<Attention Job Seekers> Spring Asia does not represent Triterras for our recruitment needs. Click for details.

  • Home
  • Resources
  • Closing the Funding Gap: How Institutional Investors Are Using Trade Finance to Benefit Stakeholders

Closing the Funding Gap: How Institutional Investors Are Using Trade Finance to Benefit Stakeholders

By John Galani

It’s no secret that we live in a world of low yields. Developed market bonds are negative in many cases, and emerging market countries are borrowing at rates they could have only dreamed of a few years ago.

For serial buyers of yield products – institutional investors such as pension funds, insurers and endowments – low yields make it harder for them to meet their liabilities. Even Warren Buffett said in his recent annual letter to shareholders, “bonds are not the place to be these days.”

But for investors who spend their days tackling this problem, a marketplace that’s centuries old is emerging to fill these gaps: trade finance for small and medium-sized enterprises (SMEs).

There exists a $1.5 trillion dollar funding gap for SMEs in trade finance, according to the World Trade Organization. (We think that number is probably higher, but we will save that for another post.) With a global opportunity that large, there is plenty of opportunity to produce meaningful and sustainable yields in an efficient, risk-managed way.

That said, we do not expect the world’s largest pension funds to be setting up their own trade finance desks any time soon. Like any other investment allocation, they will get their exposure through professional asset managers who employ specialists in this line of work.

The Four Layered Pyramid

In the course of our market observations, we are seeing the world’s largest asset managers win mandates from their institutional clients to allocate to multi-strategy credit opportunities. In turn, those asset managers are passing that capital to their structured credit teams, who pass it onto trade finance specialists. That is where Triterras gets involved.

The upside of the trade finance  is that deal durations – what we call tenors – are short-term in nature and yields can be in the double digits. This is especially true in emerging markets where traditional sources of bank capital and US dollars are scarce. The downside, though, is there are few digital marketplaces where borrowers, lenders and structurers can source transactions with each other, verify all parties’ credit and identities, and ultimately fund deals in a timely fashion. Traditional securities markets around the world have had these mechanisms for over 20 years in some cases, but trade finance is a different beast. This is the problem Triterras is seeking to solve by digitizing archaic processes that used to take weeks to complete.

The Curious Case of Australia

There are other structural forces at work preventing institutions from allocating to the trade finance space at significant scale. One example, simply, is the weather.

Prior to the most recent harvest season, Australia suffered four years of drought, reducing yields on its grain crops and lowering profits for farmers. As such, banks that fund the exports of Australian grains have pulled back financing for commodities trading and working capital. This year though, Australia happens to have had a bumper crop year at a time of rising commodity prices. Great for farmers, lenders and suppliers? Not exactly.

The reality is that the banks traditionally financing such trades are not as nimble to easily expand their credit lines seasonally within their internal risk parameters now that the market has come back. Farmers having been battered by a down cycle cannot make up the shortfall.  This funding gap opens up opportunities in a developed economy for trade finance specialists backed by investment funds, whose returns ultimately flow through to their institutional backers.

Being Part of a Holistic Solution

When banks retreated from certain activities after the Global Financial Crisis of 2008-09, investment managers and digital marketplace platforms helped fill funding voids in areas like consumer credit and direct lending to companies. We believe the same phenomenon is about to play out right now in trade finance.

We acknowledge that investment returns derived from our niche – trade finance transactions among SMEs in mainly emerging markets – will not alone solve institutional funding deficits globally. Each institution has its own asset allocation policy, portfolio construction and specific goals to invest towards, and we humbly admit that the risk-reward profile of trade finance may not be a fit for some investors.

But we do see ourselves as a tool in the greater credit investment ecosystem where we can be part of a more holistic solution for these asset owners and their beneficiaries by accelerating the mechanisms of global trade through our platform. Ultimately, many retirements, the funding of social services in developed markets and ESG in commodity exporting emerging ones will depend on it.


Related Articles

FinTech’s Green Revolution: Nurturing Sustainable Practices Among Small Businesses

BY Triterras
Ashish Srivastava, our Triterras' Chief Commercial Officer shares in-depth with Intelligent Fin.Tech, a global technology intelligence platform which gathers the latest financial information, on how FinTech has emerged as a crucial catalyst, motivating and supporting small to medium enterprises on their path towards environmental responsibility through sustainable trade finance.

Revolutionizing Trade Finance with Tech, Collaborations & SME Empowerment

BY Triterras
In an exclusive interview with Dubai Diaries on pages 18 to 20, Ashish shares his thoughts on harnessing new technologies (AI, ML), enhancing user experience of our blockchain platform, forging of strategic partnerships to broaden our global presence, prioritizing client data protection via regulatory compliance, and on how Triterras addresses a key issue that SMEs face in the UAE - impeded access to vital trade finance support which stunts their business growth.

Triterras Announces Collaboration with Card Cutters

BY Triterras
The collaboration agreement with Card Cutters will allow Triterras to directly promote its end-to-end digital lending services to their clients in the UAE; this initiative is a part of Triterras’ larger strategy to partner similar e-commerce and point-of-sale (POS) platform operators to provide such comprehensive financing solutions.

How blockchain is reshaping UAE trade

BY Triterras
Embracing fintech solutions based on blockchain can bring numerous benefits to businesses, such as having access to affordable financing options, enhanced transparency throughout the entire supply chain, being able to tap into a growing ecosystem that supports innovation and entrepreneurship, just to name a few.

