This week the Trade Finance Market (TFM) platform was launched. The platform provides investors access to an asset class worth over $10 tn pa. Trade finance concerns international trade and the shipment of goods between different markets.
Why is this interesting?
The import and export market is huge (here’s a video on how quickly it’s grown in the last 15 years). On average day around $27 bn of goods are traded overseas. Unlike banks which are restricted to lend due to Basel III, compliance and regulation, TFM will allow investors and funds a high yield and short term opportunity to diversify their portfolios and increase their returns.
How does Trade Finance Market work?
1. Upload
Seller or exporter enters invoice data and trade parameters.
2. Trade
Invoices are sold on Trade Finance Market, confidentially and securely.
3. Settle
Buyer settles the invoice and Funders are repaid with a return, less fees.
Quick, easy, competitive, disruptive
The rise of online platforms such as Trade Finance Market and TradeUp Fund takes custody for the digitalisation of the traditionally paper-based trade finance as well attracting institutional fixed-income investors by providing liquidity in the historically closed trade finance market.
TFM allows exporters to submit their shipping documentation on the goods that they intend to transport onto the online platform to which they can request a finance rate (read more about shipping documentation in our guide here). Investors will fund the exporter invoices for a percentage of the total trade value whilst giving exporters liquidity for up to 120 days and extending credit terms for the importers.
Unlike non-bank trade finance providers, the upfront fees and costs are transparent, and the capital is pooled from investors who will receive a fixed percentage fee. In order to mitigate and manage risks, TFM is insured by an A+ rated credit insurer to underwrite and reduce the risk of transactions (read about risks of transporting and trade finance here). A thorough due diligence process is also in place to ensure transactions are secure and efficient.
It’s clear that digital disruption of traditional trade finance is on the rise, as well as peer-to-peer and pooled investment funds to outcompete banks and larger financial institutions. To find out more about SME export finance, we’ve put together a business guide which outlines the main processes and steps to consider when transacting overseas.
