broker pool. The emergence of trade finance and non-conventional forms of alternative financing have proven their importance for all businesses no matter what the financial situations are out there.
Fineon Exchange Marketplace provides deep market intelligence and assesses a client’s risk profile along with their financing needs. The one window operation of the Marketplace, connects exporters and funders to finance their export receivables that does not only make the funding available at a lower cost but eliminates their previously anticipated risks. Availability of funds, security against all sorts of fraud, transparency of the deals, and flexibility put us a step ahead of the conventional form of funding sources.