Invoice Bazaar collaborates with Cari for financing solutions to Restaurants

BY Triterras
The strategic alliance seeks to introduce Invoice Bazaar’s comprehensive financial solutions to restaurants affiliated with Cari's food delivery platform in the UAE, which will allow them to manage cash flow more effectively, increase their promotional spending on the Cari platform, attract more customers and to stay ahead of their competitors.

How Embedded Finance Transforms Supply Chains, Fuels Unprecedented Growth

BY Triterras
A trailblazer in global finance, Triterras is rewriting the script for UAE's business landscape. Dive into the groundbreaking insights of Vinay Kapoor, our EVP at Triterras, as he shares with Techitup Middle East, a Dubai-based interactive media and content publishing platform for technology and business, on the transformative power of Embedded Finance and how it is reshaping the way businesses operate.

Triterras Collaborates with Oman-based Mamun

BY Triterras
Our strategic alliance with Mamun will allow us to provide short-term lending solution to MSMEs and white-label Kratos, our trade finance platform to the banks in the Sultanate of Oman. We will also be introducing Mamun's direct debit payment technology solution to help ease the handling of business transactions in the UAE.

Revolutionizing Trade Finance: Visionary Dive into the FinTech Landscape

BY Triterras
Srinivas Koneru, Chairman & Chief Executive Officer of Triterras, shares in an exclusive conversation with Dubai Diaries, his transformative vision on how the industry is poised to revolutionize small and medium supply chain financing and offers insights into Triterras’ pivotal role in this financial evolution.

How SMEs can navigate Trade Finance challenges in the UAE

BY Triterras
The backbone of the UAE's economy, SMEs fosters innovation, job creation and overall economic growth. Yet they face challenges in accessing trade finance which hinders their potential impact on the UAE's economic prosperity. How can SMEs then work around these challenges?

World Trade Board launches plan to empower SMEs through trade and finance

MSMEs make up around 90% of businesses globally, but accounted for just 23% of applications for trade finance in 2020. Despite their low representation, these smaller firms made up 40% of rejected trade finance applications. This mismatch between demand for and supply of trade financing known as the trade finance gap, is growing rapidly - from an estimated $1.5 trillion in 2018 to $2 trillion in 2022, and shows no signs of slowing.

The Changing Face of Supply Chain Finance: New Corridors & New Techniques

BY Triterras
Watch Marina Narganes, our Triterras' Head of Distribution & Sales Strategy in action, as she speaks alongside industry experts at the ITFA Conference 2023.

Trade Finance: An Expanding Opportunity For Institutional Investors

BY Cambridge Associates LLC
Trade finance offers a differentiated combination of credit and duration risks, liquidity profile that can complement other portfolio allocations in fixed income and increase diversification. Discussions in the broader ecosystem of trade finance have consistently pointed towards a greater role for institutional investors to provide trade credit through specialized funds, which is expected to expand greatly in the coming years.

Triterras’ e-commerce financing accelerates growth of platform operators & their MSME clients

BY Triterras
With Triterras' E-commerce Receivables Financing solution for the platform's MSME clients, operators and aggregators can now promote a critical solution to a key business challenge that their clients face, create and retain their loyalty, allow clients to increase their spending on platform promotions to boost ranking and staying ahead of competitors.

Trade-finance data needs a centralized repository

BY Euromoney
“A centralized trade-data repository with standardized data formats, has the potential to offer significant benefits to funders, while investing in training programs for skilled professionals will be essential for making improvements in this area,” says Srinivas Koneru, Triterras' Chairman & Chief Executive, speaking to Euromoney. "The trade-finance industry should focus on collaborations to overcome the current limitations of trade-data analysis."

Empowering E-Commerce Microlending: Navigating Opportunities & Challenges

BY Triterras
The rise in online shopping and digital transactions are driving demand for e-commerce and microlending services. Srinivas Koneru, our Triterras' Chairman and CEO discusses with Asia Business Outlook on what it takes to meet the evolving needs of today's consumers.

Trade financing gap is restricting growth and negatively impacting SDGs

In CNBC-TV18's interview with Steven Beck, Head of Trade Finance at Asian Development Bank (ADB), a primary reason for the trade financing gap getting larger is inflation. The global economy is expected to grow at less than 3% and international trade volumes are also expected to fall to less than 1% after a decent growth last year.

The case for a more transparent & liquid market for Trade Finance assets

BY J.P. Morgan
Increased regulation and growth in world trade is sparking a need for trade financing, and there is growing interest in transferring risk from banks to non-traditional sources of capital, such as investment funds with substantial capital and liquidity.

Triterras announces the appointment of Vinay Kapoor to Executive Vice President

BY Triterras
“Triterras is on an exciting and pivotal journey as we endeavor to deliver on our promise to meet the growing demands for financial and business services in the Middle East. Vinay, an extremely well-respected and trusted industry leader with great stature in the business community, will be a great complement to our Leadership team.” said Srinivas Koneru, Chairman & CEO.

New hires to serve growing pipeline of funding opportunities

BY Triterras
Reporting to the Head of Distribution & Sales Strategy, the new hires will engage with institutional investors who are interested in deploying capital for cross-border trade finance opportunities. This comes on the back of Triterras' expansion of its lending portfolio in both emerging and developed markets.

Private Capital Investors in Trade Finance: An Asset Manager’s Perspective

Private capital within trade finance activity comes from a diverse range of participants. Given the widening global trade finance gap, trade finance has increasingly been attracting private capital across the credit spectrum and a range of participation formats. However, there are several factors which have hampered its development as a mainstream subset of private credit.
Scroll to Top
Scroll to Top Skip to content